Acting before climate costs rise gives capital a better chance of remaining productive as economic and climate conditions change.Jakarta (ANTARA) - Climate change is increasingly becoming an economic issue that can no longer be treated separately from investment, production, and competitiveness.
When drought disrupts output, extreme weather damages assets, and tighter emissions standards affect market access, climate risks begin to shape business costs and returns.
For Indonesia, the question is not only how much investment is needed to prepare for climate change, but also how much it will cost if such investment is delayed.
A recent report by the United Nations Environment Programme (UNEP) strengthens that case. Every US$1 invested in integrated action on climate change and air pollution could generate about US$15 in economic benefits, according to the report.
The estimate includes market and non-market benefits, such as lower health costs, higher productivity, and avoided climate-related losses.
Even when only market benefits are counted, every US$1 invested could generate about US$4 in economic benefits.
The UNEP report Hidden Assets: The Economic and Health Case for Climate and Clean Air Action examines 25 measures across six sectors: energy and fossil fuel systems, industry, transport, agriculture and food systems, household cooking and heating, and waste management.
The measures include renewable energy and energy efficiency, clean energy for cooking and heating, vehicle electrification, tighter vehicle emissions and efficiency standards, improved livestock and manure management, more efficient fertilizer use, alternatives to open burning of crop residues, and better solid waste and wastewater management.
The report also covers measures to reduce oil and gas leaks, eliminate routine gas venting and flaring, and reduce the use of hydrofluorocarbons (HFCs).
The economic benefits of these measures are estimated at 2.8 percent of global gross domestic product (GDP) in 2035, 4.5 percent in 2050, and 11.4 percent in 2100. Market benefits are projected to exceed implementation costs within 10 years.
The figures do not mean that every green investment will automatically be profitable. Rather, they show that climate action can generate economic returns through energy savings, higher productivity, health gains, and avoided losses, in addition to reducing emissions.
For Indonesia, the challenge is to incorporate those benefits and risks into investment decisions before climate exposure turns into economic losses.
Rising risks
The economic consequences are already visible.
In West Nusa Tenggara (NTB), nine of 10 districts and cities were under drought alert as of late August.
From Aug. 21 to 31, consecutive dry days generally ranged from 31 to 60 days, classified as very long, to more than 60 days, classified as extreme. The longest dry spell was recorded at the Bolo Rainfall Observation Post in Bima District, where no rain had been recorded for 105 consecutive days.
The Meteorology, Climatology and Geophysical Agency (BMKG) said the dry season in NTB could continue until the end of November 2026, while the rainy season, normally expected in November, could be delayed until December.
The effects extend beyond agriculture. Water shortages can disrupt production, raise operating costs, and slow supply chains. If such pressures recur, business-level losses can increase the government's need for intervention and recovery spending.
The potential scale is reflected in projections by the Ministry of National Development Planning/National Development Planning Agency (Bappenas). Economic losses from climate change are projected to increase about fourfold, from Rp469 trillion in 2025 to Rp2,005 trillion in 2029.
That makes climate risk a consideration in capital allocation, not only an environmental policy issue.
Dendy Apriandi, director of investment deregulation at the Ministry of Investment and Downstreaming/Investment Coordinating Board (BKPM), said Indonesia had begun pursuing an investment strategy oriented toward green investment.
Investment policy, he said, needs to consider environmental, social, and governance (ESG) factors, while the government is developing innovative green financing mechanisms, including green finance and carbon-pricing instruments under the Economic Value of Carbon (NEK) framework.
The issue also affects export markets. Dendy said the use of green energy was increasingly becoming part of the initial screening of Indonesian industries seeking to export, particularly to Europe.
That means the energy transition is not only about emissions. It is increasingly a question of market access and competitiveness. For companies building assets expected to operate for decades, the risk is even longer term.
Factories, power plants, and infrastructure that fail to account for changes in technology, regulation, or demand can lose value before reaching the end of their economic lives. Such assets can become stranded as market conditions change.
Capital decisions
Climate risk therefore needs to be considered when investments are decided, rather than after damage has occurred.
In agriculture, climate information can help farmers adjust planting schedules and select seeds suited to changing conditions. Climatologist Prof. Rizaldi Boer of IPB University has called for the government to facilitate climate-indexed insurance to provide farmers with financial protection against drought.
Such an approach directly links climate information with financial risk.
At a broader level, the government is seeking to increase the supply of capital for green activities. Bappenas and the Global Green Growth Institute (GGGI) have set a target of mobilizing US$2 billion in green investment by 2030 through the Green Indonesia Future Initiative (GIFT).
The partnership builds on cooperation between Bappenas and GGGI to develop new financing models, support ministries and local governments in adopting policies and practices that encourage green investment, and improve access to global sources of funding.
But a mobilization target alone does not ensure that capital will flow. Investors still need bankable projects, measurable risks, predictable revenue streams, and regulatory certainty.
The same applies to the carbon market. Implementation of the Economic Value of Carbon framework is projected to encourage up to US$5.8 billion in green investment and reduce greenhouse gas emissions by about 570 million tons of carbon dioxide equivalent.
Edo Mahendra, senior adviser to the Forestry Minister, has stressed that the integrity of the market depends heavily on the quality of the people operating it. They need to be able to manage carbon data, measurement, reporting and verification (MRV), social and environmental safeguards, project integrity, and market mechanisms.
In other words, the carbon market can become a credible source of capital only if emission reductions can be measured and verified. Without that credibility, investment can be held back by reputational and regulatory risks.
Indonesia has also integrated the Planning, Monitoring and Evaluation of Low-Carbon and Climate-Resilient Development Actions in Indonesia (AKSARA) application with climate budget tagging through the CONNECT platform developed with the Ministry of Finance.
The integration allows climate-related local government spending to be monitored more transparently and accountably.
The next step is to link spending to results.
Climate expenditure needs to be traceable to lower emissions, greater energy efficiency, or avoided economic losses. Without such links, higher climate spending does not necessarily translate into greater economic resilience.
Indonesia does not have to choose between economic growth and climate action. The more consequential choice is what kind of assets it builds and which risks it considers when allocating capital.
An economy facing simultaneous changes in technology, regulation, and climate conditions cannot treat those factors as separate investment concerns.
Delaying low-carbon investment does not necessarily save capital. It can shift larger costs into the future through damaged assets, lost production, and emergency spending.
For Indonesia, the economic case for climate action is therefore becoming less about whether to invest and more about when.
Acting before climate costs rise gives capital a better chance of remaining productive as economic and climate conditions change.
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