KADIN – PAKLIM Briefing k „Business and Climate Change in Indonesia“ 7 July 2011

1. KADIN – PAKLIM Briefing k„Business and Climate Change in Indonesia“7 July 2011

2. Overall objective and starting points • Objective • Intensify the cooperation between GIZ/ PAKLIM and KADIN to jointly work on increasing awareness and engaging Indonesian companies in climate change mitigation activities in Indonesia • Starting points • PAKLIM’s commitment to strengthen its private sector engagement and Call for Proposals 2011 • Kadin’s White Paper on the issues of Climate Change and Green Growth

3. Contents • Introduction GIZ / PAKLIM in Indonesia • Climate change in Indonesia • Integration of climate change into national development planning • Private sector involvement in climate change mitigation • Focus: The industry sector and climate change • PAKLIM portfolio on cooperation with the private sector • PAKLIM Call for Proposals • Cooperation opportunities between KADIN and PAKLIM

4. Who is GIZ? • A 100% federally owned, public-benefit enterprise, that supports the German Government in achieving its development policy goals. • GIZ’s purpose is to promote international cooperation for sustainable development and international education work. • Established on 1 January 2011, GIZ brings together under one roof the long-standing expertise of DED, GTZ und InWEnt. • Implements commissions for the German federal government and other national and international, public and private-sector clients. • Furthers political, economic, ecological and social development worldwide, and so improves people’s living conditions. • Provides services that support complex development and reform processes. • Operates in more than 130 countries worldwide. • Employs approximately 17,000 staff members worldwide, more than 60% of whom are local personnel.

5. GIZ in Indonesia at a glance 1975 Indonesian-German development cooperation through GTZ 2007 Government negotiations to renew priority areas • 3 priority areas: • Private Sector Development • Good Governance • Climate Change • 3 Climate Change programmes: • Environment: “PAKLIM” • Forest: “FORCLIME” • Transport: “SUTIP”

6. PAKLIM (‘Policy Advice for Environment and Climate Change’) • How we work? • Supporting Indonesian partners through: • Policy advice • Capacity development • Technical assistance • Our approach • Multi-level • Multi-stakeholder • Cross-sectoral • What we do? • Empowering Indonesian public and private stakeholders to implement climate change strategies and instruments PAKLIM Policy advice Cities and urban areas Industries and industrial estates

7. Climate Change in Indonesia

8. Integration of climate change into Indonesian development strategy • MILESTONES: • The Government of Indonesia (GOI) puts CC on the political agenda after the Climate Summit in Bali (2007) • 2009 the Indonesian president announces a GHG emission mitigation target by 2020 • The GOI officially launched its Climate Change Sectoral Roadmap (ICCSR) regarding mitigation in March 2010 • The National Action Plan for GHG Emission Reduction (RAN-GRK) defines the required measures per sector for reaching the target RPJP/ RPJM Climate Summits RAN-GRK Bali Road Map ICCSR G20-Pittsburgh Nationally Appropriate Mitigation Actions (NAMAs)

9. Scenario of 2020 GHG emission reduction and RAN GRK President commitment G-20 Pittsburgh and COP15 to reduce te GHG emission in 2020 = 41% With international support -15% Unilateral (without international support) -26% Forestry & peat land Waste Agriculture Industry Energy & transport Waste RAN-GRK

10. The role of Indonesia’s private sector in climate change mitigation • The Private Sector is the driving force for development and growth in Indonesia (Indonesia is said to soon become the 2nd “I” in BRIC) • With this growth, however, it is also an increasingly important contributor to Indonesia’s emission levels • E.g. due to the large amounts of energy consumed for companies’ production activities and daily operations, process-related generation of GHG and waste produced in the various industry sectors, commercial land use conversion • The Private Sector is expected to play an essential role in Indonesia’s mitigation regime to achieve the national mitigation targets in the defined RAN GRK sectors Companies predispose of important competences, expertise and largely also financial means for successfully tackling the issues posed by climate change and for helping to reduce GHG emissions by applying the right management and investments approaches

11. Public expectations towards the private sector and ‘routes’ for involvement • Invest in and implement new technologies • Engage in mitigation measures, e.g. energy efficiency improvements, fuel switching, major process modifications • Esp. multinational corporations (MNCs) and large national companies to act as “climate champions” for other (national) businesses • Provide qualified personnel, transfer skills and experiences • Show corporate social responsibility (CSR) • Do research and innovate Policies and regulations Economic and fiscal instruments Voluntary actions Routes for involvement

12. Mitigation Target by 2020 Example: Industry sector in Indonesia and climate change • The industry sector accounts for 35%* of emissions from fossil fuel in Indonesia due to: • Energy consumption (accounting for 48% of overall final energy consumption in Indonesia) • Production processes • Waste • Challenge: balance the two overarching policies objectives: • Improve industry competitiveness • Achieve low-carbon industrial development • Largest GHG emitting industry sectors are: • The RAN-GRK defines mitigation strategies • in the industry sector with regard to: • - Energy efficiency • - Alternative energy • - Efficient production processes Cement Iron & steel Pulp & paper Fertilizer/ other chemicals Textiles *World Bank (2008): Low carbon development options for Indonesia

13. Mitigation Target by 2020 So far, only few policies and instruments targeted to mitigate climate change • A challenge for the GOI, but • An opportunity for the private sector to become involved and actively shape the future boundary conditions • For instance in partnership with PAKLIM  Examples of existing regulatory foci and initiatives • Energy • Energy diversification (PerPres No. 5/2006) • Energy efficiency and conservation (e.g. gov. reg. No. 70/2009) • Development of green industry • Air pollution • Regulate emissions from static and non/static sources (emission standards set for 4 industries and for selected equipment) • Waste management • Control waste management activity (esp. hazardous waste) (gov. reg. No. 18/1999) • Waste utilization (gov. regulation No.18/2008) • Subsidized loans • Soft loan programmes for green investments from different donors (e.g. Japan, Germany) via MoEnv. • Tax subsidies • For customs duty, sales tax (PPN), income tax (Pph) – for energy and industry sectors • Fiscal subsidies • For investment in machinery equipment to improve industrial competitiveness • Support for investment in CC mitigation technology

14. PAKLIM private sector cooperation – Overview Projects/ Initiatives Partner / Target group develoPPP.de • Merck: “Environmentally Sound Management of Chemical Waste”; 12/09-12/12; 1,4 Mio.€ (STA) • OSRAM: “Energy Saving Movement”; 12/09-06/11; 400T€ • Merck customers (e.g. laboratories); KLH • Elementary schools & SMKs, local communities, Indonesian population Development Partnerships integrated DPP • Adidas: “Greening Global Supply Chains – Focus on Energy”; 05/11-05/13; 168T€ • OSRAM: “Energy Efficient Street Lighting / LED Street Lighting”; 05/11-12/12; 184T€ • Service providers, local footwear & apparel suppliers; MoI, ESDM • Local government; urban population PAKLIM Call for Proposals 2011 • “Innovations for a low-carbon future in the Indonesian Industries” • Technology providers (D, EU) • local MNC, SOE, national companies Private Sector Dialogues • Empirical study on “Business and Climate Change in Indonesia” • “Green” CSR • Interviews a.o. with Siemens, SAP, APP, Sinarmas, Martha Tilaar, Chandra Asri, DB Schenker • local CSR networks, associations; KLH Policy Advice • NAMA (overall concept and sectors industry, energy, waste, energy efficiency in urban areas) • Voluntary Partnership Agreements • ICCTF (Indonesia Climate Change Trust Fund), Green Finance • Bappenas, MoI, ESDM, MoHA • MoI; cement industry • Bappenas, MoF; Bank of Indonesia

15. PAKLIM Call for Proposals 2011 “Innovations for a low-carbon future in the Indonesian industries” Development Partnerships with the Private Sector (DPP)

16. PAKLIM Call for Proposals 2011 • Aims to establish new partnerships with private companies to jointly develop innovative projects under the title of: “Innovations for a low-carbon future in the Indonesian industries” • Realize synergies between public and private interests: DPP PAKLIM Private Sector • Launching innovative technologies in the Indonesian market • ‘Greening’ the supply chain • Qualified personnel • CSR and good relations with clients and people in the surrounding community • Development of NAMAs (Nationally Appropriate Mitigation Actions) in the Indonesian industry sector • GHG reductions through e.g. increase in energy efficiency, fuel switching, and/ or major process modifications

17. Who should participate? • National and international companies already active in Indonesia and interested in: • Investing and jointly implementing innovative technologies and energy efficiency measures in their own production sites and supply chains. • Using their CSR funds and experiences for building new climate change business models and with this to help the local community and to become climate 'champions'. • Technology providers interested in entering the Indonesian market and applying innovative technological business models for industrial enterprises and/ or industrial estates, preferably in the areas of: • Process heat/ heat recovery (CHP), co-generation • Efficient boiler and motor systems; automatisation • Fuel switching; renewable energy applications; recycling, efficient material use • Any company with an innovative proposal for initiating jointly with PAKLIM a model for the implementation of NAMAs in the Indonesian industry sector.

18. Requirements for DPP • All companies (local, state, regional, international) can submit their proposal • Financial robustness of the company to ensure project funding and sustainability • Complementarity: PAKLIM's and the private sector’s contributions must complement each other in such a way that the cooperation enables the two partners to achieve their objectives more cost-effectively, more efficiently and more rapidly • Subsidiarity: PAKLIM will provide contribution only if the private partner would not be able to implement the project without PAKLIM as the public partner and the measure is not required by law • At least 50% of the costs (prime costs) are borne by the company. PAKLIM will provide input between EUR 100,000 - EUR 200,000 into the project. The proposal may also comprise direct inputs by PAKLIM, such as technical, intercultural or managerial expertise • Project start envisaged for early 2012 with a duration of 1,5 to 2 years

19. What are the criteria? Accordance with development policy Contribution to the achievement of PAKLIM objectives Criteria for DPP Joint objectives & substantial contribution of the company Subsidiarity & competitive neutrality

20. How to proceed? 1 • Develop project idea • Fill out entry form • Submitt proposal by August 31st, 2011 2 • Assessment of proposals by PAKLIM • Feedback to applicants by October 2011 3 • Joint development of full project outline for selected proposal(s) • Agreement and contract signing 4 • Implementation of DPP from early 2012 to end of 2013 dpp@paklim.org www.paklim.org/development-partnerships/call-for-proposals/

21. PAKLIM: KADIN’s opportunities for cooperation • Participate in stakeholder dialogues and workshops representing the private sector • Support the Call for Proposals for new development partnerships to support the NAMA strategy (energy efficiency, renewable energy applications, greening the supply chains) • Support the public awareness campaigns for a low carbon development • Facilitate Voluntary Partnerships (VP) between the MoInd and enterprises • Participate in the development of a low carbon growth strategy (East Kalimantan, Java)

22. Dr. Dieter BrulezDr. Maren BreuerPAKLIM - Policy Advice for Environment and Climate Changec/o Kementerian Negara Lingkungan Hidup (KLH)Gedung B Lt.5, Jl. DI Panjaitan Kav 2413410 Jakarta, IndonesiaT: +62-21-8517186F: +62-21-8516110E: dpp@paklim.org or maren.breuer@giz.deI: www.giz.de ; www.paklim.org Contact details

23. Project Examples “Development Partnerships with the Private Sector (DPP)”

24. Indonesia Challenge • The industry sector accounts for high amounts of GHG emissions due to energy consumption, inefficient production processes & industrial waste. • High need & potential for energy efficiency (EE) measures. Greening global supply chains – Focus on energy Partners: Adidas Group (Sourcing Ltd. Asia) 05/2011 – 05/2013 Volume: 268.000 € PAKLIM: 133.000 € Approach • Capacity building for service providers and training & technical assistance for 16 suppliers in the apparel & footwear industries. • Energy audits and tools for the measurement, monitoring and reporting of energy performance. • Implementation of financially feasible EE measures. Impact • Qualified service providers, enhanced capacities of selected suppliers and reduction of the factories’ environmental footprint. • Model for the measurement and reporting of climate-related values in supply chains available.

25. Indonesia Challenge • Lack of efficient energy due to outdated technologies in commercial and residential buildings as well as public infrastructural services. • High potential for cost and energy savings in urban areas. Energy Efficient Street Lighting / LED Street Lighting Partners: PT OSRAM Indonesia 05/2011 – 12/2012 Volume: 184.000 € PAKLIM: 92.000 € Approach • Assessment of technical & economic feasibility of LED street lighting. • Replacement of conventional lights by LED based on an adequate metering system, lighting management, and a consumption-based payment for the energy used by public street lighting. • Identification of financing options for local governments. • Development of a handbook for energy, cost and CO2 savings through LED street lighting. Impact • Provides a model for NAMA on the energy demand side. • Cities are able to properly measure used energy and reduce local energy costs.

26. Indonesia Challenge • High environmental impacts from waste, unsafe disposal of hazardous waste. • Cement industry has high potential to improve waste management by applying co-processing. Guideline on Co-processing Waste Materials in Cement Production Partners: Holcim Group, Indocement 11/2006 – 11/2009 Volume: 90.000 € Public (ProLH): 30.000€ Approach • Development of a guideline with the requirements and standards for co-processing. • Transfer of ‘lessons learned’ from developed countries. • Capacity building before launching of co-processing. Impact • Decrease the environmental impacts of waste. • Decrease greenhouse gas emissions. • Improve waste management and decrease waste handling costs.

27. Indonesia Challenge • > 19% of total energy consumption is attributed to the use of artificial light. • Common use of energy wasting light bulbs. Energy Saving Movement Partners: PT OSRAM Indonesia 12/2009 – 06/2011 Volume: 400.000 € Public: 200.000€ Approach • Integrated approach that includes an upgrade of lighting systems at selected schools and households combined with educational measures on energy efficiency. • Students participate in math and essay competitions with focus on energy saving. • Nationwide media campaign about energy efficiency. Impact • Energy consumption has successfully been decreased by more than 50 percent. • The learning module about energy efficiency is being implemented in vocational schools and will be part of lessons for more than 10.000 students.

28. Indonesia Challenge • Growing volume of chemical waste is creating a challenge for local and national authorities. • No management expertise in the prevention of health and environment hazards. Environmentally Sound Management of Chemical Waste Partners: Merck 12/2009 – 12/2012 Volume: 1.4 million € Public: 700.000 € Approach • Coordination of training units for transfer of expertise at the micro and macro levels. • Implementation of chemical waste management systems. Impact • Local SMEs are receiving technical support. • Meso level organisations are applying innovative chemical waste management strategies. • Partner countries are harmonizing their frameworks within ASEAN.

29. Indonesia, Nicaragua, Honduras, Guatemala Challenge • The majority of the population, especially in rural areas, has no or just unsteady access to electric energy. • Current energy sources are not sustainable. Co-financing mechanisms for hydropower plants Partners: South Pole 12/2007 – 02/2011 Volume: 900.000 € Public: 440.000 € Approach • Testing, consulting and training for and documentation of implementation of co-financing mechanisms through Certified Emission Reductions (CER). Impact • Small hydropower plants receive financing through CER. • Permanent co-financing and improved conditions for Clean Development Mechanisms (CDM).

30. BACKUP

31. Portfolio – Cooperation with the Private Sector on “Environment and Climate Change” Details

32. Development Partnerships with the Private Sector (DPP) Cooperation with the Private Sector on Climate Change Mitigation (I) Integrated DPP (PAKLIM funded) Facility DPP (develoPPP.de funded) adidas Osram II Merck Osram I Basics • “Greening Global Supply Chains – Focus on Energy” • 05/11-05/13 • 168T€ (PAKLIM 133T €) • “Energy Efficient/ LED Street Lighting” • 05/11-12/12 • 184T€ (PAKLIM 92T €) • “Environmentally Sound Management of Chemical Waste” • 12/09-12/12 • 1,4 Mio.€ (STA) (PPP-facility 700T €) • “Energy Saving Movement” • 12/09-06/11 • 400T€ (PPP-facility 200T €) Approach • Capacity building for service providers and selected suppliers • Implementation of financially feasible EE measures • Pilot testing of EE/ LED street lighting • Handbook for energy, cost & CO2 savings through LED street lighting • Implementation of chemical waste managt. systems • Coordination of training units for transfer of expertise • Upgrade of lighting systems at selected schools &households • Educat. measures & nationwide media campaign on EE Target Group / Partner • Service providers • Local footwear & apparel suppliers • MoI, ESDM, KLH • Urban population • Local government, KLH • Merck customers (e.g. laboratories) • KLH • Elementary schools & SMKs • Local communities • Indonesian population

33. Policy Advice Cooperation with the Private Sector on Climate Change Mitigation (II) • NAMA - Nationally Appropriate Mitigation Actions • Support development of the overall strategic concept • Give sector specific advice for industry, waste, energy efficiency (EE) in urban areas • Voluntary partnership agreements (VPA) • Facilitate GOI and selected industries to reduce GHG emissions • Policy framework stipulating certain actions, e.g. EE standards or GHG emission limits • Economic and fiscal instruments, incentive schemes to ease private sector participation • ICCTF (Indonesia Climate Change Trust Fund) as a funding mechanism and facility for mitigation and adaptation • Further the transfer of appropriate technologies to be used by the private sector and foster research & development for such innovations in Indonesia itself

34. Dialogues with the Private Sector Cooperation with the Private Sector on Climate Change Mitigation (III) • Empirical study on “Private sector involvement in climate change activities in Indonesia” • Interviews a.o. with Siemens, SAP, APP, Sinarmas, Martha Tilaar, PT Chandra Asri, DB Schenker, Holcim, PT Indocement, PT Petrokimia Gresik, PT Chandra Asri, PT Semen Gresik • “Green” CSR • Participation in KLH working group on establishing guideline for “green” CSR and criteria for evaluation and official recognition • Initiation of roundtable / stakeholder exchanges on CSR • Implementation and communication of pilot projects and best practices • Provision of information and technical assistance to the private sector • Cooperation with chambers and business associations, e.g. for joint awareness campaigns for a low carbon development