Indonesia considers labelling some coal power plants as green

September 14, 2023|Written by Moriah Costa|Otoritas Jasa Keuangan

Indonesian coal-fired power plants that supply electricity to industries making sustainable products could be eligible for green financing under new regulations. Critics have said the  move will relegate the country to the bottom of green finance taxonomies.

Indonesia’s financial regulator, Otoritas Jasa Keuangan (OJK), is revising its green taxonomy to include funding for early retirement of coal power plants and become more aligned with the taxonomy of the Association of Southeast Asian Nations.

In addition, the agency is considering expanding its green label to loans given to coal-fired power plants that supply energy to companies engaged in sustainable practices, such as electric vehicle batteries, Reuters reported.

“In the end, we need to see the whole result, the end product of the whole supply chain,” OJK chief Mahendra Siregar told reporters.

The news “goes against scientific evidence”, analysts from the Institute for Energy Economics and Financial Analysis (IEEFA) said in a statement.

“Labelling coal-fired plants as sustainable could mislead investors wanting assurance that their assets are environment-friendly or oblige them to do more due diligence, which in turn risks Indonesia losing high-quality foreign direct investment and rendering the taxonomy ineffective,” the IEEFA analysts stated.

If revised, Indonesia would be the only green or sustainable finance taxonomy published globally to recognise coal power as green. The EU’s green taxonomy excludes coal, as do China and Russia’s taxonomies. While China originally classified clean coal as a green project, it removed fossil fuel-related projects from its taxonomy in 2021.

Indonesia is the world’s fourth-largest producer of coal and the biggest gas supplier in south-east Asia, according to the International Energy Agency. At the same time, it’s one of the countries extremely vulnerable to climate change, with exposure to flooding and heat waves, as well as sea-level rise.

Indonesia has pledged to reach net-zero emissions by 2060. It secured a commitment of US$20bn in funding to help speed up its transition to clean energy but has delayed plans for those funds to factor in coal-power plants being built privately.

This page was last updated September 14, 2023

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