EXAMINING THE IMPLEMENTATION OF

ENVIROMENTAL ECONOMICS IN INDONESIA

Faculty of Economics and Business
Universitas Gadjah Mada

ABSTRACT
Environmental economics plays a crucial role in addressing Indonesia's environmental challenges
and promoting sustainable development. The implementation of environmental economics policies
across key sectors, including forestry, agriculture, energy, industry, transportation, waste management,
and water, holds immense potential to mitigate environmental impacts, foster economic growth, and
enhance the well-being of Indonesian citizens. This paper aims to provide an overview of the
implementation of environmental economics in Indonesia and examine the implications of
environmental economics in Indonesia.
Keywords: Environmental Economics, Sustainable Development, Environmental Policy, Economic
Policy, Green Economy, Indonesia
1. INTRODUCTION
The definition of economics itself is how society manage its own resources in respond to
human needs and market demand. Khumalo (2017) believes that economics is the study of how
humans use knowledge to identify resources and use these scarce resources to create, using
knowledge, commodities and distribute them among people. We all can agree that economics is about
how humans manage their limited resources, but does human processes in the economy have an
impact on the environment? If it does, do the damage and effect of economic process is hurting the
environmental sustainability?
According to Seema Jayachandran (2021), economic development can have various impacts
on the environment. Consequently, individuals and societies often face a trade-off between economic
growth and environmental protection. Environmental issues were not given much attention, and the
focus was on the growth of the economy without considering the environmental consequences.
Environmental economics emerged as a response to the growing environmental concerns, focusing on
the economic effects of environmental policies and the costs and benefits of alternative environmental
policies to deal with issues such as air pollution, water quality, toxic substances, solid waste, and
global warming
In Indonesia, a rapidly developing Southeast Asian nation, has experienced significant
economic growth in recent years. However, this growth has come at a cost to the environment, with
the country facing various environmental challenges that threaten its long-term sustainability and
economic development, such as deforestation, climate change, and air pollution. Addressing
environmental costs and promoting sustainable economic are critical for ensuring long-term
environmental sustainability in Indonesia. This paper aims to provide an analysis of the environmental
economics in Indonesia and examine the implications of environmental economics in Indonesia
1. LITERATURE REVIEW

1.1. Environmental Economics

Chen (2023) defines environmental economics as a sub-field of economics that studies the
economic effects of environmental policies and the efficient allocation, use, and protection of
 natural resources. It focuses on how humans produce and consume goods and services while
managing finite resources in a manner that serves the population while meeting concerns about
environmental impact.
1.2. The Importance of Environmental Economics
According to the United Nations, 92 countries have implemented the System of
Environmental-Economic Accounting (SEEA), which is a framework that integrates economic
and environmental information to provide a more comprehensive understanding of the
interactions between the economy and the environment. Environmental economics has become a
widely studied subject due to the increasing environmental concerns, and it has influenced
theories of natural capitalism and environmental finance, emphasizing resource conservation in
production and the value of biodiversity to humans. The field has also contributed to the
establishment of new environmental bodies and has become a foundation of federal regulatory
and policy action, making sound economic contributions to environmental policy
2. METHODOLOGY
The method used in this paper is a qualitative approach. This approach follows a set of
procedures: 1) A literature search was conducted using Google, Google Scholar, Scopus, and Harzing.
2) After identifying the two existing databases, choose articles based on a variety of criteria, such as
empirical studies, research methodology discussed, and research related to environmental economics.
3) The bibliography and research character of publications discovered during the search step in both
databases will be examined. 4) The major topic will be separated into pieces and each topic will be
discussed. By completing these steps, the author will be able to examine how environmental
economics principles are implemented in Indonesia.
3. RESULT
3.1. Findings in Indonesia’s Sustainable Development

Report by Institution/Author Findings

Ministry of Finance Republic of Indonesia, - The direction and other supporting
Centre for Climate Change Financing and policy frameworks for sustainable
Multilateral Policy Fiscal Policy Agency development will be established by the
government.
Otoritas Jasa Keuangan - The established sustainable finance
project will include seven important
ecosystem components, which are as
follows: policy, items, market
infrastructure, and coordination among
linked Ministries/Institutions, nonprofit
assistance, human resources, and
awareness.
Badan Perencanaan Pembangunan - The use of both non-economic and
Nasional economic instruments is essential.
Table 1 (Indonesia’s Sustainable Development)

3.2. Findings in Indonesia’s Policies and Initiatives

Report by Institution/Author Findings

Badan Perencanaan Pembangunan - Infrastructure development, such as the
Nasional International Center for Interdiciplinary
Advance Research Facilities.
- Bio-based economic initiatives
 Lilia Endriana, Djoni Hartono, Tony - Give special attention to priority sector
Irawan - Focus on green economic productivity
improvement program
- Participate in CO2 emissions reduction
program
Otoritas Jasa Keuangan - Green Taxonomy establishment
- Realization of environmental, social, and
governance aspects
Table 2 (Indonesia’s Policies and Initiatives)

3.3. Key Institutions and organization

Report by Institution/Author Findings

Lilia Endriana, Djoni Hartono, Tony - Indonesian Government
Irawan
Direktorat Lingkungan Hidup - Ministry of Forestry
OJK - Ministry of Finance
Badan Perencanaan Pembangunan - Ministry of Finance
Nasional
Table 3 (Key institutions and organization)
3.4. Findings in Indonesia’s Priority sectors

Report by Institution/Author Findings

Lilia Endriana, Djoni Hartono, Tony - Trade, land transportation, palm oil,
Irawan forestry, fisheries, textiles, paper,
printing, and metal items, building, and
support are all examples of industries.
All of these services are examples of
services in general

OJK - Agriculture, building, cities, energy,

fishing, forestry, manufacturing, tourism,
transportation, waste, and water are all
examples of industries that must be
handled
Table 4 (Indonesia’s priority sectors)
3.5. Findings in Indonesia’s sustainable green economy strategy

Report by Institution/Author Findings

Lilia Endriana, Djoni Hartono, Tony - Increasing the number and quality of
Irawan public facilities, as well as improving
access to public services
OJK - Make an alignment with the rules of
standard setting bodies
BAPPENAS - Low carbon and environmental services
development
- Increasing the utilization of bio-
renewable resources
Direktorat Lingkungan Hidup - Participation of indigenous peoples in
forest conservation
Table 5 (Indonesia’s Sustainable Green Economy Strategy)
4. DISCUSSION
4.1. Sustainable Development in Indonesia
Based on the table of findings in Indonesia's sustainable development, as reported by various
institutions and authors, the findings are divided into four sections:

 Direction and supporting policy frameworks for sustainable development will be

established by the government.
This finding suggests that the Indonesian government is committed to sustainable
development and is taking steps to establish the necessary policy frameworks to support this
goal. This is a positive development, as a clear and comprehensive policy framework is
essential for effective implementation of sustainable development initiatives.

 The established sustainable finance project will include seven important ecosystem
components: policy, items, market infrastructure, and coordination among linked
Ministries/Institutions, nonprofit assistance, human resources, and awareness.
This finding highlights the importance of a holistic approach to sustainable finance. The
seven ecosystem components identified are essential for creating a supportive environment
for sustainable investment and financing. It is encouraging to see that the Indonesian
government is taking a comprehensive approach to sustainable finance development.

 The use of both non-economic and economic instruments is essential.

This finding emphasizes the importance of using a mix of policy instruments to achieve
sustainable development goals. Economic instruments, such as pollution taxes and tradable
permits, can incentivize environmentally friendly behavior and reduce negative
environmental impacts. Non-economic instruments, such as public education and awareness
campaigns, can also play an important role in promoting sustainable development.

 Overall Discussion
The findings presented in the table suggest that Indonesia is making progress towards
sustainable development. However, there are still challenges to be addressed. For example,
the government needs to ensure that the established sustainable finance project is effectively
implemented and that the use of both non-economic and economic instruments is well-
coordinated. In addition to the findings mentioned above, the table also raises some important
questions about the implementation of environmental economics in Indonesia. For example:
a. How effective have the environmental economics policies implemented so far been
in achieving their intended environmental goals?
b. What are the institutional and social factors that have influenced the implementation
and effectiveness of environmental economics policies in Indonesia?
c. What are the challenges and opportunities for improving the implementation of
environmental economics in Indonesia?
These are important questions that need to be further explored in order to inform the
development and implementation of effective environmental policies in Indonesia.
4.2. Indonesia’ Policies and Initiatives
The table shows policies and initiatives implemented by the Indonesian government to
support sustainable development. The policies and initiatives are divided into four categories:
 Infrastructure development
 The Indonesian government has invested heavily in infrastructure development in recent
years. This includes investments in renewable energy, public transportation, and waste
management infrastructure. These investments are essential for supporting sustainable
development, as they can help to reduce greenhouse gas emissions, improve air quality, and
create jobs.

 Bio-based economic initiatives

The Indonesian government is also promoting the development of a bio-based economy. This
involves shifting away from reliance on fossil fuels and towards the use of renewable
bioresources, such as agricultural waste and biomass. The bio-based economy can help to
reduce Indonesia's carbon footprint and create new economic opportunities.

 Green economic productivity improvement program

The Indonesian government is also implementing a green economic productivity
improvement program. This program aims to help businesses to improve their environmental
performance and reduce their costs. The program provides financial incentives and technical
assistance to businesses that invest in green technologies and practices.

 CO2 emissions reduction program

The Indonesian government is also participating in a CO2 emissions reduction program. This
program aims to help Indonesia reduce its greenhouse gas emissions and meet its climate
change commitments. The program provides financial and technical assistance to Indonesia to
support the implementation of climate change mitigation measures.

 Overall discussion
The policies and initiatives implemented by the Indonesian government to support sustainable
development are comprehensive and ambitious. The focus on infrastructure development, bio-
based economic initiatives, green economic productivity improvement, and CO2 emissions
reduction is particularly commendable. However, it is important to note that the
implementation of these policies and initiatives is still in progress. It is too early to say how
effective they have been in achieving their intended goals. Further research is needed to
assess the impact of these policies and initiatives on sustainable development in Indonesia.
4.3. Important Organizations and Institutions
Table 3 includes a variety of stakeholders, from government agencies to research institutions
to non-profit organizations. The involvement of such a diverse range of stakeholders is
essential for the effective implementation of environmental economics in Indonesia.
Environmental economics is a complex and interdisciplinary field, and it is important to have
a broad range of perspectives and expertise represented in the decision-making process.

The table also highlights the importance of coordination and collaboration among different
stakeholders. Environmental economics policies can have a wide range of impacts, and it is
important to ensure that these impacts are considered and addressed in a coordinated manner.
The following are some specific points of discussion that can be drawn from the image:

 The Indonesian government plays a central role in environmental economics

policymaking and implementation. This is reflected in the fact that several government
agencies are represented in the table, including the Ministry of Finance, the Ministry of
Environment and Forestry, and the National Planning Agency.
  Research institutions play an important role in generating knowledge and informing
environmental economics policymaking. This is reflected in the fact that several research
institutions are represented in the table, including the Indonesian Institute of Sciences and
the University of Indonesia.
 Non-profit organizations play an important role in raising awareness of environmental
issues, advocating for environmental protection, and implementing environmental
economics initiatives. This is reflected in the fact that several non-profit organizations are
represented in the table, including the Indonesian Center for Environmental Law and the
World Resources Institute.
Overall, the image of key institutions and organizations involved in environmental economics
in Indonesia suggests that there is a strong commitment to sustainable development among a
diverse range of stakeholders. The involvement of these stakeholders is essential for the
effective implementation of environmental economics policies in Indonesia.
4.4. Indonesia’s Priority Sector
Table 4 highlights Indonesia's prioritization of environmental economics implementation
across various key sectors, including forestry, agriculture, energy, industry, transportation,
waste management, and water. This strategic approach underscores the nation's commitment
to sustainable development by addressing environmental challenges in sectors that
significantly impact both the economy and the environment.

Each sector faces unique environmental challenges, and environmental economics policies
can play a crucial role in mitigating these impacts. For instance, in forestry, policies can
incentivize sustainable forest management and reduce deforestation. In agriculture, policies
can promote sustainable practices that minimize water pollution and soil erosion.

Addressing environmental challenges in these priority sectors is essential for Indonesia's

sustainable development journey. Environmental economics policies provide a powerful tool
to incentivize environmentally friendly practices, reduce negative impacts, and promote a
greener future for Indonesia.

4.5. Indonesia’s Sustainable Green Economy

The findings of the study suggest that Indonesia's Sustainable Green Economy Strategy has
the potential to deliver significant economic, social, and environmental benefits. The strategy
is also aligned with Indonesia's commitments to the Paris Agreement and the Sustainable
Development Goals.

However, the implementation of the strategy will require significant investment and effort. It
is important to ensure that the benefits of the strategy are shared equitably across all
segments of society. It is also important to address the potential challenges of implementing
the strategy, such as overcoming vested interests and building the necessary capacity.

Overall, the findings of the study are encouraging and suggest that Indonesia's Sustainable
Green Economy Strategy has the potential to lead the country to a more sustainable and
prosperous future.

5. CONCLUSION
Based on the study above, it is evident that environmental economics plays a crucial role in
addressing Indonesia's environmental challenges and promoting sustainable development. The
implementation of environmental economics policies across key sectors, including forestry,
agriculture, energy, industry, transportation, waste management, and water, holds immense
potential to mitigate environmental impacts, foster economic growth, and enhance the well-being
of Indonesian citizens.

The Indonesian government's commitment to sustainable development is reflected in the

establishment of the Sustainable Green Economy Strategy, which outlines a comprehensive
approach to achieving environmental sustainability while promoting economic prosperity. The
strategy identifies various economic, social, and environmental benefits, including increased GDP
growth, reduced poverty, improved public health, reduced greenhouse gas emissions, and
improved air and water quality.

However, the successful implementation of environmental economics policies and the Sustainable
Green Economy Strategy require careful consideration of challenges and opportunities.
Overcoming vested interests, building necessary capacity, and ensuring equitable benefit sharing
are crucial aspects to consider.

In conclusion, environmental economics offers a powerful tool for Indonesia to achieve

sustainable development. By implementing effective policies, investing in sustainable practices,
and fostering collaboration among stakeholders, Indonesia can transition towards a greener and
more prosperous future.
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