Indonesia, which aims to cut heat- trapping gas emissions by 26 percent by 2020, plans to set up a $1 billion fund to invest in renewable energy projects and water treatment to address the effects of climate change.

The Government Investment Unit, the sovereign wealth fund, will contribute $100 million to the Indonesia Green Investment Fund, which it will oversee, Edward Gustely, a senior adviser at the Ministry of Finance in Jakarta, said in an interview. The fund, which will be set up this year, will raise the remaining $900 million from governments that have expressed interest in investing in it and institutional investors, he said.

Indonesia is turning to low-carbon strategies and tapping its resources to meet demand for energy, food and water to help Southeast Asia’s biggest economy expand. About 52 percent of the 248 million population has access to electricity and about 30 percent to potable water, while 43 percent is engaged in the agriculture sector, Gustely said.

“Other countries are doing it because they want to be good stewards of the environment,” Gustely said. “Indonesia’s immediate focus is less on inventing the technology, but rather on ways to scale greater investment and market deployment of it for supporting these new economic growth poles in a sustainable fashion.”

The governments of the U.S., Australia, Japan, U.K., France, Norway and other European Union nations have shown interest to contribute to the fund, which will also invest in agriculture technology and reforestation, he said.

The size of the fund may be raised to $5 billion over the next five years through “expanded public-private partnerships” and co-investment opportunities, he said.

“IGIF could scale very quickly, though it all depends on a robust project pipeline, asset quality and investor appetite,” he said.

The fund will invest as much as $80 million in each project, according to the fund’s marketing document. Returns will depend on the “expectations” of the investors, Gustely said.

Public-sector investors may want “verifiable evidence” of reduction in greenhouse gas emissions or repayment in the form of carbon credits instead of investment income, while private- sector investors will want “full returns,” he said.

The fund will be modeled after the $250 million Indonesia Clean Technology Fund, in which the Government Investment Unit is a 10 percent co-investor, Gustely said. The fund was closed to investors at the end of last year.

President Susilo Bambang Yudhoyonosaid last year the government was targeting to cut greenhouse gas emissions by 26 percent by 2020 from “business as usual” levels, and as much as 41 percent with international support.

Negotiators at United Nations talks in Copenhagen last month failed to reach agreement on a legally binding treaty establishing limits of carbon dioxide emissions.

Without a legal treaty, envoys reached a non-binding, so- called Copenhagen Accord that sets a Jan. 31 deadline for richer nations to specify 2020 emission targets and poorer countries to state actions being taken to curb greenhouse gases by that year. The agreement also pledges $100 billion a year by the end of the decade for developing countries to adapt to climate change.

Indonesia’s fund will seek investment opportunities to reduce emissions from deforestation and forest degradation, Gustely said.

Indonesia trails China and the U.S. as the biggest carbon dioxide emitting nations, when greenhouse gases from deforestation and land-use changes are included, according to the World Wildlife Fund. Deforestation and forest degradation account for more than 83 percent of Indonesia’s carbon emissions, according to WWF.

The Government Investment Unit was set up in 2007 and manages less than $1 billion in investment capital, Gustely said. It has funded ports and land acquisitions for the 1,800- kilometer (1,119 miles) Trans-Java toll road project, and also invests in domestic-listed securities such as bonds and stocks, he said.