Working in development is often difficult, as even the best-planned projects can have different outcomes than expected.  In this IEG Project Lessons series, we take a close look back at the World Bank Group’s projects to assess what has worked, what didn’t, and why, to better inform future projects and investments.

This brief captures the lessons learned from evaluating the World Bank’s Indonesia Climate Change Development Policy Loan (CCDPL).  To read the full evaluation,

Download the Project Performance Assessment Report (PPAR)

Background: Indonesia’s Contribution- and Vulnerability- to Climate Change

Indonesia is the third largest emitter of greenhouse gases in the developing world after China and India. These emissions stem largely from deforestation, peatland conversion, and associated fires, together with electricity generated by coal-fired power plants and the consumption of fossil fuels in the energy and transport sectors, also associated with high fuel subsidies and rapid urbanization. Composed of over 13,000 islands, Indonesia is also one of the most vulnerable countries to the rising adverse impacts of global climate change, including extreme weather events – tropical storms and droughts – and sea level rise, particularly on account of the concentration of much of its population in lowland areas.

In recognition of this, the Government of Indonesia hosted the 13th Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC) in Bali in December 2007, at which time it presented its National Action Plan for Addressing Climate Change. In late 2009, Indonesia’s President pledged that the country would reduce its greenhouse gas (GHG) emissions by 26 percent by 2020.   To reach this target, the Government of Indonesia agreed to substantially cut emissions, and incorporate significant policy reforms in the areas of energy pricing (i.e., reduction of electricity subsidies) and forest governance.

About the Indonesia Climate Change Development Policy Loan (DPL)

The World Bank agreed to participate in the funding of the second phase of an ongoing climate change policy loan program together with the Japanese International Cooperation Agency (JICA) and the Agence Francais de Developpement (AFD) through an initial Development Policy Loan (DPL) of US$ 200 million, approved on May 25, 2010.  This policy loan was expected to be the first of a four-loan programmatic series to support what the Bank denominated the Indonesia Climate Change (CC) DPL Program, whose objectives were to support the government’s efforts to develop a low carbon, climate-resilient growth path.  A number of prior actions were recognized in three main policy areas -- mitigation, adaptation and disaster preparedness, and cross-sectoral and institutional issues – and eleven subareas to justify approval and disbursement of the first loan. Four triggers and other “indicative” policy actions were agreed by the Government and the development partners for the second loan as well as tentative indicative actions for the third and fourth ones, expected to occur in 2011, 2012, and 2013, respectively.

For a variety of reasons, the financing did not extend past the initial loan (CC DPL-I), which was disbursed in September 2010 and closed three months later. According to Government officials interviewed by IEG, the program failed to go forward because of a Presidential decision not to borrow for climate change. But other relevant factors included the loss of critical program “champions” within government, the availability of budget support finance from other sources, the offer by the Norwegian government to provide up to US$ 1 billion in grant funding for REDD, and the failure of the government to meet two of the four triggers for the second loan.   

Performance Rating

While performance in some policy subareas, such as those related to renewable energy, water resource management, and natural disaster risk management, was generally positive, this was less true in others, especially those concerned with peatland conservation, REDD (now REDD+, which includes conservation, sustainable forest management, and enhancement of forest carbon stocks in addition to the reduction of deforestation and forest degradation -- REDD), and forest governance. Nor was it possible to establish an inter-governmental fiscal transfer mechanism to provide incentives for local governments to take priority climate change actions, including the strengthening of forest management activities, which had been one of the triggers for the second loan. As a result, even though the objectives of the CC DPL were – and continue to be -- highly relevant and its design was substantially relevant, its efficacy with regard to both its low carbon and its climate resilience objectives was only modest, and, its overall outcome rated Moderately UnsatisfactoryRead the full report for more outcome assessments.

Lessons

Evaluating the outcomes, IEG identified five lessons relevant for future policy lending efforts:

1) Both a strong “champion” and broad institutional commitment are needed for DPL policy actions to be effectively implemented; it is, thus, important to fully understand the incentives involved for the various government entities that are to be engaged in  implementation. In this regard also it is essential to fully understand the potential political economy, as well as the institutional, constraints that can impede or delay policy implementation; this has implications for the up-front risk analysis and the DPL appraisal process more generally.

2) This is especially important in DPLs with environmental, including climate change objectives, which are inherently cross or multi-sectoral in nature, and, therefore, tend to depend on a broader range of participating institutions, both at the national and subnational levels, than single sector or macroeconomic/fiscal DPLs.

3) Programmatic DPLs can encounter many of the same development effectiveness obstacles, including varying and changing levels of government and/or implementing agency commitment and implementation delays, as investment loans.

4) DPLs for climate change and other complex development challenges are more effective as part of a broader targeted multi-instrument Bank assistance strategy, including the use of investment loans and technical assistance, as a way of ensuring greater Borrower interest and ownership and establishing a longer-term relationship and policy dialogue.

5) Even when a DPL is unsuccessful in terms of its own expected results, it may play a positive and strategically important role as part of an evolving longer-term Bank- Borrower partnership to help address an emerging complex development challenge such as climate change.

Read the full Report

Read more about the Indonesia Climate Change Development Policy Loan

Comments

Submitted by Shyamadas Banerji on Sat, 03/19/2016 - 20:00

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Most if not all of these lessons are relevant to any loan or TA program designed to bring about major reforms whether it is in the investment climate or in climate change policies and institutional capabilities. Addressing incentives for changing government policies as well as the behavior of groups affected by the policy reforms is essential. In the process of designing such a loan, WB management and staff should have taken adequate steps to build wide support for the objectives of the loan, particularly mobilizing NGOs and CSOs to spread the message to affected parties , particularly those adversely affected by the policies and incorporating measures to financially compensate them for the reforms. It is not enough to just identifying risk factors to successful project implementation but to include measures from the inception of the project to mitigate the identified risks as well as new ones emerging during project implementation. A budgetary support loan to the government is unlikely to to achieve the desired objectives.

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