Sustainable finance taxonomy opens a pathway for financing energy transition in Indonesia

Jakarta—The Financial Services Authority (OJK) updated the sustainable finance market guidance from the Indonesian Green Taxonomy (THI) to the Indonesian Sustainable Finance Taxonomy (TKBI) in February 2024. The update aims to attract more sustainable financing to various sectors, especially the energy sector, to achieve the net zero emission (NZE) target by 2060 or earlier.

The Institute for Essential Services Reform (IESR) stated that while TKBI is a step forward, some weaknesses could reduce its effectiveness. IESR’s Energy Transformation Program Manager, Deon Arinaldo, revealed that the indicator of emission reduction in PLTU is low, considering that PLTU’s operational emissions reach 900-1200 grams of carbon dioxide equivalent per kWh.

He added that with an indicator of 35 per cent emission reduction after 10 years, labelling the coal-fired power plants (PLTU) as ‘transitional’ or ‘green’ is still not appropriate. TKBI categorizes economic activities into three categories: not meeting the classification, transition, and green. The activities of the existing PLTU and the construction of the new PLTU before Presidential Decree (Perpres) 112/2022 fall into the ‘transition’ category, which, according to Arinaldo, is not in line with the principle of climate crisis mitigation.

“If we want to be consistent with 1.5 degrees Celsius, emissions from national coal-fired power plants must peak before 2030 and approach zero in 2040,” he explained in a written statement on Friday, May 17.

In addition, mining activities that support the energy transition are also included in the ‘transition’ category. Farah Vianda, IESR Sustainable Finance Coordinator, emphasized the importance of tightening the criteria and having a third party to ensure the labelling activity category follows TKBI to prevent greenwashing practices.

Meanwhile, IESR Green Economy Program Manager Wira A. Swadana added that TKBI can be a reference for funding to achieve Indonesia’s Nationally Determined Contribution (NDC) target. “TKBI needs to ensure clear rules and following the use of efficient and effective technology for emission reduction,” he said. (Hartatik)

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