Southeast Asia’s largest economy is classifying new and existing coal-fired power plants as “green” or eligible for transition financing, according to a report released Wednesday.
Coal-fired power plants selected for early retirement through multilateral fossil fuel phase-out mechanisms such as the Just Energy Transition Partnership (JETP) will be included in the traffic light system used in Indonesia’s Sustainable Finance Taxonomy. classified as “green” or low-emission based on .
On the other hand, captive coal-fired power plants that started operating before 2030, i.e. coal-fired power plants that provide local power to industrial plants, are classified as “Amber”, which is a transitional activity in Indonesia’s classification. It is the codification of the law. Captive coal-fired power plants are classified as eligible for sustainable financing if they power facilities that process transition metals such as nickel, cobalt and aluminum used in the manufacture of electric vehicles and batteries. .
The total capacity of domestic captive power plants planned or under construction will reach 21 gigawatts (GW), accounting for more than half of Indonesia’s current total electricity capacity and increasing the country’s electricity demand by 17%. coal.
Other coal-fired power plants approved by state-run PT Perusahan Listrik Negara’s (PLN) electricity supply business plan by 2022 will also be subject to a 35% reduction in emissions within 10 years of commissioning. Considered a transitional asset.
The taxonomy also allows the use of carbon offsets and is predicated on the widespread use and deployment of carbon capture and storage (CCS) technologies, which are defined as “allowable emissions for classification purposes.” It is not a form of reduction,” said sustainable finance leader Ramnath Iyer. IEEFA and lead author of the study.
“Indonesia’s taxonomy is inconsistent with common standards and risks losing credibility if international sustainable finance is classified as green finance or transition finance,” he said.
Taxonomy in the Philippines and Malaysia: too vague
The Philippine and Malaysian taxonomies do not follow quantitative criteria for classifying activities as green, amber, or red, indicating the level of climate impact of economic projects.
Instead, it relies on a principles-based approach to answering questions about the nature of the activity and its impact, which could result in “disagreement among market participants due to ambiguity in the guidelines.” The report states that there is.
“The lack of quantitative criteria risks making assessments based on such taxonomies less substantive and less likely to be considered internationally interoperable,” the study said. has been done.
However, unlike Indonesia, both countries exclude any type of coal funding from being classified as green.
Malaysia implemented a taxonomy law in 2021 that requires financial institutions to report to the central bank on the climate impact of their activities. The Philippines introduced its own classification system this year.
Comparison of green classification emission limits in Southeast Asia. Source: IEEFA
Singapore and Thailand’s taxonomy has the most rigorous and robust quantitative criteria, and only greens power plants that produce lifecycle emissions of less than 100 grams per kilowatt hour (gCO2e/kWh), which meets the strict European standard. He pointed out that it allows for classification. Report. Such emissions are too low to be produced by fossil fuel-based technologies. Both countries use traffic light systems, as do Indonesia, Malaysia, and the Philippines.
Singapore, a major regional financial center, has restricted activities classified as ‘amber’ emitting up to 220gCO2e/kWh until 2030, reducing to 150gCO2e/kWh by 2035.
For power producers, there is a risk that they will move out of the amber category by 2035 and that their subsequent activities will be classified as red if they do not meet the criteria for the green category.
Thailand also uses the Amber category, which can only be used by producers to classify existing fossil fuel power plants. New generation cannot be assigned amber status.
That classification only covers the energy and transport sectors, but specifically excludes coal from being classified as green. New natural gas-based power plants that began construction this year are classified as red, meaning they are not considered sustainable.
A taxonomy created by the Association of Southeast Asian Nations (ASEAN) attempts to serve as a model for the regional bloc, but there is no universal definition of what constitutes transitional financing and it does not provide support to heavy polluters. He added that it was dangerous. study.
The report states: “While the diversity of approaches reflects each country’s unique circumstances, it also presents significant challenges regarding interoperability and consistency. It is critical to fostering the financial ecosystem.”
