Indonesia to establish $1bn climate fund

Indonesia, the world's third largest greenhouse gas emitter, has announced plans for a $1bn fund to invest in emission reduction projects across the country.

Last year, Indonesia made a high profile commitment to cut its greenhouse gases by 26 per cent against business as usual levels by 2020, and the government is now putting in place a number of policies to help meet the target.

Central to the initiative will be the new Indonesia Green Investment Fund, which will initially backed by $100m from the Government Investment Unit, a sovereign wealth fund which will also manage the new fund.

Edward Gustely, a senior adviser at the Ministry of Finance in Jakarta, told Reuters that the plan was to have the fund operational before the end of the year, adding that "there's no reason why this can't, in the next five years, scale to $5bn or more".

The fund is expected to raise the remaining $900m from institutional investors and governments from industrialised nations that have pledged to fund low carbon projects in developing countries.

Gustely said the fund will offer top-up funding needed for projects where a bank lender is seeking an additional equity injection. "We would come in and play a catalyst role to ensure good projects with good asset quality, with good expertise and proper management, can be deployed and proceed," he explained.

The fund will invest as much as $80m in each project, according to its marketing material.

Deforestation and forest degradation account for more than 83 percent of Indonesia’s carbon emissions, according to WWF, and the fund is expected to largely focus on projects designed to curb deforestation through improved agriculture techniques and reforestation programmes.

Indonesia last year became the first country to launch a legal framework for the UN-backed Reducing Emissions from Deforestation and Degradation mechanism, which aims to integrate forest protection projects into the carbon market, allowing them to generate revenue by issuing carbon credits.