A number of parties question the OJK version of the Green Taxonomy

The transition category for PLTU in TKBI creates ambiguity about the principles of a just energy transition.

KOMPAS/HERU SRI KUMORO

The coal-fired power plant (PLTU) Suralaya in Merak, Cilegon, Banten, was sued by PT Perusahaan Listrik Negara (Persero) or PLN to the Central Information Commission to disclose emission data generated from operating PLTU Suralaya in Cilegon, Banten and PLTU Ombilin in Padang, West Sumatra, to the public.

JAKARTA, KOMPAS — The "transition" category assigned to steam power plants in the financial sector taxonomy is considered counterproductive to the government's efforts to pursue the national contribution target for reducing emissions. This categorization has the potential to create greenwashing gaps in the distribution of green financing.

In February 2024, the Financial Services Authority (OJK) published the Indonesian Sustainable Finance Taxonomy (TKBI). This is an improvement on the Indonesian Green Taxonomy document which serves as a guide for financial markets in channeling funding to support the achievement of Indonesia's national emission reduction contribution (NDC) target.

This categorization has the potential to create greenwashing gaps in the distribution of green financing.

Just as its usage in biology, the terminology of taxonomy in sustainable finance sector serves as a guideline for classifying economic activities that support, transition toward, or conflict with sustainable development goals.

TKBI includes steam power plant (PLTU) projects, both those that have been operating and those built before the establishment of Presidential Regulation Number 112 of 2022 on Accelerating the Development of Renewable Energy for Electricity Supply, in the transition category.

DOKUMENTASI CIREBON POWER

The portrait of the Cirebon Unit 1 Steam Power Plant in Cirebon Regency, West Java, some time ago. The power plant will cease operations or retire early in 2035.

Regarding the categorization, the Institute for Essential Services Reform (IESR) assesses that there is a difference in treatment between coal-fired power plants (PLTU) and power plants outside of PLTU. In the TKBI, all types of PLTU projects will be categorized as transitional if they meet the requirements of reducing greenhouse gas emissions by at least 35 percent within 10 years and committing to retire no later than 2050.

Meanwhile, power plants that use sources other than steam power can be categorized as transitional if they produce life-cycle emissions of 100-500 grams equivalent of carbon dioxide per kWh.

In the TKBI, all types of coal-fired power plant projects will fall under the transition category if they meet the minimum requirement of greenhouse gas emissions reduction of at least 35 percent within a 10-year period and commit to retiring no later than 2050.

Among them are power plants sourced from water, gas, and geothermal energy. Non-coal power plants will be categorized as green if the lifecycle emissions are less than 100 grams of equivalent carbon dioxide per kWh.

The Energy Transformation Program Manager at IESR, Deon Arinaldo, believes that the absence of emission reduction requirements for transitional power plants in the National Medium-Term Development Plan (TKBI) is due to the government's reluctance to implement an early retirement program for power plants.

KOMPAS/AGUS SUSANTO

Activities at the Sintang Steam Power Plant, Sintang Regency, West Kalimantan, Monday (11/10/2021). PLTU Sintang is one of the locations that has the availability of co-firing fuel, in this case large palm kernel shells. Coal fuel savings can be saved up to 10 percent with the co-firing method using palm kernel shells.

If the indicators that must be met by coal-fired power plants to receive transition classification are the same as those for other power plants, it can be ensured that no coal-fired power plants are eligible for the transition category. The operational emissions generated by coal-fired power plants can reach 900-1,200 grams of carbon dioxide equivalent per kWh. This figure could be even higher if life cycle emissions are calculated.

"Attaching a transition or green label to PLTUs only with an indicator of 35 percent emission reduction after 10 years, is contrary to the commitment to keep global temperature rise below 2 degrees Celsius and try to limit it to 1.5 degrees Celsius," he said in a written statement received by < i>Kompas, Sunday (19/5/2024).

If we want to be consistent in efforts to limit temperature increase below 1.5 degrees Celsius, Deon continued, the reduction in emissions from national coal-fired power plants should have already peaked before 2030. The trend should continue until approaching zero by 2040. As such, there will no longer be any emissions from coal-fired power plants in 2045.

Also read: The Disappearance of Red Labels in the Financial Sector Taxonomy

"The indicators used for categorization should be able to support funding that allows power plants to reduce emissions before 2030 and cease operations before 2045," said Deon, continuing.

In addition, mining and excavation activities that support the transition to renewable energy industries such as copper, nickel, and tin, are also included in the transition category. However, this labeling is not accompanied by clear information to ensure that all mining and excavation activities consistently support the energy transition.

As of the publication of this news, OJK is still reluctant to provide clarification regarding the differences in transitional indicator determination between PLTU and other power plants in TKBI.

KOMPAS/FAKHRI FADLURROHMAN

Action participants perform theatrical actions in front of the Financial Services Authority (OJK) Sumitro Djojohadikusumo Building, Jakarta, Friday (15/9/2023).

Gap ”greenwashing”

Previously, the Executive Head of Capital Market, Derivatives and Carbon Market Supervision of OJK, Inarno Djajadi, mentioned that business categorization has been carried out following the guidelines established by ASEAN for companies that require funding for sustainable transitions.

If the Indonesian Standard Industrial Classification (KBLI) group does not meet both the green and yellow/transitional categories, the business activities will be considered as not meeting the classification.

"The company can determine its location, progress, and targets so that global investors know its position regarding the considerable need for green funds. So, it opens up investors to enter into it," said Inarno.

Also read: Getting to Know Greenwashing Practices in Indonesia

IESR Sustainable Finance Coordinator, Farah Vianda, said that this gap allows greenwashing practices to gain sustainable financing. Regular updates and tightening of criteria are important things to do.

"In addition, there needs to be a third party to ensure that the labeling category of an activity is in accordance with the Indonesian Standard Classification of Activities (TKBI), not just an internal assessment," said Farah.

Referring to Webster's New Millennium Dictionary of English, the term greenwashing is defined as a communication strategy promoting the environmentally friendly program of a particular entity which aims to divert public attention from environmental destruction activities by the entity concerned.

DOKUMEN TAKSONOMI KEUANGAN BERKELANJUTAN INDONESIA

In the Indonesian Sustainable Finance Taxonomy (TKBI), the business sector category is only classified into green and yellow/transition.

Contacted separately, the Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, assessed that the categorization of transitions in coal-fired power plants (PLTU) needs to be re-examined as it has the potential to create ambiguity in determining whether an economic activity needs to continue its financing or not due to contradicting the principle of fair energy transition.

"The red classification is still necessary to clarify high carbon activities that cause environmental damage. The removal of the red category is actually contradicting the principle of a just energy transition," said Bhima.

Without a red category, according to Bhima, objective assessments of business groups would be very difficult for financial services industry players to implement. Furthermore, the absence of a red category could create the risk of greenwashing and transition-washing (pretending to make a transition).

Without the red category, according to Bhima, objective assessments of business groups would be very difficult to apply by financial service industry players.

This risk is real considering that in the future TKBI will be used as a guide for national financial services institutions in channeling financing or increasing the allocation of business capital to business sectors or business lines that support the achievement of net zero emission (NZE) targets.

He also recommended a clear separation between the Indonesian Standard Industrial Classification (KBLI) groups that no longer need to be funded and the groups that still receive funding. In addition, a comprehensive evaluation of the supply chain is necessary for each KBLI.