Parallel Session 2

Topic: Achieving Environmental Sustainability through Green Financing

Indonesia has committed to achieving net zero emissions by 2060 or sooner. To meet this target, the country prioritizes programs on energy transition, including energy efficiency and conservation initiatives. As of 2024, new and renewable energy contributed only 14% of the total energy mix, indicating slow progress toward achieving energy transition goals. One of the key obstacles to this slow progress is financing. Limited access to capital and insufficient green financing mechanisms hinder project implementation, making it difficult to attract investments and ensure the financial sustainability of renewable energy projects. Meanwhile, according to the Ministry of Finance of Indonesia, the country requires approximately USD 1 trillion to finance its energy transition agenda through 2060.

Green financing, which refers to financial investments aimed at environmentally sustainable development, plays a crucial role in advancing decarbonization efforts and supporting renewable energy projects in developing countries including Indonesia. However, recent events in the global financial landscape have raised concerns about the stability and accessibility of international green finance, as well as the commitment to global emission reduction efforts. Several prominent financial institutions in the United States (U.S.) have recently scaled back or withdrawn their commitments from net zero banking alliance. This trend has been driven by a combination of domestic political pressures in the U.S., shifts in financial priorities, and concerns on profitability and risk in climate-related investments.

For developing countries like Indonesia, which often depend on external financing to fund sustainability projects, shifts in the global financial landscape pose significant challenges. A key example is the Indonesia Just Energy Transition Partnership (JETP), a funding initiative established through an agreement between the Indonesian President and the International Partners Group (IPG), led by the United States and Japan. Under this partnership, USD 20 billion has been pledged to support transition in Indonesia to cleaner energy sources. However, to date, not a single dollar has been disbursed. The recent withdrawal of major U.S. financial institutions may further reduce the availability of capital, delay critical projects, and increase the financial risks associated with energy transition programs. Additionally, U.S. political decisions regarding energy transition may influence the commitment of developing countries to pursue their energy transition goals.

This situation underscores the need for developing countries to build resilience by strengthening their domestic financial frameworks and resources. Adopting a more self-reliant approach to green financing will help reduce vulnerability to external shocks and ensure the continuity of environmental sustainability initiatives. This session aims to address financing challenges and explore domestic funding options tailored to specific conditions and opportunities in Indonesia, with the goal of optimizing the implementation of energy transition and energy efficiency initiatives in the country.