Potential impact of introducing emission mitigation policies in Indonesia: how much will Indonesia have to spend?

Abstract

Under the Nationally Determined Commitment (NDC), Indonesia voluntarily reduces GHG emission by 29% compared to the BAU level in 2030. While the national economics itself is still growing and advancing, the mitigation policies are expected to slow down the economy at some level. This study is trying to examine the potential impact of the emission mitigation policies on the Indonesian economy by utilizing a dynamic computable general equilibrium (CGE). The simulation result showed that the implementation of comprehensive mitigation technology would cause a GDP loss of around 1.7% by 2030 compared to the BAU level. If we look at the sectoral GDP, the agriculture sector is projected to experiencing the most significant shock by the emission mitigation policies (− 13.4% compared to BAU level by 2030). But the energy sector might become a sector experiencing higher GDP under the mitigation action (3.5% compared to BAU level by 2030). It also showed that the utilization of renewable energies for power generation would increase significantly, especially after 2025, but still cannot fully replace the dominance of fossil fuel sources. There are several policy recommendations based on our simulation results, including that the government also needs to increase efficiency in using fossil fuels, especially coal and gas, during the process of building infrastructure for renewable energy utilization. In terms of employment, the government needs to prepare other sectors to absorb labor, especially from the agricultural sector. Another crucial thing is that considering the possible economic impact, especially in the mid-term period, the government needs to implement necessary mitigation policies immediately. Otherwise, the government may need to prepare more expenditure to introduce more technologies and policies in the future.