The Government is committed to promoting sustainable, low-carbon development, which requires cooperation between the central and regional governments. However, the funding instruments to support protection of the environment – compensation to regions part of whose territory needs to be protected, and incentives to those with good performance – remain very limited.
The Government has conveyed the idea of developing Environmental Protection Funds (Dana Perlindungan Lingkungan, DPL) and this policy paper is prepared to provide input to initiate and operationalize the DPL through an existing budget instrument: Regional Grants.
We propose that the Government develop Performance DPL Grants and Compensation DPL Grants using the existing indicators, i.e. the Environmental Quality Index (Indeks Kualitas Lingkungan Hidup, IKLH) and its changes, as well as the proportions of protected land and marine areas relative to the total area of the region.
These DPL grants will not be given to all regions, but only to those provinces that show relatively good performance and/or have relatively large protected areas. Our simulation using a total fund of Rp 1 trillion would add fiscal space in 11 provinces of 6% (average).
These DPL grants are expected to serve as an interim solution until the DPL becomes part of the Bill on Financial Relations between the Central and Regional Governments (Undang-Undang Hubungan Keuangan antara Pusat dan Daerah, UU HKPD). This idea is expected to complement – not to replace – the various efforts to institutionalize ecology-based fiscal transfers through other instruments such as Regional Incentive Funds (Dana Insentif Daerah, DID), Special Allocation Funds (Dana Alokasi Khusus, DAK), and Village Funds (Dana Desa, DD), as well as the idea of DPL as a financing instrument.
