Today, coal mining and related industries make up almost 40% of total state revenue and roughly 5-8% of GDP in Indonesia. In addition to being one of the main contributors to state revenue through export activities, it is the main source of national electricity. But Indonesia is aiming to achieve net-zero emissions by 2060 or sooner and has developed a long-term strategy for climate mitigation and resilience by 2050, which sets out low-emission development pathways and is expected to guide the achievement of Indonesia’s Nationally-Determined Contribution (NDC). In this context, Indonesia is working towards phasing down coal through the Energy Transition Mechanism (ETM), which is a programme carried out by the Asian Development Bank (ADB) to support coal retirement.
In parallel, Indonesia has developed a Sustainable Finance Roadmap to enable the financial sector to contribute to the achievement of the country’s NDC. This includes the development of the Indonesia Green Taxonomy to be used as the basis of additional sustainable finance tools and frameworks. Given the significance of coal mining as part of Indonesia’s economy, a complementary transition finance framework could be put in place to help finance the transition of the sector.
The OECD is convening a series of Focus Group Discussions (FGDs) on Transition Finance in Indonesia, focusing on its relevance to the coal mining sector, and involving financial institutions, academia, think tanks, relevant corporates, and relevant government ministries (Ministry of National Development Planning, Coordinating Ministry for Economic Affairs, Coordinating Ministry for Maritime and Investment Affairs, Ministry of Energy and Mineral Resources, Ministry of Finance, Ministry of Environment and Forestry, Ministry of Industry).
The FGD series is running throughout 2023 and aims to provide a platform to share experiences that can help OJK develop guidelines and tools for transition finance in the context of the coal mining sector. To this end, the series will cover the following topics: (1) Introduction to the OECD Guidance on Transition Finance and its relevance for hard-to-abate sectors in emerging markets and developing economies; (2) Experiences from other countries on the transition of coal-based economies; (3) Transition planning at the corporate level: how can corporates implement a credible transition, especially in the coal sector?; and (4) Transition finance instruments in the coal sector and criteria for credibility.
1st FGD: Introduction to the OECD Guidance on Transition Finance and its relevance to high-emitting industries in emerging markets and developing economies
The first FGD examined the state-of-play on transition finance in Indonesia and covered three main themes:
- The OECD Guidance on Transition Finance and its relevance to high-emitting industries in emerging markets and developing economies
- The Indonesian government’s perspective (Ministry of Finance, Ministry of Energy and Mineral Resources) on the importance of transition finance to their decarbonisation and just transition strategy
- Recent efforts undertaken by financial institutions in Indonesia (Bank Mandiri, Bank Syariah Indonesia, CIMB Niaga).