Environment ministry last week launched an agency to manage funds to repair environmental damage and educate communities to prevent further harm.

The agency is due to begin operating at the start of 2020 with initial finance of about 2 trillion rupiah ($141 million) from land restoration payments and fines the state collects from environmental crime cases, as well as money from foreign donors.

"The agency could potentially raise up to 800 trillion rupiah ($56.5 billion) for environmental projects," Finance Minister Sri Mulyani told reporters.

Vegard Kaale, Norway's ambassador to Indonesia, told the Thomson Reuters Foundation the new fund could help Indonesia meet its national commitments under the 2015 Paris Agreement to tackle climate change, "if used efficiently".

"The income from reduced deforestation could benefit provinces and communities that are both producing emissions reductions and preserving biodiversity and are most at risk of the impacts of climate change," he said, referring to compensation the Southeast Asian nation may receive for keeping its forests standing.

Home to the world's third-largest tropical forests, Indonesia is also the biggest producer of palm oil, which many green groups blame for the clearing of forests for plantations.

About a decade ago, Norway signed a $1-billion deal with Indonesia to protect its forests and this year made the first payment for cutting emissions after deforestation rates fell.

Kaale said Indonesia could potentially increase its climate financing from many sources, including the private sector, international donors and multilateral organizations.

"Having a public, government-run fund established in Indonesia offers an opportunity for donors to more directly and efficiently support the policies of the government," he said.

The fund could also strengthen coordination and boost action on green investment and climate change across Indonesia's government, as ten ministries are involved, he added.

Meeting Paris Pledges

Jakarta now aims to prepare regulations that will allow the country to launch a carbon trading program.

Under such schemes, entities wanting to reduce their planet-warming emissions buy credits from projects that keep greenhouse gases out of the atmosphere, such as protecting forests that store carbon.

"This should be one of the core businesses of the fund," said Daniel Murdiyarso and Michael Brady, scientists at the Center for International Forestry Research.

"A carbon trading program is important for Indonesia to fulfill and receive performance-based payments for forest protection and to cover its nationally determined contributions under the Paris Agreement," they added.

Like many Asian countries, Indonesia is experiencing a rise in urbanization, population and economic growth and is scrambling to find ways to increase its electric power capacity, with coal plants set to play a major role.

But under the Paris accord, Indonesia committed to reducing its greenhouse gas emissions by 29 percent by 2030, a target that could rise to 41 percent with international support.

Annisa Rahmawati, a campaigner at Greenpeace Indonesia, said that without a dramatic reduction in the use of fossil fuels and an end to deforestation, the country would not be able to meet its Paris accord commitments and play its part in limiting global warming to 1.5 degrees Celsius (2.7F).

"Financing forest and peatland protection should, therefore, be a priority for the fund," she said.

Ensuring the new fund and its investments are properly monitored and transparent will be vital to ensure the success of its projects and to attract finance, green groups said.

Rahmawati said there was a danger the fund would prioritize projects whose main focus was to expand the economy, such as large dams and infrastructure in conservation areas, rather than tackling climate impacts and reducing emissions.

"Providing financing is one thing, but ensuring that the funded activities address the most relevant problems to prevent and mitigate climate change is essential," she said.

REUTERS