Accelerating renewable energy finance in Indonesia: the potential of municipal green bonds

Indonesia, like its counterparts around the world, has reallocated its 2020 fiscal budget of USD 49 billion (IDR 695.2 trillion) for healthcare, social assistance, and small businesses to cushion the negative impacts of the COVID-19 pandemic. This reallocation consequentially reduced the fiscal capacity of local governments in Indonesia to finance long-term climate goals. Among other impacts, this reduced capacity is a potential threat to achieving Indonesia’s energy transition target: cities are a key component to Indonesia’s mandated National Energy Policy of reaching 23% renewable energy contribution in the energy mix by 2025. In this paper, propose the use of municipal bonds to support Indonesia’s energy transition targets and analyze the overall feasibility of implementing such bonds. Identify three main factors that make a strong case for accelerating green bond issuance by municipal governments in Indonesia: Indonesia’s energy transition target; the existence of local governments with high fiscal capacity to issue bonds; and the rising appetite for green bonds in local governments and markets.