What Environmental Economic Instruments Apply Under PP 46/2017?
Introduction: Indonesia's Environmental Economic Instrument Framework
On November 10, 2017, Indonesia enacted a groundbreaking regulatory framework that fundamentally reshapes environmental governance by integrating economic considerations into environmental protection. Peraturan Pemerintah Nomor 46 Tahun 2017 tentang Instrumen Ekonomi Lingkungan Hidup (Government Regulation No. 46 of 2017 on Environmental Economic Instruments) establishes comprehensive economic mechanisms designed to encourage environmentally responsible behavior by governments, businesses, and individuals while penalizing environmentally harmful activities. This regulation operationalizes Article 43(4) and Article 55(4) of Law No. 32 of 2009 on Environmental Protection and Management, creating a detailed framework for implementing environmental economic instruments across Indonesia's economic and development planning processes.
The regulation introduces three primary instrument categories that work together to influence behavior toward environmental conservation. Article 3 mandates that "Instrumen Ekonomi Lingkungan Hidup meliputi: a. perencanaan pembangunan dan kegiatan ekonomi; b. Pendanaan Lingkungan Hidup; dan c. Insentif dan/atau Disinsentif" (Environmental Economic Instruments include: a. development planning and economic activities; b. Environmental Financing; and c. Incentives and/or Disincentives). These three categories create an integrated system where development planning incorporates environmental costs and values, dedicated financing mechanisms support environmental protection activities, and incentive structures reward environmental protection while discouraging environmental degradation.
Article 2 establishes four fundamental objectives for environmental economic instruments: ensuring accountability and legal compliance in environmental protection, changing stakeholder mindsets and behaviors in development and economic activities, establishing systematic and measurable environmental financing management, and building public and international trust in environmental financing management. These objectives reflect Indonesia's recognition that effective environmental protection requires more than command-and-control regulation—it demands economic structures that make environmental conservation economically rational for businesses, governments, and individuals making daily economic decisions.
The regulation's most innovative provisions establish comprehensive payment systems for environmental services (Pembayaran Jasa Lingkungan Hidup) and inter-regional environmental service compensation (Kompensasi/Imbal Jasa Lingkungan Hidup Antar Daerah). Article 12 of PP 22/2021 partially revoked Articles 21-25 of PP 46/2017 concerning environmental recovery guarantee funds, transferring those provisions to the updated environmental protection framework while maintaining PP 46/2017's core economic instrument provisions. The regulation remains Indonesia's primary legal framework for environmental economic instruments, establishing mechanisms that integrate environmental values into fiscal policy, government procurement, financial markets, and business operations.
This comprehensive analysis examines PP 46/2017's environmental economic instrument framework, focusing on incentive structures, disincentive mechanisms, payment systems for environmental services, environmental financing instruments, and practical implementation requirements. Understanding these economic instruments is essential for businesses, government agencies, and conservation organizations seeking to leverage economic mechanisms for environmental protection while complying with Indonesia's environmental economic governance framework.
1.0 Defining Environmental Economic Instruments: Core Concepts
Article 1(1) of PP 46/2017 defines "Instrumen Ekonomi Lingkungan Hidup" (Environmental Economic Instruments) as "seperangkat kebijakan ekonomi untuk mendorong Pemerintah Pusat, Pemerintah Daerah, atau Setiap Orang ke arah Pelestarian Fungsi Lingkungan Hidup" (a set of economic policies to encourage the Central Government, Regional Governments, or Every Person toward Environmental Function Conservation). This definition establishes environmental economic instruments as proactive policy tools designed to create economic incentives that align private interests with environmental conservation objectives. Rather than solely relying on prohibitions and penalties, these instruments use economic signals to make environmental protection financially attractive and environmental degradation economically costly.
The regulation distinguishes between "Insentif" (Incentives) and "Disinsentif" (Disincentives) with precise definitions that clarify their operational mechanisms. Article 1(3) defines incentives as "upaya memberikan dorongan atau daya tarik secara moneter dan/atau non moneter kepada Setiap Orang maupun Pemerintah Pusat dan Pemerintah Daerah agar melakukan kegiatan yang berdampak positif pada cadangan sumber daya alam dan kualitas fungsi lingkungan hidup" (efforts to provide encouragement or attraction monetarily and/or non-monetarily to Every Person as well as Central Government and Regional Governments to conduct activities with positive impacts on natural resource reserves and environmental function quality). Incentives create positive reinforcement through monetary benefits like subsidies and tax reductions, or non-monetary benefits like simplified permitting and public recognition, rewarding behaviors that preserve or enhance environmental quality.
Article 1(4) defines disincentives as "pengenaan beban atau ancaman secara moneter dan/atau non moneter kepada Setiap Orang maupun Pemerintah Pusat dan Pemerintah Daerah agar mengurangi kegiatan yang berdampak negatif pada cadangan sumber daya alam dan kualitas fungsi lingkungan hidup" (imposition of burdens or threats monetarily and/or non-monetarily to Every Person as well as Central Government and Regional Governments to reduce activities with negative impacts on natural resource reserves and environmental function quality). Disincentives create negative reinforcement through increased costs, additional regulatory requirements, or public disclosure of poor environmental performance, discouraging behaviors that deplete resources or degrade environmental quality.
Article 1(2) defines "Pendanaan Lingkungan Hidup" (Environmental Financing) as "suatu sistem dan mekanisme pengelolaan dana yang digunakan bagi pembiayaan upaya perlindungan dan pengelolaan lingkungan hidup" (a system and mechanism for managing funds used for financing environmental protection and management efforts). Environmental financing encompasses dedicated funding mechanisms including guarantee funds for environmental recovery, government funds for addressing pollution from unknown sources, and trust funds from international donors supporting conservation activities. These financing mechanisms ensure resources are available to address environmental challenges regardless of whether responsible parties can be identified or held accountable.
The regulation introduces comprehensive accounting frameworks that integrate environmental values into economic measurements. Article 1(5) defines "Neraca Sumber Daya Alam dan Lingkungan Hidup" (Natural Resource and Environment Accounts) as "gambaran mengenai cadangan/aset sumber daya alam dan lingkungan hidup serta perubahannya" (description of natural resource and environmental reserves/assets and their changes). These accounts create systematic tracking of environmental stocks and flows, enabling governments to monitor natural resource depletion and environmental degradation alongside traditional economic indicators. Matrix 1.1 below details the core definitional framework for environmental economic instruments.
Matrix 1.1: Core Definitions of Environmental Economic Instruments
| No. | Instrument Category | Indonesian Term | Legal Definition | Primary Function | Article Reference |
|---|---|---|---|---|---|
| 1.1 | Environmental Economic Instruments | Instrumen Ekonomi Lingkungan Hidup | Economic policies to encourage governments and persons toward environmental function conservation | Align economic incentives with environmental protection | Article 1(1) |
| 1.2 | Incentives | Insentif | Monetary/non-monetary encouragement for activities positively impacting natural resources and environmental quality | Reward environmentally beneficial behaviors | Article 1(3) |
| 1.3 | Disincentives | Disinsentif | Monetary/non-monetary burdens to reduce activities negatively impacting natural resources and environmental quality | Discourage environmentally harmful behaviors | Article 1(4) |
| 1.4 | Environmental Financing | Pendanaan Lingkungan Hidup | System and mechanism for managing funds financing environmental protection efforts | Ensure funding availability for environmental protection | Article 1(2) |
| 1.5 | Natural Resource & Environmental Accounts | Neraca Sumber Daya Alam dan Lingkungan Hidup | Description of natural resource/environmental reserves and changes | Track environmental assets and depletion | Article 1(5) |
2.0 Incentive Instruments: Rewarding Environmental Performance
Article 31(1) of PP 46/2017 establishes eight core incentive and disincentive instruments: "Instrumen Ekonomi Lingkungan Hidup yang diterapkan sebagai Insentif dan/atau Disinsentif sebagaimana dimaksud dalam Pasal 3 huruf c meliputi: a. pengembangan sistem Label Ramah Lingkungan Hidup; b. Pengadaan Barang dan Jasa Ramah Lingkungan Hidup; c. penerapan pajak, retribusi, dan subsidi lingkungan hidup; d. pengembangan sistem Lembaga Jasa Keuangan yang ramah lingkungan hidup; e. pengembangan sistem Perdagangan Izin Pembuangan Limbah dan/atau Emisi; f. pengembangan Asuransi Lingkungan Hidup; g. pengembangan sistem Pembayaran Jasa Lingkungan Hidup; dan h. sistem Penghargaan Kinerja di Bidang Perlindungan dan Pengelolaan Lingkungan Hidup" (Environmental Economic Instruments applied as Incentives and/or Disincentives include: a. developing environmentally friendly Label systems; b. Environmentally Friendly Goods and Services Procurement; c. implementing environmental taxes, fees, and subsidies; d. developing environmentally friendly Financial Service Institution systems; e. developing Waste and/or Emissions Discharge Permit Trading systems; f. developing Environmental Insurance; g. developing Payment for Environmental Services systems; and h. Environmental Protection and Management Performance Award systems).
Article 31(2) specifies six forms of incentive implementation: "a. pemberian keringanan kewajiban; b. pemberian kemudahan dan/atau pelonggaran persyaratan pelaksanaan kegiatan; c. pemberian fasilitas dan/atau bantuan; d. pemberian dorongan dan bimbingan; e. pemberian pengakuan dan/atau penghargaan; dan/atau f. pemberitahuan kinerja positif kepada publik" (a. providing obligation relief; b. providing ease and/or loosening of activity implementation requirements; c. providing facilities and/or assistance; d. providing encouragement and guidance; e. providing recognition and/or awards; and/or f. notifying positive performance to the public). These six incentive forms create comprehensive reward structures addressing different motivation types—financial benefits through obligation relief and facility provision, operational benefits through simplified requirements and technical guidance, and reputational benefits through public recognition and awards.
The environmental labeling system established in Articles 33-35 creates market-based incentives by differentiating environmentally superior products. Article 33(1) mandates "Label Ramah Lingkungan Hidup sebagaimana dimaksud dalam Pasal 31 ayat (1) huruf a diberikan Pemerintah Pusat pada produk yang ramah lingkungan hidup" (Environmentally Friendly Labels are given by the Central Government to products that are environmentally friendly). Article 33(2) establishes three label functions: "a. pengakuan atas pemenuhan kriteria penaatan hukum; b. pengakuan atas pemenuhan kriteria inovasi dan upaya perlindungan dan pengelolaan lingkungan hidup melebihi yang dipersyaratkan; dan c. informasi dan perlindungan bagi masyarakat" (a. recognition of legal compliance criteria fulfillment; b. recognition of innovation criteria fulfillment and environmental protection efforts exceeding requirements; and c. information and protection for society). These labels enable consumers to make environmentally informed purchasing decisions, creating market demand that rewards environmental performance.
Article 36 mandates environmentally friendly government procurement: "Pengadaan Barang dan Jasa Ramah Lingkungan Hidup sebagaimana dimaksud dalam Pasal 31 ayat (1) huruf b dilaksanakan oleh kementerian/lembaga/satuan kerja perangkat daerah/institusi" (Environmentally Friendly Goods and Services Procurement is implemented by ministries/agencies/regional government work units/institutions). Article 36(2) establishes two procurement objectives: "a. mendorong kementerian/lembaga/satuan kerja perangkat daerah/institusi menggunakan barang dan jasa ramah lingkungan hidup; dan b. mendorong peluang pasar bagi barang dan jasa yang telah memperoleh Label Ramah Lingkungan Hidup" (a. encouraging ministries/agencies/regional government work units/institutions to use environmentally friendly goods and services; and b. encouraging market opportunities for goods and services that have obtained Environmentally Friendly Labels). Government procurement leverage creates substantial market incentives, as government purchasing power drives demand for environmentally certified products.
Article 38 establishes tax, fee, and subsidy instruments as incentive mechanisms. Article 38(2)(c) authorizes "penerapan subsidi non energi yang dibatasi dalam jangka waktu tertentu kepada Setiap Orang yang kegiatan produksinya berdampak pada perbaikan fungsi lingkungan hidup" (implementation of non-energy subsidies limited to certain timeframes for Every Person whose production activities impact environmental function improvement). Article 41 specifies three subsidy eligibility criteria: "a. memproduksi barang dan/atau jasa yang ramah lingkungan hidup; b. merupakan Usaha dan/atau Kegiatan mikro, kecil, dan menengah yang berupaya mencegah pencemaran dan/atau kerusakan lingkungan hidup; dan/atau c. menghasilkan produk dan teknologi untuk dan/atau berdampak kepada perbaikan fungsi lingkungan hidup" (a. producing environmentally friendly goods and/or services; b. being micro, small, and medium Enterprises and/or Activities attempting to prevent pollution and/or environmental damage; and/or c. producing products and technology for and/or impacting environmental function improvement). These subsidies provide direct financial incentives for businesses adopting environmentally beneficial technologies and practices. Matrix 2.1 below details incentive instrument types and implementation mechanisms.
Matrix 2.1: Incentive Instruments Under PP 46/2017
| No. | Incentive Instrument | Indonesian Term | Implementation Mechanism | Target Beneficiaries | Article Reference |
|---|---|---|---|---|---|
| 2.1 | Environmentally Friendly Labels | Label Ramah Lingkungan Hidup | Government certification of environmental superiority | Product manufacturers and importers | Article 33-35 |
| 2.2 | Green Procurement | Pengadaan Barang dan Jasa Ramah Lingkungan Hidup | Mandatory preference for certified products in government purchasing | Suppliers of environmentally certified goods/services | Article 36-37 |
| 2.3 | Environmental Subsidies | Subsidi Lingkungan Hidup | Time-limited financial support for environmental improvements | Businesses producing green products/technologies, MSMEs | Article 38(2)(c), Article 41 |
| 2.4 | Environmental Tax Relief | Keringanan Pajak Lingkungan Hidup | Reduced tax burdens for environmentally positive activities | Businesses meeting environmental excellence criteria | Article 38, Article 39 |
| 2.5 | Performance Awards | Penghargaan Kinerja | Public recognition of environmental protection achievements | Entities exceeding environmental requirements | Article 31(1)(h) |
| 2.6 | Positive Performance Notification | Pemberitahuan Kinerja Positif | Public disclosure of superior environmental performance | Businesses with verified environmental excellence | Article 31(2)(f) |
Matrix 2.2: Six Forms of Incentive Implementation
| No. | Incentive Form | Indonesian Term | Description | Benefit Type | Article Reference |
|---|---|---|---|---|---|
| 2.7 | Obligation Relief | Pemberian Keringanan Kewajiban | Reduced regulatory obligations for environmental performers | Financial and Administrative | Article 31(2)(a) |
| 2.8 | Requirement Easing | Pemberian Kemudahan/Pelonggaran Persyaratan | Simplified permitting and loosened requirements | Administrative | Article 31(2)(b) |
| 2.9 | Facilities/Assistance | Pemberian Fasilitas/Bantuan | Direct support and infrastructure provision | Financial and Technical | Article 31(2)(c) |
| 2.10 | Encouragement/Guidance | Pemberian Dorongan dan Bimbingan | Technical assistance and capacity building | Technical | Article 31(2)(d) |
| 2.11 | Recognition/Awards | Pemberian Pengakuan/Penghargaan | Official recognition and awards | Reputational | Article 31(2)(e) |
| 2.12 | Public Notification | Pemberitahuan Kinerja Positif Kepada Publik | Public disclosure of positive environmental performance | Reputational and Market | Article 31(2)(f) |
3.0 Disincentive Instruments: Discouraging Environmental Degradation
Article 31(3) of PP 46/2017 specifies three forms of disincentive implementation: "Instrumen sebagaimana dimaksud pada ayat (1) yang berfungsi sebagai Disinsentif agar mengurangi kegiatan yang berdampak negatif pada sumber daya alam dan fungsi lingkungan hidup dalam bentuk: a. penambahan kewajiban; b. penambahan dan/atau pengetatan persyaratan pelaksanaan kegiatan; dan/atau c. pemberitahuan kinerja negatif kepada publik" (Instruments functioning as Disincentives to reduce activities with negative impacts on natural resources and environmental functions in the form of: a. additional obligations; b. addition and/or tightening of activity implementation requirements; and/or c. notification of negative performance to the public). These three disincentive forms create graduated penalties that increase costs and restrictions for environmentally harmful activities while maintaining regulatory flexibility to match disincentive severity to environmental impact magnitude.
The tax and fee system under Articles 38-40 serves primarily as a disincentive mechanism by internalizing environmental externalities. Article 38(2)(a) mandates "pengenaan tarif pajak pusat dan daerah pada Setiap Orang yang memanfaatkan sumber daya alam berdasarkan kriteria dampak lingkungan hidup" (imposition of central and regional tax rates on Every Person utilizing natural resources based on environmental impact criteria). Article 39(2) establishes three environmental impact criteria for tax assessment: "a. penyusutan sumber daya alam; b. pencemaran lingkungan hidup; dan c. kerusakan lingkungan hidup" (a. natural resource depletion; b. environmental pollution; and c. environmental damage). This framework creates economic penalties proportional to environmental harm—activities causing greater resource depletion, pollution, or environmental damage face higher tax burdens, making environmentally harmful activities economically disadvantageous.
Article 39(1) specifies seven categories of natural resource use subject to environmental taxation: "a. air tanah; b. air permukaan; c. sarang burung walet; d. bukan logam dan batuan; e. bahan bakar kendaraan bermotor; f. kendaraan bermotor; dan g. kegiatan lainnya yang sesuai dengan kriteria dampak lingkungan hidup" (a. groundwater; b. surface water; c. bird's nest; d. non-metallic and rock; e. motor vehicle fuel; f. motor vehicles; and g. other activities meeting environmental impact criteria). These categories reflect Indonesia's natural resource extraction economy, targeting taxation at activities directly depleting environmental assets. The open-ended category (g) enables regulatory adaptation as new environmentally significant activities emerge or environmental understanding evolves.
Article 40 establishes retribution systems for pollution control infrastructure: "Pengenaan tarif retribusi jasa umum daerah sebagaimana dimaksud dalam pasal 38 ayat (2) huruf b dikenakan berdasarkan: a. jenis, karakteristik, dan volume limbah yang dihasilkan; b. jenis, karakteristik, dan volume sampah yang dihasilkan; c. biaya membangun sarana dan prasarana pengolah limbah dan/atau sampah; d. biaya pemeliharaan dan pengoperasian sarana dan prasarana pengolah limbah dan/atau sampah; dan e. biaya pengawasan untuk pengolahan limbah dan/atau sampah" (Regional public service retribution rates are imposed based on: a. type, characteristics, and volume of waste produced; b. type, characteristics, and volume of garbage produced; c. costs to build waste and/or garbage treatment infrastructure; d. costs to maintain and operate waste and/or garbage treatment infrastructure; and e. supervision costs for waste and/or garbage treatment). Article 40(3) authorizes progressive rate structures: "Pemerintah Daerah dapat menerapkan pengenaan progresif atas dasar karakteristik dan besaran volume limbah atau sampah yang dihasilkan" (Regional Governments can implement progressive impositions based on characteristics and volume magnitude of waste or garbage produced). Progressive retribution creates stronger disincentives for high-volume polluters, encouraging waste reduction and pollution prevention.
The public disclosure provisions in Article 31(3)(c) create reputational disincentives by exposing poor environmental performance to public scrutiny. Public notification of negative environmental performance damages corporate reputation, potentially affecting customer relationships, investor confidence, and social license to operate. This mechanism leverages market forces and social pressure as enforcement tools, complementing direct regulatory penalties with indirect economic consequences from damaged public standing. Matrix 3.1 below details disincentive instruments and implementation mechanisms.
Matrix 3.1: Disincentive Instruments Under PP 46/2017
| No. | Disincentive Instrument | Indonesian Term | Implementation Mechanism | Target Entities | Article Reference |
|---|---|---|---|---|---|
| 3.1 | Additional Obligations | Penambahan Kewajiban | Increased regulatory requirements for poor performers | Businesses with negative environmental impacts | Article 31(3)(a) |
| 3.2 | Requirement Tightening | Penambahan/Pengetatan Persyaratan | Stricter permitting and operational restrictions | Businesses failing environmental standards | Article 31(3)(b) |
| 3.3 | Negative Performance Notification | Pemberitahuan Kinerja Negatif | Public disclosure of poor environmental performance | Businesses with verified environmental violations | Article 31(3)(c) |
| 3.4 | Environmental Taxation | Pajak Lingkungan Hidup | Tax burdens based on environmental impact magnitude | Natural resource extractors and polluters | Article 38(2)(a), Article 39 |
| 3.5 | Progressive Retribution | Retribusi Progresif | Escalating fees based on waste/pollution volume | High-volume waste generators | Article 40(3) |
Matrix 3.2: Environmental Impact Criteria for Tax Assessment
| No. | Impact Criterion | Indonesian Term | Description | Tax Implication | Article Reference |
|---|---|---|---|---|---|
| 3.6 | Natural Resource Depletion | Penyusutan Sumber Daya Alam | Reduction of natural resource stocks | Higher taxes for activities depleting resources faster | Article 39(2)(a) |
| 3.7 | Environmental Pollution | Pencemaran Lingkungan Hidup | Introduction of pollutants into environment | Higher taxes for higher pollution volumes/toxicity | Article 39(2)(b) |
| 3.8 | Environmental Damage | Kerusakan Lingkungan Hidup | Physical destruction of environmental functions | Higher taxes for activities causing greater damage | Article 39(2)(c) |
Matrix 3.3: Natural Resource Uses Subject to Environmental Taxation
| No. | Resource Category | Indonesian Term | Typical Activities | Article Reference |
|---|---|---|---|---|
| 3.9 | Groundwater | Air Tanah | Industrial water extraction, bottled water production | Article 39(1)(a) |
| 3.10 | Surface Water | Air Permukaan | Water-intensive industries, irrigation | Article 39(1)(b) |
| 3.11 | Non-Metal Minerals | Bukan Logam dan Batuan | Stone quarrying, sand mining, construction materials | Article 39(1)(d) |
| 3.12 | Motor Vehicle Fuel | Bahan Bakar Kendaraan Bermotor | Gasoline and diesel consumption | Article 39(1)(e) |
| 3.13 | Motor Vehicles | Kendaraan Bermotor | Vehicle ownership and operation | Article 39(1)(f) |
4.0 Payment for Environmental Services: Compensating Conservation
Article 1(8) of PP 46/2017 defines "Jasa Lingkungan Hidup" (Environmental Services) as "manfaat dari ekosistem dan lingkungan hidup bagi manusia dan keberlangsungan kehidupan yang diantaranya mencakup penyediaan sumber daya alam, pengaturan alam dan lingkungan hidup, penyokong proses alam, dan pelestarian nilai budaya" (benefits from ecosystems and environment for humans and life continuity which include natural resource provision, natural and environmental regulation, natural process support, and cultural value preservation). This comprehensive definition recognizes environmental services' multiple value dimensions, encompassing provisioning services providing tangible resources, regulating services maintaining ecological balance, supporting services enabling life processes, and cultural services preserving heritage and spiritual values.
Article 10(1) establishes inter-regional environmental service compensation: "Kompensasi/Imbal Jasa Lingkungan Hidup Antar Daerah sebagaimana dimaksud dalam Pasal 4 huruf c diberikan oleh Pemanfaat Jasa Lingkungan Hidup atas manfaat dan/atau akses terhadap Jasa Lingkungan Hidup yang dikelola dan/atau dipulihkan oleh Penyedia Jasa Lingkungan Hidup" (Inter-Regional Environmental Service Compensation/Payment is given by Environmental Service Users for benefits and/or access to Environmental Services managed and/or restored by Environmental Service Providers). This provision establishes the foundational principle that entities benefiting from environmental services should compensate entities providing or maintaining those services, creating economic recognition of conservation value.
Article 10(2) enumerates five environmental service categories eligible for compensation: "a. perlindungan tata air; b. perlindungan keanekaragaman hayati; c. penyerapan dan penyimpanan karbon; d. pelestarian keindahan alam; dan/atau e. Jasa Lingkungan Hidup lainnya" (a. water system protection; b. biodiversity protection; c. carbon sequestration and storage; d. natural beauty preservation; and/or e. other Environmental Services). These five categories cover Indonesia's priority environmental services—water regulation services ensuring water supply and flood control, biodiversity services maintaining genetic diversity and ecosystem resilience, carbon services addressing climate change mitigation, aesthetic services supporting tourism and cultural values, and an open category enabling recognition of emerging environmental service types.
Article 11 establishes compensation valuation criteria: "Nilai Kompensasi/Imbal Jasa Lingkungan Hidup Antar Daerah sebagaimana dimaksud dalam Pasal 10 paling sedikit ditentukan dengan mempertimbangkan: a. biaya ekonomi upaya Pelestarian Fungsi Lingkungan Hidup; b. biaya pemberdayaan masyarakat; dan c. biaya pelaksanaan kerjasama" (Inter-Regional Environmental Service Compensation/Payment Value is determined at minimum by considering: a. economic costs of Environmental Function Conservation efforts; b. community empowerment costs; and c. cooperation implementation costs). This three-factor valuation framework ensures compensation reflects conservation's actual costs, including direct environmental management expenses, community capacity building investments, and administrative costs of maintaining payment arrangements.
Article 12(1) establishes four eligibility requirements for environmental service providers: "a. Penyedia Jasa Lingkungan Hidup memiliki bukti pemilikan/penguasaan lahan; b. Penyedia Jasa Lingkungan Hidup memiliki kewenangan untuk menyediakan, menghasilkan, dan/atau meningkatkan Jasa Lingkungan Hidup; c. perhitungan Jasa Lingkungan Hidup dan kompensasi/imbal jasa terukur; dan d. rincian kompensasi/imbal jasa termuat dalam dokumen rencana kerja dan anggaran Pemerintah Pusat dan/atau Pemerintah Daerah sesuai ketentuan peraturan perundang-undangan" (a. Environmental Service Provider has proof of land ownership/control; b. Environmental Service Provider has authority to provide, produce, and/or enhance Environmental Services; c. Environmental Service calculation and compensation/payment are measurable; and d. compensation/payment details are included in Central Government and/or Regional Government work plan and budget documents according to regulatory provisions). These requirements ensure providers legitimately control conservation areas and can deliver services, while requiring measurable service quantification enabling performance-based payment verification.
Article 12(3) mandates specific uses for received compensation: "Kompensasi/Imbal Jasa Lingkungan Hidup Antar Daerah yang diberikan wajib digunakan untuk kepentingan: a. pemulihan lingkungan hidup; b. konservasi; c. pengayaan keanekaragaman hayati; d. peningkatan kapasitas masyarakat dalam Pelestarian Fungsi Lingkungan Hidup; e. pengembangan energi terbarukan; f. pengembangan perekonomian berbasis keberlanjutan; g. pengembangan infrastruktur pendukungnya; dan/atau h. kegiatan lainnya sesuai dengan perkembangan dan kebutuhan penyediaan Jasa Lingkungan Hidup yang disepakati antara Pemanfaat Jasa Lingkungan Hidup dan Penyedia Jasa Lingkungan Hidup" (Received Inter-Regional Environmental Service Compensation/Payment must be used for: a. environmental recovery; b. conservation; c. biodiversity enrichment; d. community capacity improvement in Environmental Function Conservation; e. renewable energy development; f. sustainability-based economic development; g. supporting infrastructure development; and/or h. other activities according to environmental service provision development and needs agreed between Environmental Service Users and Providers). These mandatory use restrictions ensure compensation funds directly support conservation objectives rather than general government budgets. Matrix 4.1 below details the payment for environmental services framework.
Matrix 4.1: Payment for Environmental Services Framework
| No. | Service Category | Indonesian Term | Description | Typical Payment Scenarios | Article Reference |
|---|---|---|---|---|---|
| 4.1 | Water System Protection | Perlindungan Tata Air | Watershed conservation maintaining water quantity/quality | Downstream water users paying upstream forest conservers | Article 10(2)(a) |
| 4.2 | Biodiversity Protection | Perlindungan Keanekaragaman Hayati | Conservation maintaining species diversity and genetic resources | Pharmaceutical/bioprospecting firms paying conservation area managers | Article 10(2)(b) |
| 4.3 | Carbon Sequestration/Storage | Penyerapan dan Penyimpanan Karbon | Forest conservation capturing and storing atmospheric carbon | Carbon offset purchasers paying forest protection entities | Article 10(2)(c) |
| 4.4 | Natural Beauty Preservation | Pelestarian Keindahan Alam | Landscape conservation maintaining aesthetic and recreational values | Tourism operators paying scenic area conservers | Article 10(2)(d) |
| 4.5 | Other Environmental Services | Jasa Lingkungan Hidup Lainnya | Emerging environmental services not yet categorized | Negotiated on case-by-case basis | Article 10(2)(e) |
Matrix 4.2: Payment Valuation Criteria
| No. | Valuation Component | Indonesian Term | Description | Typical Cost Elements | Article Reference |
|---|---|---|---|---|---|
| 4.6 | Conservation Economic Costs | Biaya Ekonomi Upaya Pelestarian Fungsi Lingkungan Hidup | Direct costs of maintaining environmental functions | Staff salaries, equipment, patrol costs, restoration activities | Article 11(a) |
| 4.7 | Community Empowerment Costs | Biaya Pemberdayaan Masyarakat | Investments in local community capacity and livelihood alternatives | Training programs, alternative livelihood support, community benefits | Article 11(b) |
| 4.8 | Cooperation Implementation Costs | Biaya Pelaksanaan Kerjasama | Administrative costs of maintaining payment arrangements | Monitoring, reporting, verification, negotiation costs | Article 11(c) |
Matrix 4.3: Provider Eligibility Requirements
| No. | Requirement | Indonesian Term | Verification Standard | Article Reference |
|---|---|---|---|---|
| 4.9 | Land Ownership/Control Proof | Bukti Pemilikan/Penguasaan Lahan | Land certificates, forest management permits, customary rights documentation | Article 12(1)(a) |
| 4.10 | Service Provision Authority | Kewenangan Menyediakan, Menghasilkan, Meningkatkan Jasa LH | Legal authority to manage conservation areas and environmental services | Article 12(1)(b) |
| 4.11 | Measurable Service Calculation | Perhitungan Terukur | Quantifiable service units (hectares conserved, tons carbon, cubic meters water) | Article 12(1)(c) |
| 4.12 | Budget Documentation | Rincian dalam Dokumen Rencana Kerja dan Anggaran | Formal inclusion in government budgeting documents | Article 12(1)(d) |
Matrix 4.4: Mandatory Uses for Compensation Received
| No. | Permitted Use | Indonesian Term | Description | Article Reference |
|---|---|---|---|---|
| 4.13 | Environmental Recovery | Pemulihan Lingkungan Hidup | Restoration of degraded ecosystems | Article 12(3)(a) |
| 4.14 | Conservation Activities | Konservasi | Protection and sustainable management of natural resources | Article 12(3)(b) |
| 4.15 | Biodiversity Enrichment | Pengayaan Keanekaragaman Hayati | Species reintroduction, habitat restoration | Article 12(3)(c) |
| 4.16 | Community Capacity Building | Peningkatan Kapasitas Masyarakat | Training and empowerment for local conservation participation | Article 12(3)(d) |
| 4.17 | Renewable Energy Development | Pengembangan Energi Terbarukan | Clean energy infrastructure supporting conservation | Article 12(3)(e) |
| 4.18 | Sustainability-Based Economy | Pengembangan Perekonomian Berbasis Keberlanjutan | Green business development and sustainable livelihoods | Article 12(3)(f) |
| 4.19 | Supporting Infrastructure | Pengembangan Infrastruktur Pendukung | Infrastructure enabling conservation activities | Article 12(3)(g) |
5.0 Environmental Financing Mechanisms
Article 20(1) of PP 46/2017 establishes three environmental financing instruments: "Instrumen Pendanaan Lingkungan Hidup sebagaimana dimaksud dalam Pasal 3 huruf b meliputi: a. Dana Jaminan Pemulihan Lingkungan Hidup; b. Dana Penanggulangan Pencemaran dan/atau Kerusakan dan Pemulihan Lingkungan Hidup; dan c. Dana Amanah/Bantuan Konservasi" (Environmental Financing Instruments include: a. Environmental Recovery Guarantee Funds; b. Pollution and/or Damage Control and Environmental Recovery Funds; and c. Conservation Trust/Assistance Funds). These three financing mechanisms address different environmental financing needs—guarantee funds ensuring polluters maintain recovery capacity, government emergency funds addressing pollution from unknown sources, and trust funds enabling long-term conservation financing from international donors.
Article 1(11) defines "Dana Jaminan Pemulihan Lingkungan Hidup" (Environmental Recovery Guarantee Fund) as "dana yang disiapkan oleh suatu Usaha dan/atau Kegiatan untuk pemulihan kualitas lingkungan hidup yang rusak dan/atau cemar karena kegiatannya" (funds prepared by a Business and/or Activity for recovering environmental quality damaged and/or polluted because of its activities). Note that PP 22/2021 Article 12 partially revoked Articles 21-25 of PP 46/2017 concerning these guarantee funds, transferring those provisions to the updated environmental protection framework. Current guarantee fund requirements are now governed by PP 22/2021 rather than PP 46/2017.
Article 26(1) establishes government pollution control funds: "Pemerintah Pusat dan Pemerintah Daerah menyiapkan Dana Penanggulangan Pencemaran dan/atau Kerusakan dan Pemulihan Lingkungan Hidup sebagaimana dimaksud dalam Pasal 20 ayat (1) huruf b untuk: a. memastikan tersedianya dana untuk penanggulangan pencemaran dan/atau kerusakan lingkungan hidup dan pemulihan fungsi lingkungan hidup; b. menjamin terpulihkannya kembali fungsi lingkungan hidup; dan c. menjamin pelestarian fungsi atmosfer" (Central Government and Regional Governments prepare Pollution and/or Damage Control and Environmental Recovery Funds for: a. ensuring fund availability for pollution and/or environmental damage control and environmental function recovery; b. guaranteeing environmental function recovery; and c. guaranteeing atmospheric function preservation). These government funds address pollution incidents where responsible parties cannot be identified, ensuring environmental cleanup occurs regardless of liability determination.
Article 27(1) specifies fund sources: "Dana Penanggulangan Pencemaran dan/atau Kerusakan dan Pemulihan Lingkungan Hidup sebagaimana dimaksud dalam Pasal 26 bersumber dari: a. anggaran pendapatan dan belanja negara; b. anggaran pendapatan dan belanja daerah; dan/atau c. sumber dana lainnya yang sah dan tidak mengikat sesuai dengan ketentuan peraturan perundang-undangan" (Pollution and/or Damage Control and Environmental Recovery Funds are sourced from: a. state revenue and expenditure budget; b. regional revenue and expenditure budget; and/or c. other lawful and non-binding fund sources according to regulatory provisions). Article 27(2) explicitly identifies environmental taxes and fees as potential fund sources: "Sumber dana sebagaimana dimaksud pada ayat (1) dapat berasal dari pajak dan retribusi lingkungan hidup" (Fund sources can come from environmental taxes and fees). This linkage creates circular financing where pollution taxes directly fund pollution cleanup, establishing polluter-pays principles.
Article 28 establishes conservation trust funds: "Dana Amanah/Bantuan Konservasi sebagaimana dimaksud dalam Pasal 20 ayat (1) huruf c bersumber dari hibah dan donasi" (Conservation Trust/Assistance Funds are sourced from grants and donations). Article 28(2) specifies management arrangements: "Dana Amanah/Bantuan Konservasi sebagaimana dimaksud pada ayat (1) dikelola berdasarkan kesepakatan antara pemberi hibah dan donasi dengan Pemerintah Pusat dan/atau masyarakat" (Conservation Trust/Assistance Funds are managed based on agreements between grant and donation providers with Central Government and/or communities). These trust funds enable international conservation donors to support Indonesian environmental protection through dedicated financing mechanisms governed by donor-government agreements specifying fund use restrictions and management procedures.
Article 29(1) specifies permissible conservation trust fund uses: "Konservasi lingkungan hidup yang dibiayai dari Dana Amanah/Bantuan Konservasi sebagaimana dimaksud dalam Pasal 28 ayat (1) meliputi: a. Konservasi Sumber Daya Alam; b. pencadangan sumber daya alam; dan c. pelestarian fungsi atmosfer" (Environmental conservation financed from Conservation Trust/Assistance Funds includes: a. Natural Resource Conservation; b. natural resource reserves; and c. atmospheric function preservation). Article 30(1) establishes professional fund management standards: "Pengelolaan Pendanaan Lingkungan Hidup yang berasal dari Dana Penanggulangan Pencemaran dan/atau Kerusakan dan Pemulihan Lingkungan Hidup dan Dana Amanah/Bantuan Konservasi yang dikelola Pemerintah Pusat melalui mekanisme: a. pola pengelolaan keuangan badan layanan umum; atau b. pola pengelolaan keuangan lainnya sesuai dengan peraturan perundang-undangan" (Environmental Financing management from Pollution Control and Recovery Funds and Conservation Trust/Assistance Funds managed by Central Government through mechanisms: a. public service agency financial management patterns; or b. other financial management patterns according to regulatory provisions). These professional management requirements ensure environmental funds achieve conservation objectives efficiently through transparent, accountable financial administration. Matrix 5.1 below details environmental financing mechanisms.
Matrix 5.1: Environmental Financing Instruments
| No. | Financing Instrument | Indonesian Term | Purpose | Fund Source | Current Regulatory Status | Article Reference |
|---|---|---|---|---|---|---|
| 5.1 | Environmental Recovery Guarantee Fund | Dana Jaminan Pemulihan Lingkungan Hidup | Ensure polluter capacity for environmental restoration | Business/activity operators (deposited in advance) | NOW GOVERNED BY PP 22/2021 (Articles 21-25 revoked) | Article 1(11), Article 20(1)(a) |
| 5.2 | Pollution Control & Recovery Fund | Dana Penanggulangan Pencemaran dan/atau Kerusakan dan Pemulihan Lingkungan Hidup | Government emergency response to pollution from unknown sources | Government budgets, environmental taxes/fees | ACTIVE | Article 20(1)(b), Article 26-27 |
| 5.3 | Conservation Trust/Assistance Fund | Dana Amanah/Bantuan Konservasi | Long-term conservation financing from international donors | International grants and donations | ACTIVE | Article 20(1)(c), Article 28-29 |
Matrix 5.2: Pollution Control & Recovery Fund Uses
| No. | Fund Use | Indonesian Term | Description | Article Reference |
|---|---|---|---|---|
| 5.4 | Pollution Control | Penanggulangan Pencemaran | Emergency response to pollution incidents | Article 26(1)(a) |
| 5.5 | Environmental Function Recovery | Pemulihan Fungsi Lingkungan Hidup | Restoration of damaged environmental functions | Article 26(1)(b) |
| 5.6 | Atmospheric Function Preservation | Pelestarian Fungsi Atmosfer | Climate change mitigation and air quality protection | Article 26(1)(c) |
Matrix 5.3: Conservation Trust Fund Permitted Uses
| No. | Conservation Activity | Indonesian Term | Description | Article Reference |
|---|---|---|---|---|
| 5.7 | Natural Resource Conservation | Konservasi Sumber Daya Alam | Protection, preservation, sustainable use of natural resources | Article 29(1)(a) |
| 5.8 | Natural Resource Reserves | Pencadangan Sumber Daya Alam | Establishment and management of conservation areas | Article 29(1)(b) |
| 5.9 | Atmospheric Function Preservation | Pelestarian Fungsi Atmosfer | Climate change mitigation, ozone protection, air quality management | Article 29(1)(c) |
Conclusion
PP 46/2017 establishes Indonesia's comprehensive environmental economic instrument framework, creating integrated systems of incentives, disincentives, payment mechanisms, and financing structures designed to align economic decisions with environmental conservation objectives. The regulation recognizes that effective environmental protection requires more than prohibitions and penalties—it demands economic structures making environmental conservation financially rational for businesses, governments, and individuals. By establishing environmental labeling systems, green procurement mandates, environmental taxation frameworks, payment systems for environmental services, and dedicated environmental financing mechanisms, PP 46/2017 creates comprehensive economic tools complementing traditional command-and-control environmental regulation.
The regulation's payment for environmental services provisions represent particularly innovative policy instruments, establishing legal frameworks enabling conservation providers to receive compensation from environmental service beneficiaries. These payment mechanisms create sustainable financing for conservation activities while recognizing the economic value of ecosystem services often treated as free goods in traditional economic frameworks. The regulation's environmental financing instruments ensure resources are available for environmental protection regardless of whether responsible parties can be identified, while conservation trust fund provisions enable international conservation donors to support Indonesian environmental protection through dedicated, professionally managed financing mechanisms.
Understanding PP 46/2017's environmental economic instruments is essential for businesses seeking to leverage incentive programs, government agencies implementing environmental fiscal policy, and conservation organizations developing payment for environmental services schemes. The regulation's integration of economic considerations into environmental protection represents Indonesia's commitment to sustainable development, creating policy structures enabling economic growth while preserving environmental assets for future generations. Though PP 22/2021 partially amended PP 46/2017 by transferring environmental recovery guarantee fund provisions to the updated environmental protection framework, PP 46/2017 remains Indonesia's primary legal framework for environmental economic instruments, establishing mechanisms that shape Indonesia's approach to economically informed environmental governance.
Regulation Reference
Full Citation:
Peraturan Pemerintah Republik Indonesia Nomor 46 Tahun 2017 tentang Instrumen Ekonomi Lingkungan Hidup
(Government Regulation of the Republic of Indonesia Number 46 of 2017 on Environmental Economic Instruments)
Status: Active (with partial revocation of Articles 21-25 by PP 22/2021)
Enacted: November 10, 2017
Effective: November 10, 2017
Official Source: https://peraturan.bpk.go.id/Details/64701
Legal Basis:
- UU No. 32 Tahun 2009 tentang Perlindungan dan Pengelolaan Lingkungan Hidup (Article 43(4) and Article 55(4))
Amendments:
- PP No. 22 Tahun 2021: Partially revoked Articles 21-25 concerning Environmental Recovery Guarantee Funds (Dana Jaminan Pemulihan Lingkungan Hidup)
PDF Download: https://peraturan.bpk.go.id/Download/54917/PP%20Nomor%2046%20Tahun%202017.pdf
Key Indonesian Legal Terms:
- Instrumen Ekonomi Lingkungan Hidup = Environmental Economic Instruments
- Insentif = Incentives
- Disinsentif = Disincentives
- Jasa Lingkungan Hidup = Environmental Services
- Pembayaran Jasa Lingkungan Hidup = Payment for Environmental Services
- Kompensasi/Imbal Jasa Lingkungan Hidup Antar Daerah = Inter-Regional Environmental Service Compensation/Payment
- Penyedia Jasa Lingkungan Hidup = Environmental Service Provider
- Pemanfaat Jasa Lingkungan Hidup = Environmental Service User
- Pendanaan Lingkungan Hidup = Environmental Financing
- Label Ramah Lingkungan Hidup = Environmentally Friendly Label
- Pengadaan Barang dan Jasa Ramah Lingkungan Hidup = Environmentally Friendly Goods and Services Procurement
- Neraca Sumber Daya Alam dan Lingkungan Hidup = Natural Resource and Environmental Accounts
- Pelestarian Fungsi Lingkungan Hidup = Environmental Function Conservation
This article is part of CRPG's Carbon & Climate series analyzing Indonesia's regulatory framework for environmental economics and carbon management.
Article 64 | REGPRIMA Protocol | Environmental Economics Series
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