The issues that most seriously threaten progress towards sustainable development in Indonesia are

Perverse incentives that hinder the sustainable use of natural resources
Natural resources are an important contributor to Indonesia’s GDP and Government budget. Agriculture, forestry, and mining contribute about 25% of Indonesia’s GDP and about 30% of overall Government budget revenue (in 2005, income tax on oil & gas represented 7% of revenue, and “non tax receipts” on natural resource revenues represented 22% of state revenues). Yet, Indonesia’s macroeconomic policies (tax and non-tax revenue policies and fiscal balancing formulas) appear to favor resource depletion over sustainable use as they reward district governments on resource revenue and not performance or stewardship, under-tax forestry and fisheries (relative to other natural resources), and do not allow charitable contributions by individuals or corporation.

Gaps between policy and practice following decentralization could slow significant improvement in environmental quality
Under decentralization, the extent to which sub-national governments feel bound by national guidelines is being put to the test; the civil service is no longer part of a unified chain of command, regulatory bodies in many provinces and districts now fall directly under the command of the governor or district head, who is often also the proponent of the projects or activities that must be regulated. Despite the substantial investment in environmental policy and staff development, actual implementation of rules and procedures has been poor. These problems are unlikely to get better under decentralization unless a more effective approach to regulation can be developed.

Many provinces and districts are making new interpretations of existing rules, or else inventing entirely new regulatory procedures. While some of these innovations strengthen environmental controls, many relax them or bypass national standards entirely.

Public perception of environmental issues and the Government’s development priorities
Public awareness is an essential part of the effort to address Indonesia’s environmental problems, from disaster risks to biodiversity conservation. Informed and aware citizens can take action to address environmental issues, and can form constituencies for improved efforts at the political and local government level. At a broader level, however, environmental values are not deeply embedded in society, leading to undervaluation of natural resources and environmental services. Participation and voice in decision making is an essential element of good governance. Recent environmental disasters (floods, mud, fires, erosion) have stimulated greater environmental concern, but further analysis of knowledge, attitudes and practices would be needed to determine how far or deep this understanding goes outside of urban centers, and what tools can best be used to build on this basic awareness.

Social, environmental and economic benefits , risks and costs of alternative development paths
Energy policy, forest sector practices and climate change issues are intricately linked in Indonesia. Fossil fuels dominate energy consumption in Indonesia both in rural and urban areas and Indonesia is gradually increasing the proportion of energy produced from coal (approximately 40% in 2002). Indonesia is also a large greenhouse gas emitter, generating 80 %of greenhouse gases from changed land use following logging and forest/swamp fires.

National energy policies propose to increase reliance on renewable energy sources, including biomass, geothermal, and hydropower. At the same time, the Government plans a large scale up in the use of coal to reduce Indonesia’s dependence on oil imports. Increased coal use would lead to significant negative environmental impacts associated with high sulfur content and potential impacts on forests from land clearing. Alternative energy solutions are necessary for more remote areas that are appropriately priced and supported by the public sector.

Source : worldbank.org