Introduction

Indonesia is one of the world’s most vulnerable countries to climate change and disasters, with more than 20,000 incidents recorded between 2020 and 2024. The majority of these events were water-related, including floods, landslides, droughts, and peat fires, which pose a significant threat to the nation’s Sustainable Development Goals (SDGs). Currently, almost 60 per cent of the Indonesian population resides in urban areas, a figure projected to rise to over 70 per cent by 2045. Economic losses from disaster risks are estimated at Rp22.8 trillion (US$1.4 billion) annually, while fatalities over the last decade have exceeded 9,000 people. Although Indonesia maintains low per capita greenhouse gas (GHG) emissions, it ranks as the third-largest emitter in the Asia-Pacific region, producing 1.2 Gt CO2eq in 2022. The Government has enhanced its Nationally Determined Contributions (NDCs) target to 31.89 per cent using domestic sources and 43.20 per cent with international support.

Financing for urban climate action

Following the 2016 ratification of the Paris Agreement, Indonesia strengthened its commitment to addressing climate impacts. The Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR) 2050 sets an ambitious goal for net-zero emissions by 2060. Furthermore, the National Medium-Term Development Plan (RPJMN) 2025–2029 identifies environmental protection and climate resilience as one of eight key national priorities, aiming to increase the Environmental Quality Index to 77.20 by 2029. Urban areas are recognised as strategic innovation priorities, with plans to increase the urban share of national GDP to 59.25 per cent by 2029.

Funding for climate action is sourced from national and subnational budgets, alongside private and international finance. Between 2018 and 2021, participating line ministries allocated approximately 4.3 per cent of their budgets, or around $6.3 billion annually, to climate-related activities through climate budget tagging (CBT). International finance contributed an average of $2.6 billion per year between 2018 and 2022. Despite these efforts, current funding remains significantly below the estimated US$285 billion required to meet the country’s original NDC targets. Off-budget institutions such as the Indonesia Environment Fund (BPDLH) and SDGs Indonesia One (SIO) have been established to manage funds from diverse sources, including philanthropies and multilateral development banks.

Findings of the national assessment tool

The assessment evaluated Indonesia’s enabling framework conditions (EFCs) across four categories: climate policy, budget and finance, climate data, and vertical and horizontal coordination. It found that while national climate targets are becoming increasingly ambitious, subnational target indicators are not yet fully synchronised with national goals. Most legally binding policy instruments do not explicitly mention climate benefits, even when they contribute to mitigation or adaptation. Subnational infrastructure financing remains heavily dependent on the national budget, and revenue generation at the local level is insufficient.

There is currently no dedicated intergovernmental transfer (IGT) mechanism for climate action. Although municipal bonds have been regulated since 2012, no subnational government has successfully issued one due to limited institutional capacity and high perceived risks for private investors. In terms of data, the national government conducts annual GHG inventories and manages digital platforms like AKSARA and SRN. however, subnational participation in these platforms varies. Vertical and horizontal coordination follows a strict hierarchy, with cross-jurisdiction collaboration primarily initiated by the national government as part of strategic priorities.

Conclusions and recommendations

The report concludes that subnational governments face significant capacity limitations in fund management, leading to high dependency on national initiatives. To strengthen the EFCs and mobilise additional funding, several actions are recommended. Firstly, national policy instruments should be translated into practical guidelines and capacity-building programmes focusing on climate data analysis, results frameworks, and fund management. Secondly, the government should expand incentives for climate-related activities benefiting urban areas, such as performance-based transfers for mass transportation and green building implementation.

Thirdly, the report suggests leveraging blended finance and exploring sectors and locations where private investment is most attractive. Fourthly, digital platforms should be synchronised to track the progress of institutional GHG reduction targets and budget needs. Fifthly, cross-jurisdictional collaboration should be encouraged through mechanisms that assist subnational governments in preparing joint project proposals. Finally, urban discussions should be strengthened within national climate strategies to address the multidimensional vulnerabilities and high exposure of cities to climate change impacts. Short-term actions include making CBT mandatory across ministries and integrating climate tags into the SIPD/SIKD systems, while long-term goals involve decentralising access to international climate finance.