Indonesia Faces $145 Billion Climate Finance Gap as Local Environmental Spending Declines Despite National Commitments

Indonesia faces a growing climate finance gap projected to reach US$145 billion by 2030, driven by declining environmental spending at the local level despite national commitments to climate adaptation and mitigation.

According to the Ministry of Finance, 236 local governments reduced their environmental budgets in 2025 compared to the previous year, undermining efforts to build ecological resilience before disasters strike. This trend occurs even as flash floods in Sumatra and deforestation in Papua highlight the urgent need for preventive investment in reforestation and upgraded ecological defences.

The disconnect between spending and environmental outcomes is further evidenced by data showing almost no relationship between environmental budget allocations and environmental quality indices across Indonesian districts in 2024, suggesting that current fiscal mechanisms fail to incentivize effective conservation.

Although Law Number 1 of 2022 on Central and Regional Financial Relations attempts to align funding with forest preservation by incorporating land cover indices into the General Allocation Formula, soft fiscal instruments have proven insufficient to reverse the trend of declining environmental investment at the subnational level.

The World Bank’s Indonesia Country Climate and Development Report, published in April 2023, affirms that Indonesia can balance climate action with economic growth through reforms that integrate near-term environmental and development impacts, supporting a transition to sustainable long-term growth while protecting natural assets.

Experts from the Development Policy Centre argue that mandating environment spending is necessary to close the climate finance gap, ensure disaster risk reduction, and fulfill Indonesia’s aspiration to become a high-income country without compromising environmental sustainability.