Transition Taxonomy in Indonesia: MEMR.pdf

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Ministry of Finance Republic of Indonesia
Fiscal Policy Agency
MoF
Transition Taxonomy
in Indonesia

Outline
1. Climate Change Agenda
2. Energy Transition Mechanims (ETM)
3. ASEAN Taxonomy
4. Transition Standards
5. Indonesia's position on Taxonomy and Transition Standards

INDONESIA GOVERNMENT COMMITMENTS ON CLIMATE HAVE BEEN IMPROVED IN
ENHANCED NATIONALLY DETERMINED CONTRIBUTION (NDC)
INDONESIA’S CLIMATE CHANGE AGENDA
MITIGATION
IPPU
FORESTRY ENERGY AND
TRANSPORTATION
WASTE AGRICULTURE
INDONESIAN
EMISSION
REDUCTION
TARGET
Emission Reduction Target by Sector (MTon CO2e)
ADAPTATION
Climate Resilient
Economic
Resilience
1 Social and Livelihood
Resilience
2 Ecosystem and
landscape resilience
3
Long-Term Strategy for Low
Carbon and Climate Resilience
(LTS-LCCR) 2050
Towards Net Zero Emission
2060 or sooner
*CM1= Counter Measure 1 (unconditional mitigation scenario)
*CM2= Counter Measure 2 (conditional mitigation scenario)
358
9
500
729 446
40
43.5
10
12
7
43.2%
31.89%
CM2
CM1
NDC
Enhanced NDC
314
3.25
497
692 446
11
40
9
4
3
41%
29%
CM2
CM1
Paris Agreement dan
Nationally Determined
Contribution (NDC) 2030
Target:
31,89 % national effort
43,20 % with international
support
Energy Transition Mechanims
Clean Energy Fund (CEF)
Carbon Reduction Fund (CRF)
Policy Strengthening and
Implementation
Energy Transition
Mechanism
Carbon
Pricing
CBT
Stated in:
• First NDC (2016);
• Updated NDC (2021);
• Enhanced NDC (2022);
• Second NDC (2024);
• Second BUR (2018);
• Third BUR (2022);
Long-Term Strategy for
Low Carbon and Climate
Resilience 2050
Mandate from:
• Paris Agreement Article. 4.19
• Dec.1/CP.21 Para 35
LCCP (low carbon compatible Paris
Agreement) Scenario:
• Peak emission 5 sector in 2030 = 540
Mton CO2e
• Forestry Net-Sink FOLU in 2030;
• Energy Net-Sink in 2037;
• Net Zero Emission in 2060 or sooner
Toward Net Zero Emission
2060 or sooner
▪ G7 minus Germany (2050);
▪ Germany (2045);
▪ South Africa (2050);
▪ Singapore (2060);
▪ Australia (2060);
▪ G20 (2050-2070);

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5
ETM TO COPE WITH ENERGY TRANSITION
Goals
Support to reduce Cost of Debt
Reducing green house gases emission to
achieve NDC and NZE in Indonesia's
electricity sector
Efficient use of limited fiscal capacity
Shortening the economic performance
of coal-fired power plants projects
Achieving optimum energy mix according to
National Energy Policy
Just energy transition, especially for affected
workers and communities
Challenges
Energy Transition Mechanism
Financing mechanism that involves public and private sector, for the electricty supply business license to accelerate use of
renewables in electricity sector by reducing the operations of fossil-based power plants.
ADB definition: blended financing mechanism that is designed to significantly accelerate renewable energy growth by shutting down large majority of
electricity energy assets that are intensively producing carbon emission in a country.
Accelerate investments in renewable energy
power plants
Affordable by fiscal capacity and electricity
consumers
Solution: a coordinated and integrated mechanism that combine required de-risking facilities with required financing

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6
INDONESIA ENERGY TRANSITION MECHANISM (ETM) COUNTRY PLATFORM
ENERGY TRANSITION
PROJECTS
PT PLN Projects
IPP Projects
Pipeline Projects
Facilities
COUNTRY PLATFORM
Carbon Reduction
Fund (CRF)
Clean Energy
Fund (CEF)
RUPTL
Government of
Indonesia
Philanthropies,
Multilateral/
Bilateral
Development
Finance,
Climate Finance
SOURCE OF FUNDS
Blended
Finance
Commercial/INA
Or directly to
projects
(DPL, Sustainability
Linked Loan,
Support for Asset
Spin-Off, etc)
PMN, Low-cost
Loan, Guarantee
Social-Economical
Impact
Carbon Credit
Country Platform
Manager
Advisory Board
Coordinating Ministers
Steering Board
MOF, MEMR, MSOE, MOEF
Member
Echelon 1 from relevant ministries
SC Secretariat
Steering
Committee
Incoming blended finance
to the CP through PT SMI.
SC provides guidelines for
priority programs to
the CP Manager.
CP executes early
retirement processes
according to a roadmap.
CP receives support from
the MoF for several
financing scheme models
Mobilizing CEF funds
to transform coal-fired
power plants to
renewables by considering
electricity supply business
plan (RUPTL).
ETM produces carbon
kredit for carbon trading.
The ETM's carbon kredit is
traded at the carbon
market.
Revenue cycle from the
ETM comes in and is
managed via PNBP.
Coal Phaseout
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2
3
4
5
6
1
2
3
4
5
6
7
8
7
8
Description of flow
Low-cost
Refinancing
Technical
Assistance
Commercial
Loan
Equity
De-risking
DJPPR PT PII
RE Project I
RE Project II
RE Project III
CARBON MARKET MECHANISM
(Carbon Trading, Carbon Bond, RBP, Stand
By Buyer, Sustainability Linked Bond/Loan)
Revenue
Recycling

Outline
1. Climate Change Agenda
2. Energy Transition Mechanims (ETM)
3. Transition Finance in Taxonomy
4. Transition Standards
5. Indonesia's position on Taxonomy and Transition Standards

Uregency Transition Finance In Taxonomy Or Other Framework
EU ASEAN Taxonomy
G20 Sustainable Finance
Report
Japan METI’s
Technology Roadmap
for Transition Finance
Standard Chartered’s
Transition Finance
Framework
DBS Bank’s Sustainable
& Transition Finance
Framework and
Taxonomy
Transition finance is
defined as a
financing pathway
for eligible but non-
taxonomy aligned
activities to better
align the activities
and eventually meet
the
final Paris Agreement
objective of 1.5°C
and 2030 – 2050
decarbonization
targets, given
that substantial
contribution to
Climate Change
Mitigation (CCM) has
this objective at its
core.
The ASEAN Taxonomy
classifies activities
based on a traffic
lights system into 3
colors:
Green, Amber, and
Red. Transition
finance can be
considered as
financing that
enables activities to
move to a higher
colour classification
under the
Foundation
Framework, or a
higher tier under the
Plus Standard.
It refers to financial
services
supporting the
whole-of-economy
transition, in the
context of the
Sustainable
Development Goals
(SDGs), towards
lower and net-zero
emissions and
climate resilience, in
a way aligned with
the goals of the Paris
Agreement.
Transition finance
extends beyond the
investment for
facilities and
research and
development
toward low-carbon
and decarbonization
solutions introduced
in the roadmaps. It
also includes the
costs of phasing out
existing facilities.
Transition finance is
any financial service
provided to clients to
support them align
their business
and/or operations
with a 1.5°C
trajectory.
Economic activities
meeting the
following conditions:
1) Displace more
carbon-intensive
options, and
document and
independently verify
the extent of GHG
emissions reductions.
2) Enables the wider
application or
integration of less
carbon-intensive
options.
Source: Net-Zero Banking Alliance Transition Finance Guide, 2022

G20 Transition Finance Framework (2022 Indonesia Presidency)
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02
03
04
05
Identification
Reporting
Finance instruments
Designing policy measures
Mitigating impact
Identification of transitional activities and investments whether it
using principle-based approaches, taxonomy-based approaches,
or combination of approaches.
Reporting of information on transition activities and investments. Reliable,
consistent, verifiable, and comparable information on transition financing could
help interested investors and other stakeholders evaluate
Development of transition-related finance instruments is critical. The
instruments could be debt instruments, equity-related instruments, risk
mitigation products, others.
Policy action is needed to send correct market signals to
incentivize and accelerate the mobilization of private capital flows.
Assessing and mitigating negative social and
economic impact is needed. Just transition is
to be considered at a much broader context

ASEAN Taxonomy Version 1: Description
▪ Published November 2021
▪ Builds on principles as a foundation
▪ Design Overview:
o Environmental Objectives
• Climate Mitigation, Adaptation, Healthy Ecosystems
& Biodiversity, Circular Economy
o Essential Criteria
• Do No Significant Harm
• Remedial Measures to Transition
o Foundation Framework
o Plus, Standard
o Multi-tiered system to cater to different states of
readiness
▪ 6 Focus Sectors
▪ 3 Enabling Sectors
▪ Industry Classification: ISIC
Key facts
The ASEAN Taxonomy is intended to be a
living document – periodically revised to
account for technological, scientific, and
economic developments
The ASEAN Taxonomy Version 1 was
intended to be used as a basis for
stakeholder consultations
Completed targeted consultation with key
stakeholders in August 2022. Inputs received
considered in the further development of the
ASEAN Taxonomy Version 2.

ASEAN Taxonomy Version 2: Description & Milestones
Key facts
▪ Target publication: March 2023 with clear guidance for the
Foundation Framework and Plus Standard including
management of social aspects.
▪ Foundation Framework:
o Integration of other environmental objectives (EOs) as the
focus for Version 1 was climate mitigation (EO1).
o Develop guiding questions, decision tree, and use cases
that cover all EOs and essential criteria (EC) by Q1, 2023.
▪ Plus Standard:
o Complete Do No Significant Harm (DNSH) Annex
o Develop the methodology to set Technical Screening
Criteria (TSC) including metrics and thresholds for focus
sectors in 2023.
o Address treatment of all EOs for the PS in 2024.
o Develop TSC for EOs 1-4 for one focus sector (Energy)
by March 2023.
Key Milestones 2021-2023
• Publication of ASEAN Taxonomy for Sustainable
Finance Version 2 (Version 2)
• Stakeholder consultations for Version 2 planned
• Continued development of Technical Screening
Criteria for 5 other focus sectors
Mar-21
Establishment of
ASEAN Taxonomy
Board (ATB)
endorsed by ASEAN
FMCBG meeting
Nov-21
Publication of ASEAN
Taxonomy for
Sustainable Finance
Version 1
Apr-22
ATB endorsement of
ASEAN Taxonomy
for Sustainable
Finance Blueprint
May to June-22
ATB Stakeholder
Consultations (SC)
commenced with
Written Feedback
phase
June to July-22
SC Roundtable
Sessions included
FIs, real economy
and governmental
groupings among
others
Jul-22
Aug-22
Aug-22
Sep-22 to Q1-23
End of Q1-23
SC Direct interviews
phase commenced
to gather in-depth
input from individual
stakeholders
SC Outcomes and
Recommendations
Report (Report) draft
issued for ATB
review
ATB endorsed the
Report for Working
Groups to implement
next stage of
development
Development of
ASEAN Taxonomy
Version 2
Publication of
ASEAN Taxonomy
Version 2
Next Steps Timeline
• Q1, 2023
• Q2, 2023
• 2023-2024

Transition Standards: Rationale and the way forward
We can’t reach targets without a financing transition. We need a
combination of both green and transition finance to meet net-zero
targets and to limit the temperature increase to below 2.0
degrees Celsius and ideally only 1.5 degrees Celsius over pre-
industrial levels.
Scalable
financing
Greenwashing
prevention
Detailed
classification
Financing for transition is prone to greenwashing allegations. To
ensure the credibility and integrity of the financing, a clear
definition and criteria need to be set up.
From a practical perspective, transition standards provide details
on financing activities classified as “amber” in the ASEAN
taxonomy. For many countries and sectors, amber is a necessary
pathway to green.
Rationale Details The way forward
Ensuring value added of the
ASEAN Transition Standards as
some standards have already
existed, such as ICMA, OECD,
and Japan Net Zero Banking
Alliance
Clarifying the scope of the
ASEAN Transition Standards:
Do we have basic guidelines plus
(with additional details for
ASEAN)? Or is there a desire to
have sectoral or activities
transition pathways as many
ASEAN countries are still
developing country/sectoral
pathways?

Indonesia continues to take concrete actions on clean energy transition
Launch of Indonesia ETM Country Platform
• Regional, transformative, blended-finance program
• Seeks to accelerate retirement of coal-fired power plants (CFPPs) and
replace them with RE
• Identified 15GW of CFPPs for retirement
Signed MOU for first ETM Project
• 660 MW Cirebon 1 - West Java
• USD 400-500 million of cost
• A replicable model that can be applied to other IPPs in Indonesia, other
parts of Asia and the Pacific

Indonesia’s position on Taxonomy and Transition Standards
On 6 Focused Sectors
▪ ASEAN needs to put
more emphasis on
Energy.
▪ Include transition
activities on energy
(power generation and
coal phase-out).
▪ Share a common view on
the importance of power
generation and coal
phase-out.
On ASEAN’s role
▪ Remain supportive of
global dynamics of
transition activity,
▪ ASEAN to play a leading
role in defining the
transition agenda,
▪ Enable inter-operability
between taxonomies,
▪ Stronger placement of
regional strategy to revisit
existing regulation on
transition, to
accommodate our Paris
Agreement efforts.
On Technical Threshold
▪ Adapt its own standard
that fits ASEAN’s unique
characteristics.
▪ On energy sector, the
maximum threshold (e.g.
100g CO2e/KwH for Tier-
1) is lacking in providing
the base for our region’s
specific needs.
On Coal Phase Out
▪ Develop ASEAN’s voice in
advocating inter-operability
of global taxonomies, such
that phase-out is recognized
as “green activities”.
▪ Phase-out is within ASEAN
and developing countries’
shared interests; of which
global support is needed.
▪ ASEAN community as a
strategic way to channel our
needs for green
development.

Indonesia’s recommendation on ASEAN Taxonomy
Encourage the inclusion of the Energy Transition Mechanism (ETM) and Coal Phase out into
ATSF Technical Screening Criteria (TSC) for Energy Sector, particularly for the Plus Standard of
the ATSF. Indonesia may appreciate the inclusion of the coal phase-out in the green category.
Encourage understanding and awareness of the importance of (i) ASEAN needs for ETM and coal
phase-out; (ii) developing ASEAN voice to support global call in facilitating just, affordable, and
orderly transition to enable achievements of global commitment on NDC and NZE target under the
Paris Agreement.
Encourage the implementation of ATSF Version 2 to include the ETM and Country Platform
innovative financing as the showcase of ASEAN transition toward sustainable development
agenda.
Encourage engagement with relevant stakeholders, including with lined ministries, to gather
comprehensive knowledge and understanding.
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Transition Taxonomy in Indonesia: MEMR.pdf

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