ProdukHukum BankIndonesia

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GREEN FISCAL POLICY TO

COMBAT CLIMATE CHANGE

By Emil Salim

University of Indonesia, Jakarta

emilsalim2002@yahoo.com

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SUBSIDIZED GROWTH

1. Fossil-fuel energy based economic growth has polluted global air beyond nature’s

absorptive capacity leading to climate change; 2. Economic growth guided by market prices fails

to capture air pollution and environment costs; 3. Global air as public good has no market price

and no global governance to manage;

4. Fossil fuel is an exhaustible non-renewable

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DISTORTED ENERGY PRICES

1.Subsidized fossil fuel price promotes small number passenger carrying private vehicles instead of mass public transportation, highways rather than railways, sub-urban development, energy intensive industries, energy with growth linked policies, low commitments to global conventions and agreed protocols;

2.Non-renewable energy ignores resource depletion costs, finite time frame, pollution costs, impacts on health and sustainability of development;

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BURSTING

ENERGY AND FOOD CRISIS

1. Limited fossil fuel supply facing sharp increase of global demand for growth, give steep price increase above 2007 level in 2008 and beyond; 2.Substitution to subsidized bio-fuel raises the

opportunity gains from soil-based food

production. Forests conversion increases for

bio-fuel from palm-oil, Jatropha, corn plantation; 3.Bio-fuel exports to developed countries went up

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MARKET FAILURE

1.Market failure is the main cause of eco-system destruction, climate change, energy-food crisis; 2.At the global level market failure is perpetuated

by the absence of independent global

institutions to develop market corrections;

3.At the national level market failure prevails with subsidized energy in conventional growth

without any considerations on pollution costs; 4.Market failure has locked conventional market

economy in an unsustainable pattern of

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ECO

-

_-

FRIENDLY GROWTH

_{FRIENDLY GROWTH}

1. Development uses nature as resources and

waste sink within network of eco-systems;

2. Eco-systems obey the law of equilibrium, interdependency and sustainability among nature’s components in its network;

3. To sustain development, resources are used within nature’s carrying capacities and waste created within nature’s absorptive capacities;

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GREEN FISCAL POLICY

The notion of Green Fiscal Policy is to correct market failures by applying:

1. Pollution tax (Malaysia palm-oil pollution tax);

2. Subsidies to reduce costs & induce growth of special product (Japan wind-energy subsidy);

3. Marketable permits to pollute below an agreed threshold (Clean Development Mechanism in cap-and-trade system of Kyoto Protocol) ;

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BASIC NOTIONS OF

GREEN FISCAL POLICY

1. Shifting away levies from items that are valued highly by society (manual work, intellectual

creativity) to undesirable items (pollution);

2.Tax-subsidies to correct distortions (taxing private for subsidizing public transportation, taxing fossil fuel to subsidize wind energy);

3.Environmental service user pays the provider (down-stream river user pays upstream river people to prevent sedimentation);

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INTEGRATING

DECENTRALIZED POLICY MAKING

1. Provinces & Districts are autonomous to impose levies on natural resources with Central Government’s approval.

2. Spatial planning and environmental impact analysis can integrate subjects for levying taxes on resource use with a vision of

reaching Millennium Development Goals through sustainable development;

3. At the global level international institutions must enable countries to pursue their

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THE GLOBAL CONTEXT

1. Climate change as a global issue must be tackled by developed and developing countries together;

2. Developed countries have the obligation to reduce internally green-house gas emissions by applying green fiscal policy to prevent climate change;

3. Developing countries need poverty alleviation

through sustainable development with co-benefits of reducing GHG emissions assisted by technology

and resource transfer from developed countries;

4. In global context developed countries tax internally within their own borders mitigating costs of climate change and subsidize externally developing

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REFERENCES

1. Michael Common and Sigrid Stagl, Ecological Economics, University Press, Cambridge

2005;

2. John Asafu-Adjaye, Environmental Economics for Non-Economist, World Scientific

Publishing Co., Singapore, 2005;

3. Jennifer Rietbergen-McCracken and Hussein Abaza, Economic Instruments for

Environmental Management, UNEP, 2000;

4. Worldwatch Institute, State of the World 2008,