Why Does Global Climate Finance Only Find Its Mark in East Kalimantan?
The Strait of Hormuz Crisis and Indonesia's Energy Independence
Tensions in the Strait of Hormuz are shaking global energy markets. Around 20% of the world's oil trade passes through this corridor. Every threat of disruption immediately pushes oil prices higher and triggers market volatility. The effects are quickly felt in Indonesia: pressure on energy subsidies, the rupiah exchange rate, and inflation. The Indonesian government has already responded by reintroducing work-from-home (WFH) arrangements for civil servants and issuing calls for energy conservation to stabilise domestic fuel consumption. Indonesia still imports a portion of its crude oil, fuel, and LPG needs. Data show that Indonesia's oil and gas trade balance has remained in deficit in recent years due to high energy imports (BPS, 2023). This means that every surge in global prices automatically burdens the state budget and, ultimately, the public. The situation points to one thing that can no longer be ignored: our national energy system remains vulnerable to external factors beyond our control.
The constitutional mandate is clear. Article 33 of the 1945 Constitution affirms that natural resources must be managed for the greatest possible prosperity of the people. Energy is a strategic sector. If its stability is heavily determined by global geopolitical dynamics, then energy sovereignty has not yet been fully realised. Regulatory foundations are also in place. Law Number 30 of 2007 on Energy requires sustainable energy management and promotes an increased share of New and Renewable Energy (NRE). Targets are enshrined in Government Regulation Number 79 of 2014 on National Energy Policy, with NRE set at a minimum of 23% by 2025 and 31% by 2050. The implementation roadmap is laid out in Presidential Regulation Number 22 of 2017 on the General National Energy Plan (RUEN). Yet reality still lags behind the targets. The latest data show that Indonesia's NRE mix in 2025 stood at around 15%–16%, an improvement on the previous year but still below the 23% target set in the National Energy Policy (Ministry of Energy and Mineral Resources, 2025). Installed renewable energy capacity has also exceeded 15 GW, with the largest contributions coming from hydropower, geothermal, and bioenergy (Ministry of Energy and Mineral Resources, 2025).
On the other hand, national final energy consumption continues to rise, particularly in the transportation and industrial sectors (BPS, 2021), while domestic oil production remains on a downward trend compared with the previous decade (Ministry of Energy and Mineral Resources, 2023). In other words, structural dependence on imports cannot yet be avoided. The crisis in the Strait of Hormuz must be read as a policy alarm. As long as Indonesia remains dependent on fossil energy supplies that pass through global shipping lanes, domestic economic stability will always be sensitive to external conflicts. Diversifying supplier countries alone is not enough. What is needed is a transformation of the energy system based on domestic potential.
Indonesia has the strong foundations to achieve this. The palm-oil-based biodiesel programme, which has reached the B35 blend and is being prepared for B40, has demonstrably reduced diesel imports and helped sustain the oil and gas trade balance (Ministry of Energy and Mineral Resources, 2023). The consistent implementation of the biodiesel programme has reportedly saved billions of US dollars per year in foreign exchange through fuel import substitution (Ministry of Energy and Mineral Resources, 2025). However, the forward strategy must not stop at first-generation feedstocks. The development of second-generation feedstock-based biofuels must be accelerated. Their raw materials come from agricultural residues, forestry waste, non-food biomass, and used cooking oil. The key advantage is clear: these sources derive from waste or by-products and therefore do not require additional land clearance (IEA, 2022). This means green energy production can increase without driving deforestation or widening land-use conflicts. The energy transition must not create new environmental problems. This approach simultaneously strengthens the circular economy. Waste that previously held no value can become a source of energy and added value. Processing industries develop domestically, jobs are created, and pressure on foreign exchange from energy imports is reduced. Beyond bioenergy, the development of methane gas also carries strategic urgency. Indonesia holds biogas potential from palm oil mill effluent (POME), livestock waste, and urban organic waste. Harnessing methane not only generates energy but also reduces greenhouse gas emissions, given that methane has a global warming potential approximately 28–34 times greater than carbon dioxide over a 100-year horizon (IPCC, 2021). The government has also begun promoting biomethane development and landfill gas utilisation as part of the energy sector's decarbonisation strategy (Ministry of Energy and Mineral Resources, 2025). Beyond bioenergy and biogas, Indonesia's potential for solar, geothermal, and hydropower is enormous. The total technical potential of national solar energy is estimated at more than 3,000 GW, making it the source with the greatest potential in Indonesia (Ministry of Energy and Mineral Resources, 2023). Yet installed solar power plant capacity remains relatively small compared with this potential. The gap between potential and realisation is what must be urgently addressed through accelerated investment, regulatory reform, implementation of the green electricity supply plan (RUPTL), and price certainty that is attractive to the private sector. The energy transition does indeed require costs and policy consistency, but the cost of dependence is far higher. Every oil price surge caused by global conflict forces the state to increase subsidies or adjust domestic prices. Fiscal space that should fund education, health, and productive infrastructure is absorbed in dampening energy shocks. Energy independence is a macroeconomic stability strategy and a matter of national sovereignty. The Strait of Hormuz crisis shows that geopolitical risks will always exist. Indonesia cannot control global conflicts, but Indonesia can control the direction of its own energy policy. The constitutional mandate exists, policy targets have been set, and resource potential is available. What is needed now is acceleration and the resolve to make decisions. Without it, every global crisis will continue to become a domestic burden. With it, Indonesia can make green energy, methane gas, and domestic feedstocks the foundation of long-term economic sovereignty.
The High Cost of Delaying Climate Adaptation at the Regional Level
Climate change is no longer a global issue distant from local reality. It manifests as floods that destroy infrastructure, droughts that reduce harvests, coastal erosion that strips away settlements, and extreme weather that disrupts economic activity. Data from the National Disaster Management Agency show that more than 90% of disasters in Indonesia over the past decade have been hydrometeorological in nature (BNPB, 2024). In 2023 alone, 3,544 disaster events were recorded, and nearly all occurred at the district or city level. The implication is clear: climate change is a regional problem. Yet the challenge lies not only in the frequency of disasters but in their fiscal and economic consequences. When floods damage roads, bridges, schools, and health facilities, local governments are forced to redirect development budgets toward emergency response and rehabilitation. Expenditure that should be productive becomes reactive. A World Bank study estimates that economic losses from flooding in Indonesia could reach 2%–3% of GDP per year under extreme climate scenarios (World Bank, 2021). The bulk of the response burden falls on regional governments. This is precisely where the urgency of mainstreaming climate change adaptation into planning documents becomes critical. Without systematic integration into long-term regional development plans (RPJPD), medium-term regional development plans (RPJMD), and annual regional government work plans (RKPD), adaptation policy will remain a sporadic add-on rather than a structured development strategy. As a result, climate risk is never truly factored into public investment decision-making.
The experience of coastal areas along the North Coast of Java illustrates the real consequences of planning that has not fully integrated climate risk. The city of Pekalongan suffers tidal flooding almost every year; parts of the city are affected by permanent inundation, forcing the relocation of residents and disrupting economic activity (BPS Kota Pekalongan, 2023). Brebes Regency faces seawater intrusion that reduces the productivity of coastal agriculture (KLHK, 2022). Demak Regency experiences coastal erosion and land subsidence that threaten settlements and infrastructure (Bappenas, 2021). When these risks are not incorporated from the outset into spatial planning design, infrastructure development, and economic strategy, public expenditure becomes costly and repetitive.
The problem is that many regions still treat climate change adaptation as an environmental issue alone, rather than as a fiscal and development issue. Yet adaptation is a risk management strategy. Every rupiah invested in reducing vulnerability lowers the potential for future losses. The OECD and the Global Commission on Adaptation have shown that every US$1 invested in adaptation can generate economic benefits of US$4–US$10 through avoided losses and improved economic stability (OECD, 2022). Furthermore, the national policy framework has in fact already provided adequate space for integrating this agenda. Law Number 1 of 2022 on Fiscal Relations between the Central Government and Regional Governments (HKPD) promotes performance- and outcome-based budgeting. This approach opens the door for regions to incorporate climate resilience and disaster risk indicators as part of their development performance targets. Adaptation therefore need not stand alone; it can be integrated into basic service indicators, infrastructure resilience, and economic productivity. Financing support is also increasingly accessible. The Environmental Fund Management Agency (BPDLH) provides environmental financing schemes that can be accessed for ecosystem rehabilitation, environment-based performance programmes, and low-carbon initiatives (BPDLH, 2023). With these fiscal and institutional instruments in place, the argument that financing constraints justify delaying the integration of adaptation into planning is becoming increasingly difficult to sustain.
What is more concerning is not the absence of instruments but the delay in acting. Delayed mainstreaming of adaptation creates compounding costs. First, recurring fiscal costs resulting from development patterns that are not risk-resilient. Second, economic costs in the form of lost productivity and reduced investment attractiveness. Third, social costs manifested as growing vulnerability among the poorest communities, who are the most exposed to disasters. The cost of inaction is far greater than the cost of adapting. When risk has already become a crisis, the space for policy narrows and options become limited. Regions are forced to respond under emergency conditions rather than within a strategic planning framework. Adaptation carried out in haste is almost always more expensive and less effective than adaptation designed from the outset.
Mainstreaming climate change adaptation is not merely about fulfilling national or international commitments. It is a strategy for protecting fiscal sustainability, maintaining local economic stability, and ensuring that the quality of basic services is preserved amid climate uncertainty. Adaptation must shape the way regions set spending priorities, define performance indicators, design spatial plans, and determine the direction of investment. If the future of Indonesia's development rests on the strength of its regions, then regional resilience to climate risk is the primary foundation. Climate change adaptation is not an optional addition to planning documents , it is a prerequisite for sustainable growth. Regions that delay will face far heavier consequences, while those that mainstream it are preparing themselves to survive and thrive in a changing world.
The Coal Boom, an Economic Time Bomb: Reflections from East Kalimantan
For more than two decades, East Kalimantan has been one of the primary pillars of national coal production. The structure of the province's Gross Regional Domestic Product (GRDP) shows a consistent dominance of the mining and quarrying sector, accounting for roughly one-third to more than 40% of the total in recent periods (BPS, 2023). On the export side, dependence is even more pronounced, with coal commodities dominating the value of regional exports (BPS, 2023). This pattern confirms that mining is the primary base sector sustaining inflows of income from outside the region.
In the framework of regional economics, base sectors play a strategic role as drivers of broader economic activity through the multiplier effect. However, when the base sector is overly concentrated in a single commodity that is heavily subject to global price volatility, the economic structure becomes fragile. Experience across coal price boom-and-bust cycles has shown how East Kalimantan's economic growth is highly sensitive to international market dynamics. When prices surge, growth rises significantly; when prices fall, a slowdown is quickly felt across downstream sectors. This kind of dependence is not merely a matter of short-term fluctuations, it concerns long-term structural risk. The global energy transition agenda and increasingly firm commitments to carbon emission reductions have the potential to suppress coal demand over the medium and long term (IEA, 2022).
Reports from various energy institutions indicate that while coal continues to be used, global investment trends are shifting toward renewable energy and low-carbon technologies. For regions dependent on fossil commodities, this shift is not merely an environmental issue, it is a question of economic sustainability. These risks also carry implications for regional fiscal resilience. A significant portion of regional revenue and fiscal transfers is closely tied to extractive activity, both through revenue-sharing funds and their indirect economic effects. When revenue from this sector declines, fiscal space contracts and the capacity to finance public services comes under threat (Ministry of Finance, 2022). Without robust alternative sources of growth, regions may face significant fiscal pressure. This is precisely where the urgency of diversifying the base sector becomes critical. Diversification is not simply an effort to expand the list of economic sectors, it is a strategy for building a more stable and sustainable foundation for growth. Regions need to develop sectors with strong backward and forward linkages, create more diverse employment, and increase domestic value addition. The momentum of building the new national capital at Nusantara should serve as a catalyst for this structural transformation. Yet this opportunity will only reach its potential if accompanied by mature economic planning. Without a targeted diversification strategy, large-scale development risks creating merely a short-term spike in activity without fundamentally altering the economic structure.
What must be emphasised is that base sector diversification must not be left too late. The history of many resource-dependent regions shows that when the primary commodity begins to weaken, the adjustment process can be extremely painful: rising unemployment, declining investment, falling regional revenues, and prolonged economic stagnation. The fiscal and social costs of such delay are often far greater than the investment costs of transforming early. Delaying diversification is equivalent to allowing a region to remain trapped in structural dependency. As global pressures intensify and markets shift faster than policy readiness, regions will be forced to adapt in conditions of crisis rather than in conditions of planning. In such a situation, policy space narrows and strategic options become limited.
The reflections from East Kalimantan therefore offer an important lesson for all extractive regions in Indonesia. Dependence on a single base sector can indeed produce high growth during certain periods, but it does not guarantee long-term resilience. Diversification must be deliberately designed through regional industrial policy, strengthening of human resource capacity, reformulation of fiscal incentives, and the development of non-extractive sectors with sustainable prospects. Economic transformation is not an option that can be deferred until a commodity loses its appeal. It is a strategic investment to ensure that growth is not merely high, but also stable, inclusive, and resilient to external shocks. If regions fail to prepare base sector diversification now, the consequences will be severe, and ultimately, it is the communities and future generations of those regions who will pay the price.
Why Does Global Climate Finance Only Land in East Kalimantan?
Indonesia has only one sub-national REDD+ programme signed through the World Bank's Forest Carbon Partnership Facility (FCPF). The value of that climate fund reaches US$110 million for the reduction of 22 million tonnes of carbon emissions, covering 12.7 million hectares. This remarkable project covers just one province: East Kalimantan. The FCPF documentation explicitly describes East Kalimantan as "an example for other sub-national governments in Indonesia."
Yet more than five years after the signing of the Emission Reductions Payment Agreement (ERPA) in 2020, not a single other province has followed East Kalimantan's lead. This seems to reinforce the bold claim that "East Kalimantan is the province that succeeded" in reducing carbon emissions from its natural resource wealth. But the question remains: why does that "success" exist only in East Kalimantan?
In this situation, we often hear a reading, from the media, from bureaucrats' statements, from field visits, that East Kalimantan is Indonesia's climate leader province, and the Regional Council on Climate Change (DDPI) is proof of that leadership. If one asks why this narrative has emerged, the answer seems simple: because East Kalimantan is more aware, more visionary, and more advanced than other provinces.
However, I read this narrative as insufficiently robust when subjected to a comparative test. If climate awareness were the explanation, we should expect to see similar institutions emerging in provinces with comparable conditions. West Papua declared itself a conservation province in 2015, becoming the first in the world to do so. This was an enormously significant stepping stone, an ambitious subnational climate initiative.
Aceh, moreover, has years of experience with post-tsunami REDD+ programmes. The Ulu Masen initiative is evidence of that. So too is the Aceh Green movement developed during the governorship of Irwandi Yusuf (2007–2012), aimed at improving Aceh's economy and environment, and supported by Merrill Lynch and Flora and Fauna International to the tune of US$9 million.
Looking at the pattern, both provinces meet the basic prerequisites said to be necessary: forests, vulnerability, and experienced political elites. Yet what followed was not the emergence of a strong, independent institution dedicated to climate change, neither in West Papua nor in Aceh. No FCPF ERPA was signed for their jurisdictions.
What is striking is not only the absence of a DDPI in these provinces, but also the absence of equivalent international recognition. The Aceh initiative collapsed; West Papua's declaration did not crystallise into a binding climate institution. Two provinces with different trajectories, yet both ending up in the same place: without a subnational climate institution equivalent to the DDPI, without an FCPF ERPA, without the "climate leadership" spotlighted by the world. To understand more deeply why this did not happen in other provinces, the explanation must be sought elsewhere.
In a study by Gaikwad, Genovese, and Tingley (2025), a pattern was found that runs counter to intuitions of justice: green funds do not flow to the jurisdictions most vulnerable or most in need, but to those most ready to receive them.
"Readiness" here is not a moral or ecological measure. It is a bureaucratic one, whether there is a formal institution serving as a contact point, planning documents that use international terminology, and a verifiable track record of cooperation. From the donor's perspective, the logic is rational: they want to manage their own reputational risk. But the political consequence is significant: the flow of climate capital follows the distribution of institutional capacity, not the distribution of vulnerability.
When this lens is applied to the Indonesian case, East Kalimantan is no longer an anomaly. The province won the ERPA not because it was most in need, but because it was the only province in Indonesia to have successfully built the institutional infrastructure that global climate capital seeks.
I find this analysis insufficient, however, because given all the options available, other regions should also have been capable of building a comparable DDPI and securing equivalent funding. Grossman, Sacks, and Xu (2026) argue that climate vulnerability and capacity in developing countries are not inherited from geography, they are politically produced through institutions shaped by particular actors at particular moments.
The implication for subnational analysis is clear: institutional climate capacity is the product of political work, not a pre-existing condition. An institution like the DDPI did not emerge because East Kalimantan was objectively "more ready." It emerged because there were political actors who read the global momentum, recognised the reputational opportunity, and built the institutional infrastructure to capture that momentum before the window closed.
My meetings with central DDPI actors revealed a clear pattern: Awang Faroek, East Kalimantan's governor from 2008 to 2018, established the DDPI under the legal basis of Governor's Regulation Number 9 of 2017. Not alone, together with figures such as Prof. Daddy Ruhiyat and Niel Makinuddin, he carried out substantive political work.
Paradoxically, East Kalimantan's position as Indonesia's largest coal exporter actually reinforced that incentive. The greater the reputational pressure on the extractive industry, the higher the political value of presenting oneself as a province with a green face as well. The thinking was not to resolve the contradiction between coal and climate, but to manage it through deliberately designed institutional work that would make East Kalimantan "legible" to global climate capital.
The configuration that was built operates through three simultaneous layers.
First, diplomacy: positioning East Kalimantan as a partner in the Governors' Climate and Forests Task Force. This is a cross-country forum for commodity-producing provinces and tropical forest holders to engage directly with multilateral donors, carbon institutions, and international emissions credit buyers.
Second, bureaucracy: pushing for the establishment of the DDPI as a provincial council that would serve as the official contact point for carbon negotiations. This institution is not an ad-hoc committee or a personal programme, it is an entity institutionalised within East Kalimantan's bureaucratic structure.
Third, technocratic: ensuring that East Kalimantan's low-carbon development planning documents were drafted using terminology recognised by the World Bank.
These three layers work together: diplomacy opens the door, bureaucracy stabilises communication, and terminology guarantees legibility. The result is a province that, in the eyes of the FCPF, was already "speaking the same language" as global climate capital long before the ERPA was signed.
Therefore, to create a DDPI elsewhere, political production shaped by political actors is required, not simply by a region's vulnerability. A mechanism is needed to activate that opportunity.
Structural variables such as large-scale extraction, extensive forests, and donors seeking partners do create the conditions for an institution like the DDPI to emerge, but they do not automatically produce one. What is required are political actors who (a) can read that opportunity, (b) have networks connecting them to the centre and to donors, and (c) have the political incentive to monetise that opportunity into local political capital. I believe East Kalimantan had all three.
The convergence of those three conditions is rare. East Kalimantan happened to be a province with the right structural combination, at the right global moment, with the political networks that enabled three layers of institutional work to be built simultaneously. Such a convergence cannot be replicated through five-year plans or ministerial programmes. It is historical, contextual, and in many respects, coincidental. The FCPF may have hoped that East Kalimantan would serve as a model for other subnational jurisdictions in Indonesia, but a model does not automatically become a template. Five years after the East Kalimantan ERPA was signed, the reality shows that the template has yet to be found.
The more pressing question, in my view, is not "how can other provinces replicate East Kalimantan?" The question is: how do we build climate capacity in vulnerable provinces that do not have a political entrepreneur with the right combination, or that are simply off the radar of global climate donors?
This question has no adequate answer yet. But ignoring it means allowing Indonesia's subnational climate governance to continue depending on historical luck, waiting for the next East Kalimantan that may never come. True climate leadership should not be determined by the rare convergence of actors, momentum, and capital. It must be built through equitable public infrastructure, for all regions, not only those that happen to be in the right place at the right time.
Author: Muhammad Maulidan
This article also appears on Katadata. Read the original here.
