Green economy priority in Indonesia: A SAM approach (FKP series)

Globe in hands

As reported by Wildan Noor Ramadhan

Presenter: Djoni Hartono (Faculty of Economics, University of Indonesia (FEUI)

Djoni Hartono’s presentation is based on his collaborative research with Lilia Endriana from Indonesian Bureau of Statistics (BPS).

Green economy can be thought of as one which produces low carbon emission, is resource efficient and is socially inclusive (UNEP, 2011). Three key aspects of a green economy are highlighted: economic, social and environmental aspects. Thus far, there is lack of comprehensive study on what constitutes a green economy for Indonesia, which this study is seeking to fill.

The analytical tool used in the study is the energy social accounting matrix (ESAM), based on Indonesia SAM 2008. ESAM consists of detailed description energy sectors and household deciles groups based on income (in urban and rural areas). In details, the energy sectors used are coal, oil, gas, geothermal, gasoline, kerosene, HSDO, LPG, hydro electricty, non-hydro electricity and city gas. The three SAM-based indicators are as follows:

1. Output Multiplier Index (IPO). If a sector has IPO of more than one, the sector’s ability to generate output for each unit of electricity is higher than average.

2. Emissions Multiplier Index (IPE). If a sector has an IPE of less than one, the sector’s emission for each unit of electricity is lower than average.

3. Theil Index (TI). If one sector exhibit T0 (index before simulation) > T1 (index after simulation), then the sector is able to make a better distribution income (lowering the inequality) in line with increasing output.

There are several interesting findings from this research. Firstly, four sectors with the highest IPO are energy related sectors: kerosene, gasoline, non-hydro electricy and HSDO sectors. However, the first finding only gives information from an economic aspect and is ignoring the two other aspects. Secondly, growth in oil and geothermal sectors produces the lowest CO2 emission levels. Both sectors utilise inputs from other sectors which emit relatively low CO2 emissions. On the other hand, non-hydro electricity sector has the highest CO2 emission level. Lastly, if one considers the income distribution, the three sectors able to reduce income inequality as their outputs increase are the food crop sectors, the food, beverages and tobacco sector, and the paddy sector. In contrast, public service, bank and insurance, real estate and business service sectors will widen the income gap as their outputs increase. Again, this still can not capture every aspects of the green economy.

After looking at one-to-one effect of each index, we can sum up the simulations. The research identifies 11 sectors that satisfy all three criteria of a green economy concept and 10 sectors that satisfy only two criteria. Since 10 out of 11 green economy priority sectors are agriculture related sectors, the researchers concluded that agriculture sector has an important role and should be developed further in Indonesia.

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FKP 2014 03 27 UNSRI Djoni Hartono