Green Economy Priority Sectors in Indonesia: A SAM Approach

Transcription

1 Green Economy Priority Sectors in Indonesia: A SAM Approach Lilia Endriana BPS-Statistics Indonesia Djoni Hartono Graduate Program in Economics, Faculty of Economics, University of Indonesia Picture is downloaded from

2 outline Introduction Literature Review Motivation Data and Methodology Findings and Discussion Conclusion

3 What is green economy? introduction In its simplest expression, a green economy can be thought of as one which is low carbon, resource efficient and socially inclusive (UNEP, 2011) ECONOMIC ASPECT SOCIAL ASPECT ENVIRONMENTAL ASPECT

4 INTRODUCTION Indonesia: Low Carbon? CO2 emissions (kg per 2005 US$ of GDP), excl. Land use change World United States Thailand Singapore Malaysia Korea, Rep. India Indonesia China Brunei Darussalam Brazil Australia Source: WDI database

5 Indonesia: Resource Efficient? Natural resources depletion (% of GNI), 2011 World United States Thailand Malaysia Korea, Rep. India Indonesia China Brazil Austria INTRODUCTION Source: WDI database

6 INTRODUCTION Indonesia: Socially Inclusive? Income Percapita ($) Blue line: Economic Growth Red line: Gini Ratio Source: BPS

7 Why Inequality Matter? INTRODUCTION Inhibit growth and cause costly policy of income redistribution (Alessina and Rodrik, 1994). Adverse impact on social cohesion and political stability (Renard, 2002;. Knight, Li, and Song, 2006). Cause economic inefficiencies and undermine social stability (Todaro and Smith, 2008). Closely related to the level of sustainability of development (Bonnefond and Clement, 2011).

8 introduction Source: BPS, Pusdatin ESDM, WDI database LHS: RHS: Economic Growth Natural Resources Depletion Level Gini Ratio Emissions Where are we (Indonesia)? o CO2 emission continuously increase o Natural resources depletion level is still higher than the world average level (6.6% of GNI Vs 2.6% of GNI) o Positive economic growth but with larger income disparity (Gini Ratio increase from 0.36 in 2009 to 0.38 in 2010)

9 INTRODUCTION Green Economy in Indonesia Pro-poor (poverty alleviation); Pro-Jobs; Pro-Growth (ministry of environment, 2012) Added by Proenvironment (ministry of environment, 2012) Integrating climate aspects in other policies National Development Planning: Indonesia Responses to Climate Change RPJMN (Bappenas, 2008) Establishment of the Law no 32/2009 on Environmental Protection and Management The use of economic instrument to achieve sound environmental management without sacrificing economic growth (Schlegelmilch, 2011) Indonesian Climate Change Sectoral Road Map (ICCSR) The National Action Plan (RAN-GRK) sets out more details on how the 26% reduction will be achieved by 2020 (Bappenas, 2010) GHG Emission reduction by 26% Reduced biodiversity loss

10 INTRODUCTION Green Economy - Context of Indonesia Green economy emphasizes the environmental dimension of Sustainable Development; Sustainable development itself has three dimensions: economic, social, and the environment.

11 INTRODUCTION Green Economy - Context of Indonesia Different emphasis Social inclusion need to be prioritized Reason: The rapid increase in per capita income has not been followed by the reduction in income inequality The growth of poverty reduction has been slowing down Indonesian economic development has not been following some necessary principles of green economy Indicators such as Green GDP, both nationally and regionally still consistently suggest that Indonesian economy is not on its sustainable path The rapid increase in per capita income has been fueled by massive liquidation of its natural resource and environmental assets Source: Report G, Nov 2011

12 Literature review Many previous studies have analyzed priority sectors in Indonesia. However, the analysis still partially focused on one or two aspects of green economy. Economic Growth and CO2 emission: - Golley and Meng (2012), Zhang and Cheng (2009), Condoo and Dinda (2008) econometrics. - Kerkhof, Nonbehel and Moll (2008), Roca and Serrano (2006), Murthy, Panda and Parikh (1997) Input-Output (IO) Model. - Duarte, Mainar and Sanchez (2012), Pal, Pohit and Roy (2011), Parikh et al. (2009), Duarte, Mainar and Sanchez (2009), Sanchez, Duarte and Mainar, (2006) Social Accounting Matrix (SAM) model.

13 Literature review Income Distribution: - Pieters (2010), James and Khan (1997), Khan and Thorbecke (1989) Social Accounting Matrix (SAM) model. Focusing on Indonesian Economy: # Economic Growth and Income distribution: - Zulfachri (2006), Hidayat (2007) econometrics - Huriah (2012) SAM model # Economic Growth and CO2 emission: - Handayani (2006), Asri (2010) IO model

14 o The Government of Indonesia (GoI) should focus their public investment on priority sectors which satisfy green economy concept. o However, studies on Indonesian priority sector did not comprehensively capture green economy criteria. o This paper contributes to fill the gap by: motivation 1. Developing Energy Social Accounting Matrix (ESAM). 2. Using three SAM-based-indicators in order to identify green economy priority sectors.

15 Data and methodology o This paper uses Energy Social Accounting Matrix (ESAM) based on Indonesian SAM 2008 o ESAM consists of the detailed description of energy sectors and household deciles groups based on income (in urban and rural). o Detailed energy sectors consist of Coal, Oil, Gas, Geothermal, Gasoline, Kerosene, HSDO, LPG, Electricity hydro, Electricity non-hydro, City Gas.

16 Data and methodology Three SAM-based-indicators in the analysis Output Multiplier Index (IPO) It is calculated by summing all multiplier coefficients for each sector, then dividing by total multiplier coefficients in order to construct indexes. IPO n n i 1 j n n i 1 j 1 aa ij aa ij Emissions Multiplier Index (IPE) It is calculated by firstly summing emissions multiplier coefficients in the column of sector. Then, we construct an index by dividing an emissions multiplier for each sector by total. IPE n n i 1 j n n i 1 j 1 ij ij Theil Index (T) Two Theil indexes are calculated: T 0 and T 1. T 0 is a baseline Theil index (before the simulation) and T 1 is a Theil index after the simulation. In the simulations, we assume 10 percent increase in the output of sectors partially. T k k k k Y ij Yij Y ln i i k Y nij n

17 Data and methodology o Categorization of Sectors based on 3 Indicators

18 Findings and Discussion Output Multiplier Index (IPO) by sector o Four sectors that have the highest IPO are energy-related sectors, namely kerosene sector, gasoline sector, electricity non-hydro sector and HSDO sector. o However, this figure only give us information on economic aspect and ignore two other aspects (social and environmental) in terms of green economy criteria.

19 Findings and Discussion Emission Multiplier Index (IPE) by sector o Sectors whose growth result the lowest CO 2 emissions level are oil sector and geothermal sector. Moreover, both sectors also use inputs from other sectors that emit relatively low CO 2 emissions. o In contrast, electricity non hydro sector is a sector that has the highest CO 2 emissions.

20 Findings and Discussion Theil Index by sector o If we consider Income Distribution, three sectors that are able to reduce the income inequality as its output increase are food crops sector, food, beverages and tobacco sector, and paddy sector. o In contrast, public services sector, bank and insurance sector, and real estate and business services sector will widen the income gap as its output increase. o Again, it still not capture all aspects of green economy

21 Findings and Discussion Green Economy Indicators by sector

22 Findings and Discussion o 10 out of 11 green economy priority sectors are agriculture-related sectors. o These results imply that the agriculture sector has an important role and proper to be further developed in Indonesia. o However, this study do not consider the efficiency of the land use.

23 Findings and Discussion o An increasing output of public sector will widen income inequality both between regions (urban and rural) and within a region. WHY? Public facilities are normally centralized in an urban area workers are mostly dominated by urban households. o Trade sector and land transportation sector use HSDO and gasoline as it main source of energy CO 2 that is emitted will relatively high.

24 Conclusion o The paper identifies eleven sectors that satisfy all three criteria of a green economy concept and ten sectors that satisfy two criteria of a green economy concept. o Several strategies that can be taken to develop Indonesian green economy priority sectors (i) accelerating agriculture productivity improvement through superior seeds varieties program, credit for farmer, increasing farmer wage, and optimization agriculture cooperatives and farmer groups (ii) developing agriculture-based industries in rural areas that can create new employments for rural households.

25 o The GoI should reform public sector since this sector satisfies two criteria but has a potential to widen income inequality. HOW? Several strategies can be taken: Conclusion (i) increasing number and the quality of educational facilities (schools), health facilities (hospitals) and other social facilities in rural areas; (ii) creating better access to educational facilities, health facilities and other social facilities for poor households. o Sectors that can be the driving force of output growth and improve income equality should be encouraged to participate in CO 2 emissions reduction program. For example, firms or businesses should conduct fuel conversion program and or apply energy efficiency improvement program. o Productivity improvement program through R&D activities should

26 Conclusion o Productivity improvement program should be applied to sectors that satisfy two criteria but have small output multiplier. Those sectors should adopt better technology and conduct more research and development (R&D) activities.