Indonesia sparks criticism with role for coal in green taxonomy

February 26, 2024|Written by Katy Lee|Otoritas Jasa Keuangan

Indonesia’s financial regulator has unveiled a new version of its green investment taxonomy which categorises some coal-fired power plants as contributors to the low-carbon transition, sparking criticism from environmental campaigners.

The new taxonomy is an update of a 2022 guidebook setting out which investments can be considered sustainable in Southeast Asia’s leading economy, which has pledged to reach net zero by 2060.

Activists had reacted angrily last year when the national financial regulator, the Otoritas Jasa Keuangan (OJK), floated the idea of including heavily polluting coal as a potentially sustainable investment with access to favourable funding conditions.

Under the new version, published on 20 February, investments in “captive” coal plants can be considered as transition activities under certain conditions. Captive plants are those which have been set up by companies to provide power for their own industrial production.

The plants must commit to cut their greenhouse gas emissions by 35% within 10 years of launch compared to the 2021 average, and shut down fully by 2050, to qualify for the transition category.

Binbin Mariana, an energy finance campaigner at environmental group Market Forces, said the move gave investors “the wrong signal that the OJK endorses new coal infrastructure as part of the transition to a fossil-free future”.

“It’s very concerning that this new labelling would enable Indonesian banks to keep pouring money into companies building new coal power plants under the guise of a green transition,” she said in a statement to Green Central Banking.

Investment in captive power stations has soared in Indonesia in recent years due to a boom in the country’s nickel industry, in which processing facilities are often located in remote areas with reduced access to the power grid.

Mining of the nickel itself, a key component in electric vehicle batteries, is also listed in the taxonomy as a transition activity if it meets regulations aimed at reducing pollution and other environmental impacts.

Investments that accelerate the shutdown of existing coal-fired plants can meanwhile be categorised as green if they have been verified by a national or international body such as Indonesia’s Just Energy Transition Partnership (JETP).

Reuters reported that OJK chief Mahendra Siregar had defended the new guidelines as taking “a more comprehensive look at priorities in a wider context with regards to carbon emission reduction”.

“Not just the environmental aspect, but also balancing that with social progress and economic development aspects,” he told a press conference.

But Yayasan Indonesia Cerah (CERAH), an organisation campaigning for a faster energy transition in Indonesia, said the inclusion of coal in both the green and amber categories “raises doubts about the taxonomy’s maturity and questions its reliability in achieving climate commitment”.

“Additionally, the green classification granted to oil and gas mining, including controversial technologies such as carbon capture [and] storage (CCS), has also sparked skepticism regarding the taxonomy’s alignment with serious climate commitments,” CERAH’s executive director Agung Budiono said in an emailed statement.

“There is a pressing need for a comprehensive review of this green taxonomy.”

Indonesia is the world’s largest exporter of coal, although the government is seeking to accelerate the phase-out of fossil fuels, notably through the US$20bn in funding mobilised through the JETP in 2022.

This page was last updated February 26, 2024

Share this article