The global demand for countries worldwide, including Indonesia, to promote sustainable development has become necessary. As a result, Indonesia must start shifting its development towards a green economy.

President Joko Widodo has repeatedly encouraged the reorientation of economic development towards a green or environmentally friendly economy. For Indonesia, implementing a green economy, including using new and renewable energy, is not easy, despite the country's abundant energy resources.

Therefore, although several programs toward a green economy are being pushed, their acceleration has not reached the maximum level as expected because changing the existing paradigm is challenging.

In the context of the energy mix, data from the Energy and Mineral Resources (ESDM) Ministry shows that the energy mix is continuously accelerating. For example, in 2017, the energy mix for oil reached 5.6 percent, gas was 58.41 percent, and coal was 13.07 percent. In 2018, the mix increased to 5.63 percent for oil, 60.28 percent for gas, and 12.93 percent for coal.

In 2019, the mix for oil became 21.4 percent, gas 62.98 percent, and coal 12.01 percent. Then, in 2020, the mix for oil was 16.8 percent, gas 66.3 percent, and coal 14 percent.

In 2021, the mix was 17.16 percent of oil, 66.1 percent of gas, and 13.65 percent of coal. And in 2022, the mix for oil became 15.96 percent, gas 67.21 percent, and coal 14.11 percent.

What about the data on CO2 emission reduction? The Forestry and Environment Ministry (KLHK) stated that CO2 emission continues to decrease. In 2017, the CO2 emissions reduction reached 29 million tons, then 40.6 million tons in 2018, 54.8 million tons in 2019, and increased to 64.4 million tons in 2020.

The CO2 emissions reduction in 2021 became 70 million tons, and 91.5 million tons in 2022. The target will increase to 116 million tons in 2023.

Finance Minister Sri Mulyani Indrawati acknowledged that despite all of that, the firm determination of the government to continue promoting green economy-based development remains unwavering.

According to her, the government has made many breakthroughs to realize the vision of a green economy. On the financing side, for example, the preparation of the 2024 State Budget has been aligned to achieve net zero emissions or zero carbon emissions by 2060.

"To transform energy from fossil sources to green energy is not as easy as flipping a switch. Even though the goal is to improve the economy in line with the commitment to reduce CO2, it must still be done carefully," she said at a forum related to the green economy on Tuesday, 6 June 2023.

In addition, Sri Mulyani added that Indonesia had initiated carbon trading gradually. The mandatory carbon trading system (Emission Trading System/ETS) is strengthened by legal provisions in the form of Minister of Energy and Mineral Resources Regulation 16/2022 regarding the Procedures for the Implementation of Carbon Economic Value in the Sub-sector of Power Generation.

Implementing Carbon Tax

In addition to the trading mechanism, Sri Mulyani explained that the government had implemented a carbon tax in accordance with the Harmonization of Tax Regulations Law, starting with Steam Power Plants (PLTU).

On that occasion, Sri Mulyani Indrawati also revealed that the government had issued retail green sukuk worth Rp20.8 trillion to achieve the energy transition. According to her, Retail Savings Sukuk (ST) in the form of Green Retail Sukuk also demonstrates the government's commitment and contribution to developing the Islamic financial market and addressing climate change.

The financial instrument is also considered innovative and sustainable. In practical terms, the Financial Services Authority (OJK), for example, has planned to release OJK Regulation (POJK) for the carbon exchange trading system and mechanisms on 11 July 2023. The exchange will be effective in September 2023.

"We are preparing the draft POJK for the carbon exchange and waiting for an invitation from the House of Representative (DPR) Commission XI for consultation on the draft POJK. Hopefully, it can be released on 11 July 2023," said the Executive Head of Capital Market Supervision, Financial Derivatives, and Carbon Exchange of OJK, Inarno Djajadi, to reporters on Tuesday, 6 June 2023. .

In the future, the OJK, as the authority responsible for the operational aspects of the carbon exchange, will develop carbon unit trading, both mandatory and voluntary, as a mechanism for carbon trading. The implementation of carbon trading aims to attract green investments through carbon trading transactions.

Carbon trading is open to all businesses, with the condition that they must register with the KLHK. In the financial services sector, OJK also plays a vital role in realizing the concept of a green economy through efforts to maintain economic stability.

In this context, OJK has issued regulations on implementing sustainable finance for financial institutions, issuers, and public companies, as stipulated in POJK 51/2017. However, the implementation of a green economy requires cooperation among all stakeholders.

All of this is believed to be the key. Furthermore, Indonesia's serious commitment to carbon reduction is seen as a stepping stone that can accelerate the potential growth of green financing.

However, according to ESDM Minister Arifin Tasrif, there are many challenges that the government must address to accelerate the utilization of renewable energy in the energy transition.

"The challenges faced in the development of renewable energy are diverse, ranging from economics and technology, availability of supporting infrastructure, the balance between income and expenditure, financing, and social dynamics," he said.

Despite all the challenges mentioned above, Indonesia's commitment to undergoing this transition needs support from all parties to reap the benefits while remaining consistent in reducing carbon dioxide emissions, thereby facilitating the energy transition program to achieve the net zero emission target by 2060.

Writer: Firman Hidranto
Editors: Ratna Nuraini/Elvira Inda Sari/Erik Limantara
Translator: Irvina Falah