“Natural resource-producing regions bear the heaviest burden of ecological damage, while regions that protect their forests are ironically ‘punished’ with minimal fiscal capacity for not exploiting their nature.”
Every June 5th, the world commemorates World Environment Day. However, there is a paradox in Indonesia that we must honestly acknowledge. Regions that contribute heavily to state revenues from natural resource extraction are also the ones bearing the brunt of ecological destruction. Meanwhile, regions that choose to protect their forests, watersheds, or coastlines are ironically “punished” with minimal fiscal capacity for choosing not to exploit their natural surroundings.
Non-Tax State Revenue (PNBP) from the mineral and coal sector in 2025 reached approximately IDR 138.37 trillion. The central question is: how much of it actually returns to restore producing regions, and how much is channeled as an incentive to protecting regions? This is the gateway to the true essence of our debate: regional social-ecological fiscal justice.
This justice is not merely a technocratic term. It is how we answer three fundamental questions simultaneously: Do producing and protecting regions receive a share proportional to the costs they bear? Do citizens suffering from pollution-related illnesses, indigenous communities losing their living spaces, and workers left behind after mines close receive real protection from state revenues? And do the non-renewable resources we extract today leave sufficient capital for the generations who will inherit the abandoned pits and toxic waste?
These three questions, unfortunately, have not been honestly answered by our current natural resource fiscal regime.
The Bitter Reality of Extractive Governance
The state prices the resources, but not the damages. The Revenue Sharing Fund (Dana Bagi Hasil/DBH) is calculated based on cash influx, not the actual costs borne by the environment, public health, and livelihoods.
Fiscal allocations rigidly follow administrative boundaries, even though the impact of ecological damage recognizes no map borders. A mine operates in one district, yet its waste pollutes the air across provincial boundaries and accumulates sediment in coastlines far from the concession point. Consequently, downstream regions bearing the impact are often excluded from compensation calculations. Furthermore, non-renewable resources are treated like routine revenue, rather than depleting capital. This is done without any price volatility buffers or a serious intergenerational fund.
On the ground, thousands of abandoned mine pits stretch from Kalimantan to Sulawesi. The issuance of Law No. 2 of 2025 on Mineral and Coal Mining, which opens mining permits to cooperatives and Micro, Small, and Medium Enterprises (MSMEs), adds a new concern: who guarantees their financial capacity to pay for future restoration costs? When formal governance stalls, it is no wonder that the voices of citizens and indigenous communities around mines are often only heard when they resort to demonstrations and roadblocks.
Three Gateways and Six Transformation Agendas
In the author’s view, at least three fiscal instrument gateways are already available on regional policymakers’ tables. First, an upstream instrument in the form of Ecological Taxes (Ecotaxes). This is not about creating new levies that distort investments, but rather optimizing existing regulations to ensure the Polluter Pays principle stands tall. This step is crucial so that regions do not bear “The Cost of Inaction,” where delays in mitigation today will be paid dearly by the Regional State Budget (APBD) due to future disasters.
Second, a midstream instrument in the form of Ecological Fiscal Transfers (EFT). This mechanism works to appreciate and provide direct incentives to regions or villages that successfully protect their ecology (Beneficiary Rewards). Good practices of this performance-based scheme have been proven in North Kalimantan, Siak, and Kubu Raya.
Third, a downstream instrument, which is collecting the Exit Cost or post-mining costs. Obligations for Reclamation Guarantees, Post-Mining Guarantees, and Abandonment and Site Restoration (ASR) funds for the Oil and Gas sector are written in black and white. These must be strictly monitored to ensure that environmental restoration costs are fully borne by corporations, rather than cowardly shifted into an APBD burden.
However, these three instruments are merely treating the symptoms, not eradicating the root of the problem. To truly realize justice, six transformation agendas must be executed. First, re-pricing royalties and taxes to reflect the true ecological and social costs. Second, institutionalizing EFT into the Transfer to Regions architecture permanently, making externalities and ecological performance the main basis, not just a patchwork fix. Third, shifting the allocation unit from administrative boundaries to affected landscape boundaries. Fourth, establishing a natural resource sovereign wealth fund and stabilization fund for intergenerational equity. Fifth, mandating earmarking for environmental and social restoration so that revenues do not evaporate into general funds. And sixth, strengthening local taxing power while strictly binding corporate exit costs, ensuring post-mining costs are not offloaded as APBD burdens.
Awaiting the Birth of the Novus Homo in the Regional Green Parliament
This grand agenda will never be born from mere ceremonial speeches in Jakarta. Experience shows that progressive initiatives, such as Regional Regulations (Perda) for environmental-protecting village incentives, almost always grow from the regions.
This is where the existence of the Regional Green Parliament Caucus (KPHD) becomes highly crucial. The KPHD is not just a discussion forum. It is a network among Regional House of Representatives (DPRD) members that functions as a bridge between the reality of citizens whose living spaces are threatened and the regulatory architecture that dictates whether the damage will be restored or cowardly ignored.
Council members are now demanded to step up as Novus Homo, pioneering figures brave enough to break the old traditions of extractive politics. In their hands lies the authority to translate the Law on Central and Regional Financial Relations (HKPD) into incentive-based Regional Regulations, systematically interrogate Mining Business Permit (IUP) holders in public hearings, and ensure that affected citizens are recognized as right-holders, not merely passive victims. Without their courage, this national agenda will only become a pile of papers in bureaucratic drawers.
Certainly, this role cannot be shouldered by the DPRD alone. Regional governments, civil society, academics, and indigenous communities share the same breath of struggle. The central government must also stop slashing regional fiscal capacity and holding Village Funds hostage for centralistic programs.
Regional social-ecological fiscal justice is not a utopia. This homework has already begun in North Kalimantan, Siak, and Kubu Raya. Today is the right momentum to choose: dare to continue this historic step, or remain silent and surrender to the destructive tide of centralization.
Read the full article on EFT Indonesia