Introduction

The current climate, food, fuel, and water crises have convinced many countries, including Indonesia, that a diff erent model of economic growth is needed. “Green growth”—a growth path that places longterm developmental and environmental sustainability at its core—has emerged as a desirable paradigm in Indonesia, and the concept of a low carbon, green economy has moved into the mainstream of the country's policy discourse over the recent years. Indonesia's green growth strategy rightly recognizes that the country's sustainability depends not only on the pace of physical and human capital accumulation, but also on its natural capital.

However, transforming the growth trajectory to one that is green, resilient, and sustainable is by no means an easy task. This is because of the multiple and simultaneous challenges of dealing with unavoidable and uncertain climate risks; attaining energy security; improving access to energy; managing scarce resources, particularly forests, land, and water; and finding ways to reduce greenhouse gas (GHG) emissions while creating new economic opportunities and minimizing adverse social consequences. A number of barriers stand in the way of achieving these goals.

As in other developing countries, natural capital is a significant share of total wealth in Indonesia, greater than the share of physical capital (World Bank 2006b). Green growth is therefore essential for Indonesia's longterm sustainability. Broadly, environmentally unsustainable growth may be attributed to two sources: (1) global environmental risks, particularly associated with the impacts of climate change; and (2) the degradation of environmental and natural resources that occurs locally (Figure 12.1).