Background
Climate
change is and will be going to be the main challenge in the upcoming decades. Certainly,
such a thing brings bad impacts to our economic situation. Marine and coastal
sector will be responsible for 70.82% of our potential economic loss in 2024
for approximately IDR 81.82 trillion. It mostly consists of coastal community’s
livelihood (settlements and activities), public facilities, and coastal
agriculture lands as around 60% of Indonesian lives within coastal area. These
are worsened due to 61.38% of the poor are living within coastal area. These
numbers would increase as we are on the track of the worst scenario of climate
change. The graphs below depict the growing disasters related to a changed
climate.
Figure
1 Physical
events of climate change related disasters
Physical
samples above (sea-level rise, storm surge, flood, etc.) are likely to be
defined as the physical risk of climate change. Although the government has put
a priority to tackle this slow onset disaster, deciding new outbreak policies
could meet another challenge known as transition risk. For an instance, adjusting
a low carbon economy would imply significant structural changes to the economy,
including a major reallocation of investment. This could have a significant impact on firms
involved in the production of fossil fuels, such as
coal, oil, and gas, as well as other sectors whose business models rely on
using such fossil fuels
or that are energy intensive (such as utilities, heavy industry, and the
transportation sector).
The figures below show the negative changed of value in energy sector in order
to commit following Paris Agreement.
Figure 2
Potential
transition risk of climate change mitigation policies
Energy
sector is the main contribution of climate change
The
increasing frequent of the impacts of climate change are caused by global
warming or rising air temperature. This phenomenon is likely to have a high
correlation with the increase of total greenhouse gases concentration lately. The
main contributor of this devastating event is coming from the energy emission
sector (coal, oil, and natural gases) at 65%. Followed by other gases (N2O,
methane, F-gases) at 28% and land use emission at 7%. Based on these facts, we
certainly notice that in order to highly decrease carbon emission, we must take
intervention acts on energy sector. The following graphs below explain us the
projection of global sources of primary energy, greenhouse gases emissions, and
its temperature increase by 2100 in business as usual. As you can see that the
first-three colours (coal, oil, and gas) depict the energy sector that account up
for the majority sources.
Figure 3
The
scenario of business as usual in primary energy sources
As a growing of global
population, the energy demands will experience an increase. The right graph is
defined as Kaya graph. This graph is found by Yaichi Kaya, a climate scientist
from Japan that govern a Kaya Equation:
CO2
emission of energy = global population x GDP per
kapita x energy intensity x carbon intensity
·
Global
Population is
growing—we are currently approaching 8 billion people—and anticipate growth to
11 billion by the end of the century, according to UN projections. The rate of
growth is slowing over time as people have smaller families.
·
GDP
per Capita is
growing steadily per year, and we assume it will continue, mostly as people in
rapidly developing countries such as China, India, South Africa, Mexico,
Brazil, and Indonesia attain higher standards of living.
·
Energy
Intensity of GDP is
decreasing over time, due to the world economy becoming more efficient, or
using less energy per unit of economic output. The product of global
population, GDP per capita, and the energy intensity of GDP is the total amount
of energy used by the global economy.
·
Carbon
Intensity of Final Energy,
the amount of carbon dioxide emitted by energy use, is expected to slightly
decline over time. Overall, this downward trend in carbon intensity is
attributed to the gradual shifting away from fossil fuels and towards
low-carbon energy sources.
·
Carbon
Dioxide Emissions from Energy is
the result of all four factors multiplied together, and you can see that in the
Baseline scenario emissions are growing. As the level of carbon dioxide in the
atmosphere correlates with temperature, an increased concentration of carbon
dioxide in the atmosphere leads to an increase in global temperatures.
So, in
order to address climate change, should we highly tax the energy sector? Set a
high carbon price? Or stop building new fossil fuel energy power plants?
In
Paris Agreement, all the nations have committed to follow 2 oC of
pathway in the end of this century (2100). Is it truly possible? The following
figure shows the breakdown of these three actions:
a. imposing
a high tax (100$/tce for coal, 100$/boe for oil, and 5$/Mcf),
b. setting
a high carbon price (250$/ton CO2), and
c. stop building new fossil fuel energy plants.
Figure 4
The
final temperature increase of the chosen intervention scenario
Based
on the figure above, the action of imposing tax and carbon price could decrease
the energy sector from fossil fuel at first, but those power plants start to
grow again as a result of the increasing energy demand and uncapable of
renewable energy to fulfil them all. On the other hand, stop building new
fossil fuel plants are incredibly effective because it forces other low carbon
energies to be explored. But such power plants will be totally off started form
2060 as most of them have lifespan up to 30 years. Btw, these arguments are the
basics of why Greta Thunberg and her movements demand global leaders to stop
coal, oil, and gas mining.
So why
don’t we just compile all three policies together? Perhaps it will be powerful
enough to decrease the temperature.
No, it
doesn’t work in that way. This is what we called as multiple policies paradox.
As an example, you start scenario A in 2025 and then start to implement scenario
C in 2050, it will appear that stop building new infrastructure has a smaller
effect on temperature change. This is due to the high tax of fossil fuel energy
has decreased carbon emission a lot at first which make the left emission is
smaller to be addressed by scenario C.
Cost
of energy and renewable energy
The implementation
of three actions above will likely to cause a transition risks in the financial
industry. This is due to the extreme increase of energy cost once we apply one
of them. Furthermore, this will be worsened because renewable energy such as
solar, wind, wave power etc are still highly expensive. But such a risk will
certainly be addressed automatically as the cost of energy will start to
deplete due to the positive feedback loop phenomenon that makes renewable energy
become cheaper. In the figure 4 above, you notice that the green colour
starts to be the major energy source. Moreover, the figure below shows that the
growing installation of renewable power would tent to decrease the relative
price of it and attract customers.
Figure 5
The
learning feedback loop will decrease the relative price of renewable energy
What
about afforestation?
Most
people believe that planting more trees is the most effective way to tackle
climate change. Is it true? Currently, the world emits 123.67 billion tons of
CO2 and global forest manages to absorb 37.1 billion tons (30%). FYI, the
global forest area is around 4.06 billion hectares. If we put an extreme commitment
to address this challenge with afforestation, we will only be capable to add
around 700 million hectares of new forest (almost twice of India total country
area, 300 million hectares). This additional back up is only 17% of current
forest area. Moreover, growing a new forest is not a piece of cake. It has a
growing time of 80 years in order to be effective in absorbing the carbon. The
graphs below show us that starting afforestation today inn 700 million hectares
alone cannot make a big difference in decreasing the temperature because deforestation
is not the main contributor of global warming.
Figure 6
700
million hectares of additional forest only makes a small change of temperature
decrease
If we
managed to flatten the curve of CO2 emission, will climate change still be
there?
Climate
change is a complex system and could only be well understood through holistic approach
and multi-perspectives. If we imagine earth as a bath-up or water container,
then there is a crane in that flow the water at rate of 10 litres per second.
In the bottom, there is also a hole that drain out the water at 5 litres per second.
If water is assumed as CO2, so far, we have a misunderstanding of climate
change as we are trying to make the hole bigger through afforestation which has
been in its maximum point. We forget to see that the emission comes from the
crane above is the main problem because the flowing in of carbon is always more
than the carbon the container has drained out. Therefore, in figure below you
can see that there will be always air temperature rise due to the rate of
flowing in is bigger that the rate of flowing out.
Figure 7
Climate
change keeps happening due to the flowing in rate of carbon is greater that the
flowing out rate of carbon
Bank
responsibility in Indonesia
Sustainable
Development Goals 7 – Affordable and Clean Energy should be certainly reached
in 2030 as we are experiencing a growing global population followed by a large
energy demand in the future. Global energy demand is
expected to increase by 50% over the next 30 years as a result of
population growth and economic development. High-income countries must lead the
way in transitioning to clean fuels and support low-income countries to do the
same. Ending population growth will make a global switch to affordable and
clean energy a lot more achievable.
Figure 8
Coal
production in Indonesia
Sadly,
the majority source of energy in Indonesia comes from coal at 49.67%, followed
by gas, renewable powers, and oil at 28.9%, 14.71%, and 6.74% respectively (see
Figure 8). The used of coal is projected to experience an increase in
the upcoming years. This is worsened as many bank support for investment in
polluting fuels is still quite high. The research done by FFGI shows that CIMB
Niaga and Bank Panin still invests all the money to fossil fuels. Meanwhile,
the percentage of Bank Mandiri’s investment amounted to 99% for fossil energy.
Bank BCA and Bank BRI each provide investment worth of 98%.
Although
that we are only responsible for 2.2% of global coal production, we are still
being a climate frontier that will be exposed to sea-level rise, storm surge,
and more flooding. Having a climate scientist in a banking industry would be absolutely
beneficial as they would give their perspectives and contributions to drive
investment to green energy. Although that it might bring a transition risk at
the first moments, their skills and sense of crisis would be useful to map the
impact that may hit the strategic sector precisely.
REFERENCES
2.
BAPPENAS (2019) National Adaptation Plan –
Executive Summary
3.
CCC (2020) https://experience.arcgis.com/experience/62b96793f0694b0e8839dbeb6545a595
4.
BPS (2017) Statistik Sumber Daya Laut dan Pesisir
5.
Schwalm, CR et al (2020) https://doi.org/10.1073/pnas.2007117117
6.
BAPPENAS (2010) Indonesia Climate Change Sectoral
Roadmaps
7.
EN ROADS Overview, https://docs.climateinteractive.org/projects/en-roads/en/latest/guide/background.html
8.
EN ROADS Simulator, https://en-roads.climateinteractive.org/scenario.html?v=21.9.0
9.
http://theprakarsa.org/en/bank-to-stop-support-for-coal-investments/
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