Unlike other taxonomies, Indonesia’s green taxonomy applies the traffic light system to represent the types of activities from a sustainability lens: green for activities that “protect or improve the environment”, yellow for activities “not significantly harmful to the environment”, and red for activities “harmful to the environment”. The concept is interesting. Using road rules as interpretation, investments in Indonesia’s green activities could then be deemed as “proceed as is”, yellow as “prepare to stop”, and red as “stop immediately”. 

Christina

In January 2022, President Joko Widodo of Indonesia launched the country’s first green taxonomy. This is a positive and potentially significant move to unlock green private capital to meet Indonesia’s commitments under the Paris Agreement.
Unlike other taxonomies, Indonesia’s green taxonomy applies the traffic light system to represent the types of activities from a sustainability lens: green for activities that “protect or improve the environment”, yellow for activities “not significantly harmful to the environment”, and red for activities “harmful to the environment”.
The concept is interesting. Using road rules as interpretation, investments in Indonesia’s green activities could then be deemed as “proceed as is”, yellow as “prepare to stop”, and red as “stop immediately”.
However, anyone familiar with Indonesian traffic rules would know that, in practice, the meaning of the yellow light is subjective and varies in application. It can mean “accelerate (and slip through…)” or “slow down to a complete stop”. Frankly, it’s usually the former.
Which begs the question, what does the yellow tier in Indonesia’s green taxonomy mean as it relates to green and sustainable financing?
<h1>The controversial yellow tier</h1>
First off, the Indonesian government deserves applause for keeping its green tier for electricity generation activities truly green. It appears that only projects sourced from renewable energy are assigned the green label if the project receives Indonesia’s gold PROPER Award, a local company performance rating program for environmental management.
While it is unclear whether Indonesia’s gold PROPER award criteria align with international standards for green electricity generation activities, not recognising coal or gas-fired power as green, under any circumstance, is strategic.
The problem is with its yellow tier, particularly what this category of activities signals.
To qualify for this tier, the project must obtain the blue PROPER award and meet local environmental regulations set by relevant ministries. The greenhouse gas emissions criteria for this tier are not defined.
Based on IEEFA’s analysis, however, Indonesia’s unabated oil, gas and coal-fired power projects are likely to fall in the yellow tier. <a href="https://u12097671.ct.sendgrid.net/ls/click?upn=9rudYHeevExQpJ5A1h-2BA7c1pM-2FFTWjhJSkGZtCS9g4vx0QmQxO3-2Bnayvsw0ez9NpYVTBk19mdr0B4CTST-2BlSXG4cLDK3YI4gEfTssVhvIIgU-2B1qdIxInRDYCZGVC2IVeEANqhd3Ohkr2Cssa1rR0Sg-3D-3DovbZ_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKgaYtmG9WIDokZdqLmAuUtRfupOIFaNfiyuTCdcTFZi069aeMlVOXgQAPF2GJDHcmqWRsmm898LpqYWbuu3yc7AvGD9Mc4WXeJ1DU8sFWACPdIiKiF0OOHuQhPe0cBVnefAvUWrVjOkIJhAtzJXVS-2B8M-2Bd9InUqeP2gr03o0pFQw2LJPWyA9aaOmEaVE4-2Fh6rxnEriPc5BH9SZPbFcy-2FxaH9Y9j5IYrU-2BCagEMZAWPRklk-2B7LbBtfjo3l3RUeqZflAOhw3PJwkHYkqr4VLBAhDZA9terdK5HT1dyuuxZD6qcgaLoAFLU0Cc6UKRlsaYtjjmIk4dOWsNRu-2FEQEK8c5FLiW4d8bzTpc79Z1iV3C6gkiC-2FgkDMz934gNvfeO8SBst-2B6o64oF4DLiabge-2Fqns8JMdr7P1snYlftlN-2FmcRc6qUBtJCiyu495uJhd7B2L8SSzn-2FluuFk1StpzWrdm5zSZxLPpYPPHPGhXBMHcIhbcGQx63hwZXHsYxjU2bp5pA-2BLQUuv9KP4-2FqbMoI7PP8TB075-2BxkWbaXyjuQl-2F-2FUvioSi0bngem9-2Ff7i22xiI7ajQ-3D">Most</a> of these projects have a track record of receiving the gold PROPER award, a level higher than the blue PROPER award.
Even more concerning is that fossil fuel power projects that meet the yellow tier criteria can be regarded as ‘not significantly harmful to the environment’, which would be at odds with scientific evidence that burning coal, oil and gas are detrimental to the climate. The terminology could mislead the non-critical eye to conclude that the yellow tier contains a series of environmentally benign investment opportunities.
This also brings into question how financial markets will use the new taxonomy: do activities in the yellow tier qualify for green or sustainable financing?
Understandably, businesses predominantly operating in the yellow category—including fossil fuel power companies—need financial support to transition into environmentally sustainable businesses.
Therefore, it is acceptable to raise green or sustainable capital to transform such companies into credible, clean energy businesses, but not to advance fossil fuel power expansions or funding existing plants.
Until market discipline in implementing and enforcing Indonesia’s green taxonomy is evident, investors should pay special attention to the yellow tier, which is likely to carry high-emission, harmful and future stranded assets.
<h1>Indonesia’s place in the state of taxonomies</h1>
The lack of comparable emissions criteria puts Indonesia’s green taxonomy in stark contrast with its global peers, limiting its usefulness. In addition, most other taxonomies do not have an equivalent yellow tier.
China’s Green Bond Endorsed Project Catalogue, the country’s green taxonomy, outlines green activities only and their emission specifications, and excludes fossil fuel electricity generation.
The EU Taxonomy for Sustainable Finance requires an emissions threshold of 100 grams of carbon dioxide equivalent per kilowatt-hour to qualify for their green label. At this specification, coal-fired power projects do not qualify as green and gas-powered generation will likely require the use of carbon capture technology, which is yet to be proven economically or technically viable at scale anywhere in the world.
<h1>The taxonomy dichotomy risks Indonesia&#x27;s credit standing</h1>
As the classification systems underlying Indonesia’s green taxonomy and its peers are notably different, foreign capital—specifically that with an environmental, social and governance focus—is likely to ignore Indonesia’s green taxonomy if the rules are more laxed than those of its home market(s), where these sources of funds are subject to scrutiny.
In October 2021, <a href="https://u12097671.ct.sendgrid.net/ls/click?upn=9rudYHeevExQpJ5A1h-2BA7cBvkZlZehN5pAR50BfImFuxv-2F9CdWKnIE3uhAJhIp9iLleKcoGGnI1xYZCAQ84tMHKC4Cucrzxr2p5PhmVZC3tlF1f-2BvgSnwncyDoCoqclYaRH-_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKgaYtmG9WIDokZdqLmAuUtRfupOIFaNfiyuTCdcTFZi069aeMlVOXgQAPF2GJDHcmqWRsmm898LpqYWbuu3yc7AvGD9Mc4WXeJ1DU8sFWACPdIiKiF0OOHuQhPe0cBVnefAvUWrVjOkIJhAtzJXVS-2B8M-2Bd9InUqeP2gr03o0pFQw2LJPWyA9aaOmEaVE4-2Fh6rxnEriPc5BH9SZPbFcy-2FxaH9Y9j5IYrU-2BCagEMZAWPRklk-2B7LbBtfjo3l3RUeqZflAOhw3PJwkHYkqr4VLBAhDZA9terdK5HT1dyuuxZD6qcgaLoAFLU0Cc6UKRlsaYtjjmIk4dOWsNRu-2FEQEK8c5FLiW4d8bzTpc79Z1iV3C6gmWDgWwFmrhLRbzzX1RoXr5WMSPRIU3-2BlIvidlwp4vOXCzXjjWk6DrkgkuG7RGc7doqejGYQjtX6gdcknrMYehLgzgc9yjouVihuP7RDtf5Vzb7HZmgCL0PXkW0VE-2Fz23NxNBwNSjvuGstn2OZVLvb12JtSzMbaFj2kCdCEFkZ9KLAUBmptNtTTx-2BhQeY8YBQkZiVerThtU9DjInIwQQTI4-3D">Moody’s</a> reported that 31% of the country’s on-balance sheet loans are concentrated in industries with significant carbon transition risk, the third highest share among G20 countries.
Without a narrower interpretation of Indonesia’s yellow tier, local lenders and investors that do not share the level of examination in foreign markets are at risk of holding even more carbon-intensive and future stranded assets. This creates further domestic investor exposure to Indonesia’s climate-related risks, exacerbates the challenge of meeting their decarbonisation pledges, and hinders their longer-term financial resilience.
<h1>Will Indonesia’s three-tiered taxonomy promote clearer pathways to decarbonisation?</h1>
Indonesia’s progress towards meeting the Paris Agreement depends on how successful its policy measures are in mitigating greenhouse gas emissions. Just as local road rules are interpreted and actioned according to an individual’s interests, so too can Indonesia’s green taxonomy if clearer financial regulation and effective enforcement are absent.
This, in turn, puts President Widodo in an awkward position as he leads the G20’s push for climate action.

Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Indonesia’s green taxonomy walks a tightrope in balancing industries of the past and the future

Amidst the global push for decarbonization, the climate impacts of natural gas are coming into the spotlight. Although marketed as cleaner than coal, natural gas is highly emissions-intensive on a life-cycle basis. The international scientific community says unequivocally that the world must reduce dependence on coal, oil, and natural gas to meet climate targets.

Amidst the global push for decarbonization, the climate impacts of natural gas are coming into the spotlight. Although marketed as cleaner than coal, natural gas is highly emissions-intensive on a life-cycle basis. The international scientific community <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iBi8xu4TOdM7pdItwD4uukbZe4q-2Fe6q2WTCKN4xP-2FZM0GZpK02NeensEEsW2M3GU6T11b4RrONey-2FAv-2FdoSYalDraNWKBcineQw4CeZCLQktQHH5XmznkT7RE2afqhSX3lpjw-2FG6x5LKyB0-2B0MB6-2FFI-3DLkEx_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiWEVnwawipD8-2FMsLdRP7PYGp28kvC5OjrbISX95iOerpIgepAwVsY3bDzx-2FZEVapmN5QPUvIoKn5iTPzMfqZjO1Fh6nj7sV0Y5Tjz44-2FIs4ua9dxAKceOoF63i-2BLfI5hm3H-2F9y9Tc2Y3l9jFAJHBtFSPDiU1-2FPDkUw0Ye7-2BImjtQ-3D-3D">says</a> unequivocally that the world must reduce dependence on coal, oil, and natural gas to meet climate targets.
But the natural gas industry is trying not to fall behind the climate curve. Liquefied natural gas (LNG) exporters are promoting carbon-neutral LNG to buyers willing to pay a premium for emissions offsets. Industry proponents are also lobbying for gas to be added to green finance rules, which would open new sources of capital for gas projects.
However, neither strategy directly mitigates the harmful climate impacts of natural gas and LNG. Perfunctory attempts to paint these fuels “green” do not alleviate their climate or financial risks. Instead, natural gas and LNG are fundamentally unsustainable given their greenhouse gas (GHG)-intensive emissions profile and the deteriorating economics of gas relative to cleaner renewable energy sources.
<h1>Carbon-neutral LNG blends dubious climate claims with untenable economics</h1>
Natural gas is more harmful for the climate than coal in many respects. Methane, the main component of natural gas, is a GHG with more than <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iNSBV-2B5YIXoAcadp90gWLAhr4T6PEz-2F-2BBaOexVXuGrkKzpkJSRYDKnfJWHpqrgpAyw-3D-3DNM_A_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUgHDAoN-2BU20l9AkfD9OrWPA7grn-2FWAi3NCkkCkH2i4ztFd5Rep0uGMhy-2B1mUxzqmtD1tzrep-2BJn91CiyRWAINmnKLSTsVRAWTkzRbM2-2FqNE8Iwiu9LAISBJcVDlVXHwiqQ0flgvn5DKL4mPo2FLzFgAW35YuWHbeYqpgtnXo-2FybKQ-3D-3D">80 times</a> the heat-trapping capacity of carbon dioxide over a 20-year period. The production and transportation of natural gas can emit significant volumes of methane and other GHGs. According to a recent <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iLKVZR-2B3fr2wGBABccgyA2Yl0B0hw2Ke5vyKhrmdfGh67p3zzpx0ruzqMY4BIRgvnYrLzqha3ZzH5DkznWL-2B9U3cb4T8bL73gptti5BDQ-2FnY23xFsJy97-2BaqE6oFxhG68A-3D-3Dp2dg_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUi6rQlwBbK9i-2FuagxzE8lBwa87B4NGWr2KXgSQjGUdjA8rhPtdk2iahOBx8RlhKrZPCPh55H-2Bm3vrAy7e6HH1ww1rAwL9JnckTp7V0ojr6V-2F8I5Adr-2FUp7c280qyBR-2F-2FWX1wR-2BpB6qnlrwVCG24oMOrt8TxeFQnpjXqXNApEnHFOQ-3D-3D">study</a>, GHG emissions “from the extraction, transport, liquefaction, and re-gasification of LNG can be almost equal to the emissions produced from the actual burning of the gas.”
Moreover, the International Energy Agency (IEA) recently <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iKRS6m4t1NgLbsZsiDhY16K7DtBSoRP5lbVxmqkiFN-2BGbMVO8UmZUy9KUNTtEAfBXXRlnl7zOKei41ofh3ef4iS56mkCEI6zl6l1oF9N-2BwIx5xfn-2BAVBJg9sXR-2FtlYJ0BQ-3D-3Dp_ZO_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiurcan-2BnsrlOEwzCSn8Rr8UGnqTyvExRYX3SnyK4aOkLatIO6iZlJ34cfQbhSM0rI3AXEoaXVr8427a4VJdMbIUYPEHc4sPDRATS-2B1app8-2Bl5uOJrtK-2BtQWthKtSKSSAYA-2BH85fB0perMBCCIL-2FqUcpMNAP7ONSdSALNcDL21t8Q-3D-3D">found</a> that global methane emissions from the energy sector are 70% higher than official reports.
<img src="https://illuminem.b-cdn.net/articlebody/3e70c023a8df00ebb7ada50737ceeaf4998683b1.png" alt="Figure 1: Greenhouse gases emissions profile of U.S liquefied natural gas to Asia">
Rather than directly mitigating emissions, however, “carbon neutral” implies that either the LNG buyer or seller will purchase credits to invest in climate-friendly projects like forestation, renewable energy, or carbon sequestration—indirectly “offsetting” harmful climate impacts.
Since 2019, about <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iJGi-2BQs-2Bw1MEyTZOdnyi8iTJfbonfEURxTiaYkqk0zqC1cQdLnOLyr0JS6YIRyENc6U9kjGmOso7L-2BIB-2FVG8eMY-3DEIBd_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUgop3HHvh9-2BPMBGfiDtXksBB-2BEYVpwSlEPs181TmGUzRWWEGGq4jqotoNAzRaIfFuHmd23b62PbQSDGjmyXYVudwynrOZmipApDde6GbMEd2Ziq0jKb6vy0iStivjSBTBnu1RH-2Fkqr3n0WnugHIN35-2FIzMm1-2BGaezct-2By2LcyjO-2Fw-3D-3D">35 carbon-neutral LNG cargoes</a> have been delivered to buyers in Europe and Asia, and the industry envisions the product becoming “<a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iNZi8UVDD-2B5W7BzfaiOCrhaChQWggaOlcW8BRRMyy2JZtJUgUDvDXZ03Pg6fVNCUuHkA8WD8G4yxATC8WxsMDXswrH60kJV6737Za0hiXKgEAMffPFiNIeB-2FkwhxIXH8bA-3D-3Dbpf5_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUglQYhdmX66-2BTbnZm7lsbiVt-2BtuzfAPkJ4XXB5v69CybI-2BrUzoHE68BDs4KavKDHKveDGJhW719iZ1HPfAI-2BBIhY-2FaGpcCX79QN5hJIv51XNj-2F4hjgUZZagRKSd4lGxjXfH3oSffr-2B99IZ9TdT60VLGVzWmP5ULJycnwoQtzIGgNw-3D-3D">mainstream</a>.”
However, there is little consensus on the credibility of offsets in reducing emissions. Moreover, carbon-neutral LNG deals rarely disclose information about the total emissions of each LNG cargo, where offsets are sourced, whether offsets are for carbon removal or avoidance, or whether the buyer or seller pays for them. This lack of transparency makes it impossible to know whether “green” cargoes have real climate benefits.
The few carbon-neutral LNG deals that disclose the actual emissions of each cargo have relied on a UK government standard of <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iDyS9Kd2-2B0CdoVI31AiHBs65uSh8GrvgKj0wVl079-2BbMKyAl3uzGIwOgX2P40yKO3VyqwdbXJh75kRnmtGK7qIf3J1Mn0fiC2D6sK6jkXrLXVLoExuYF3O-2BgB6vC9QiBwp1qTOQgPmI1W3cmD0Fb7sKjK3LWkdjcgIGGQF-2BYo9eChuQmN56SSFlj4w2gasY8cQ-3D-3D6y1z_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUib1HNwem8lvYcgE-2F-2BFx6COq9rlgRmIzpXaAzoGRMBAgkVVqPXrurJP189QmV34tMQ5EHw81wLosLsqUb8oVfOx0kUNbWRfQcjeu9ZfIaI4N8GutE6Kq8lEeZ7MvpMs7r49ZXN1ohWUAHdpNYJcrd0qVMG2-2BFsPOXo0N9DAJYvYXQ-3D-3D">250,000</a> metric tons of CO2 equivalent (mtCO2e) per shipment, without undertaking more detailed assessments. Cursory emissions estimates suggest industry players are making little effort to mitigate the climate impacts of their product accurately.
These estimates determine how many offsets are purchased and therefore directly impact the economics of LNG. LNG spot prices in Asia averaged US$16.40/MMBtu in 2021, meaning a typical 70,000mt cargo cost US$59.7 million. Offsetting 250,000mtCO2e at recent voluntary carbon credit <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iJVzrqxNmWur9MaRsu2WKoXVw4i00fsw7RR-2Fm6M-2FytAXZ93FXYA-2BoYS8JkgVxUKmluvevmgZ4yS-2BNYvQBJka-2B0jas3W2-2Bbej-2BginMY2fyMMs2F8PP-2BfFzgaDQs0h-2Bx7fLE6e8kX8Bzsns-2BTHIxUBvn5CmwRhSz3PVJGtVL5em65PNfLHYB3JW-2BKf5wUtJid-2Fog-3D-3DKeAV_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiyS2y9F8dYnSmgxeTYYfVMYpjlH7opqtxszKmHRizjmAnA1-2FpbBptTce2QGwhwvkkpzlMihL7vr7Y1sugqjmI1kjIILOs-2B8HK4sSsENDTEPxvY8IY7pl-2BfGPMwCmTCWm-2FySB37S-2B1qxFbLVV066QiOZLFLyN-2BrVMrIKaZQHsyCyA-3D-3D">prices</a> could add US$2.2-3.5 million to this price tag, or roughly US$0.60-0.95/MMBtu.
Moreover, voluntary carbon markets—where offsets for carbon-neutral LNG are typically sourced—are growing rapidly. <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iNUk-2Bw-2FWLpp197TTO2Akf-2FOwCdncbyFytETrOGZMFsD9N-2FjJOaQwOYZtgL2UvnMRH-2FMqzbhxrLykV2DkUelXs9w-3DF3u2_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUjHtlWy3HXfom2CzvtiU68XTpHtDIds01IoFLCySf4GilOjfILD47x-2Fy6mgjawCZ6iNiqHU9wUSpkIGPbzFCABC-2Bjgs8pONiOf1UtPGiD4wBALDfyurZznCZXw8ZVLhtgDeFOkJEU1-2FhEzIeWr2gOnbpYlGfUv8Qzskrw-2BzRU2aDQ-3D-3D">F</a><a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iNUk-2Bw-2FWLpp197TTO2Akf-2FOwCdncbyFytETrOGZMFsD9N-2FjJOaQwOYZtgL2UvnMRH-2FMqzbhxrLykV2DkUelXs9w-3DLKok_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUi5sv9OvjhIcQN3JCpORbaYWsTdCYNcGshuvdyS1zbLLYwG-2FcCXbVJopu3Uc4d9W8U3kkD3oFg2Y-2F0bqpvG1B7wVaEf2o8sP6XQnaRnSnA79YktHW4-2BLVR0t3oIR4k2K7mpLat36t3LMEWe-2BPuhbDIKsti9FjfOGoZ1HM6R7ZwVzg-3D-3D">orecasts</a> indicate prices could rise to $20-50/mtCO2e by 2030, potentially adding US$5-12 million to the final cost of each LNG cargo, and raising per-unit costs by US$1.4-3.4/MMBtu.
For many current and prospective buyers, LNG is already a volatile, foreign currency-denominated fuel that can <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iFQ4304-2FFf-2FWmKnsxECL528A3ZwU7U97Y-2BKvtfGq-2BH89q9Nm0v4b1fx-2BqSPYTUWuptcCQ1LRLFD8eJ4YN4lM9oVGeBoC8M7OKnD4gLj9PA3p3eQDIxDoGI0mhxjHNvqtM3222sUphk0TYPRxr4zTgyyvQi-2B0siWu8K5VGh1knn5Tpt2A_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiP2P9GjIhg1JTdyIpCfP9-2FdRAVP-2F5CBY0bZvMg7fu9mxDbbn0m4blBQjHuZr7UVtGjdn3AqrDcfVmXgjHGIe68xg6h0c7pOyazr1ueXupfY-2BY5arXElVDOdSn36N1zQaoPUHbjMbtkONRnYCnTAoLRBglIXbGU-2BIbu3v4XMiGztA-3D-3D">threaten</a> macroeconomic and financial stability. This is particularly true in the wake of Russia’s invasion of Ukraine, which caused LNG prices in Asia to jump to a record <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iPYkKV4G-2FrNq3GnY6oEaaE4GHML-2BQJKsR6fWbfE-2B88geRnuHhWjZe7ZCHqRVflqbzbE-2FDVGaIE2W1BV7W7-2BFozYN-2BRD0gCXjogiNlGRTGPjznfYbF1L1GVOOCoO9OA5aZ3CW4Ss3K8x2XUU7gtfSAYO64e5sCC-2BDAzhPT7L0hyOlSetqOlHAl82kLLTsUpRVAIDLZbnYgckmrkjKgtrkc-2F9K20rZW4NndOTh-2FApuwUbg9q-2FhTscm7zpT8-2BgFc6lJsA-3D-3DMomP_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUj-2BSGfVrh7Ye2TBfhxK6A-2FhCYwcS4oWtXiVFFnJXVcJ67ScZPJh8TKmwhW58oUniVqsxySjdgD8cOwjztUgpuNgmpf9Y8HZwNjllWYFR-2BxAkA3qUNy50ogqDfmNyo1m1-2F4RhQEWEd57n0OJ-2B-2BD1QhmtJIOgbcEQY59tfDlmAb-2BSrg-3D-3D">US$59/MMBtu</a>. Adding a multi-million-dollar premium for dubious claims about carbon neutrality therefore makes the economic case for LNG even more far-fetched, especially when compared to the <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iKyLWngn-2F5-2BE-2FpqEQmh0QVMQr4UENUjMHlC7JIdXCMbAu35h3dQtldslKiVQ2Ni440D-2F-2BrqrfN77vRU0wLQmVTeFVRVsNXlecr8LagWRBinwrpu9_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUhHioylakATxIRVXlXpy8JJtxMEEGp61EZF3moeSAv89JiaeF4twGrzCbIyFNJkNxhtinlBY4lxeZBvXb57p1NZWmbsTUNDqlHQPRn0tQxZVXGRwsyAri-2B8ZDmmX4i-2FmTEkqAyHkP6Zht9wQC-2F746kpPyfTSbTpIdSMyAP8YrvktA-3D-3D">declining</a> costs of clean renewable energy technologies.
<img src="https://illuminem.b-cdn.net/articlebody/179433ad43c29136e11e3dbbc84a98d7a15cab7e.png" alt="Figure 2: Levelized cost of energy ">
<h1>Gas has no place in “green” or “sustainable” taxonomies</h1>
The lack of transparency and credibility in achieving “carbon neutrality” creates a greenwashing risk that serious ESG investors want to avoid. Yet, debates are ongoing about whether gas and LNG projects should be recognized in green taxonomies, which specify activities that qualify for green finance.
In December 2021, the South Korean government <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iI1uLJLJjPzuTHV7x5wyTnYNnRm5Iop7imYPMfEHpapZxwgCdj-2FAiSJ2YOeIJq71XF-2FMXIwL5mLnOW-2Bbss7VXIPAs3-2B0861iyFmjDtYXJsz3-2BYe8ACIHs1hBZZ-2F5jtoDOEayeyzaBEG2UKAM-2BfixxU8nz72yT6UvmCcaE7pCI-2B8tQz_p_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiC2MuqDWcvI8-2BRyYOlf2kpvHaeNW9MwUDo1LWSi3lkhi4NeQr4g-2FQzQuvt7EpKjvGGxFRx5wEkIDWRdHZDm2O3ooOroe-2BFigldq-2BAkq3yL7P0Z2VAJ3D-2F1a6fGB6Hgxc41rMKwOYeZwQtB15pvdXk0f-2Fvdc0fHMlyJCvABNruErQ-3D-3D">confirmed</a> that gas-fired power plants that emit less than a certain emissions threshold would be treated as temporarily green. Similarly, the European Commission <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iE2tP3HzrmG5eaPV8H3qHXI-2FLUgZBPbYe7N0-2BBdIKr9BCU4rL0cmDoaJqGNNBhkjRPXLvtxfkHsRnnFImUx0NIxroPOb9BbRVg-2B9FFZYVF76Dr-2BHR3QmDFIIhiILnLtY9rzWLs1-2Bknak0QyVTGzoKOY-3Duojy_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUi786v7Vf0rbtaX6PsLUkVY-2B9OZxiCnC5BY1lrJOCqnayjGiy85sclDK36mTANF1JARaqOZxZmZ0SYdUCjEM5287zkLQcCF3-2B-2FdC-2B8UOdDidV1kqhVL-2BxZS9BXjp1UVvqQW-2B5IjslckT-2BBRSxV93hl0PF2AJqeKCkd2ht-2FV3hJmaw-3D-3D">published</a> proposals recently, which, if adopted, would extend the green label to gas-related activities that meet specific emissions criteria.
Notably, these proposals offer little scientific rationale for gas as sustainable. Instead, they recognize gas as a transition fuel, implying that gas investments are fundamentally unsustainable. This is consistent with the IEA’s <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iPtEO5zWlMgaIBqPBoJlk3tysl5v1eNFcTLnGHV-2BLi5yy-2B6owm5671vbdCxRWExKbw-3D-3DwcT7_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUiNu5VDcn9si9bqk-2F0d0EVBYGDyY0apI7QUGn1tr2fxb9uDj0MM0gr-2F-2BhLdYDhAuTZVOGQxhjmCuM9bIbHhrW5G00GOGDc4276keiZzAbHVoIvjtYPE79j-2FJhByQDNq99-2BT-2FOo7K-2FrV1IR4BXh9hMREpBaUTEtf-2BgYJWVwN2o3mPg-3D-3D">findings</a> that global gas demand could peak in 2025 under a global net-zero scenario.
As such, green capital <a href="http://link.mediaoutreach.meltwater.com/ls/click?upn=NrdtFX4JQ5w5-2BbUbNv71iFQ4304-2FFf-2FWmKnsxECL529wIivFTjQ4iVc1eBBeLAG1pEwYhTwLwQtgeEqMbXmx3gKnQl3YOWuCH1htyvU3dg8RJ246ZqPqlAqmh76sOfGti4KtTFyoXpLR7uBdP4xKCNOqEb9Mh7gE322Jx105DBM-3DUzI3_C3mfGVZYLurVmFtpz-2Fg6G3N34IqIN57-2FALFz-2BSawmsKJ032tHMI0Vyu3Dj84aAmPLUwGCXS2YeAPLWl-2BtHodsYmXBuv13vw-2F5hYxhmKLiGe7eO6ZGrHp8VzQjdmkl1NyYmKQeHfDSdlNF8zG1DcPE-2FtVUeSCtH83QAT9es8hrDgwhDWQItT9PLnqtNpxTXPhd56HaWW9dtCENOxSXkwi-2FmXRk5xz3uVx9ugIWmFmMUhGGle-2BM2NO02hC1iYH8G-2BbfDdVybU1uF1dddBRRHJCmxKC-2FdMcVdlIyMiwJyMD4BMIa7RXmPwpHvBJer8mMd-2FikV433Pwe5H9beKisdB6RzZ3YgWD2UB7l0H2nE7jpF8qCHe7qPPNAcCa0xzN9qqzVN0VBZORB8fzOOD0I3lOAVA-3D-3D">should not</a> be deployed to finance gas or LNG projects, regardless of “green” claims. Financing of fossil fuel projects should be limited to non-labelled traditional debt market instruments.
By allowing gas developers to access “green” pools of capital, which typically come with lower borrowing costs, countries risk jeopardizing their credibility on climate action and locking-in natural gas and LNG infrastructure for the long term.
The industry push for gas to be recognized as “green” indicates that gas corporations can see into their shrinking future. Natural gas and LNG investments are fundamentally unsustainable in climate change mitigation pathways and in light of cleaner, more economically viable renewable energy alternatives.
 This article is also published by <a href="https://ieefa.org/ieefa-despite-green-efforts-natural-gas-and-lng-make-little-climate-or-economic-sense/">IEEFA</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Despite “green” efforts, natural gas and LNG make little climate or economic sense

As some green taxonomies compromise on gas, China’s own exclusion of fossil fuel electricity projects sends the right market signal.

<h4>As some green taxonomies compromise on gas, China’s own exclusion of fossil fuel electricity projects sends the right market signal</h4>
As the urgency for climate action intensifies, momentum is building to support climate-friendly energy investments. But given widespread claims of environmental sustainability, how do we ensure that green-branded businesses and products are true to label and deserving of green energy finance? This is where green taxonomies, if designed properly, can play an important role.
<h1>What are green taxonomies?</h1>
A taxonomy is a system for categorising things based on their scientific characteristics. A green taxonomy specifies business activities that are low-emitting and environmentally sustainable, and therefore eligible for green finance.
In the energy space, this typically refers to renewables like solar, wind and geothermal. It also specifies the environmental criteria, such as emissions thresholds, that the activity must satisfy to qualify for the green label.
For banks and investors, a taxonomy provides the parameters for what they can and should invest in if they want to call it a green investment. Wanting certainty that they are investing in clean and sustainable technologies, they rely on taxonomies to guide them.
Therefore, a key role of green taxonomies is to efficiently channel and unlock new pools of capital towards proven, environmentally clean and sustainable assets, to address the global climate crisis.
China’s version of a green taxonomy is the <a href="https://www.climatebonds.net/files/files/the-Green-Bond-Endorsed-Project-Catalogue-2021-Edition-110521.pdf">Green Bond Endorsed Project Catalogue</a>.
<h1>Why did China and the EU develop a Common Ground Taxonomy?</h1>
A flurry of green taxonomies have been published in several markets, including China, the European Union (EU), Malaysia and Russia. More are being developed.
As most taxonomies are tailored to national or regional contexts, the methodology, metrics and technical criteria for what constitutes a green investment can differ significantly from market to market, leading to comparability issues for capital providers. This, in turn, can delay the pace at which private capital is mobilised as investors who are focussed on environmental, social and governance (ESG) issues apply caution to what the different taxonomies recognise as green.
Consequently, China and the EU initiated a comparison exercise of their respective taxonomies to identify commonalities and differences. The <a href="https://ec.europa.eu/commission/presscorner/detail/en/mex_21_5782">Common Ground Taxonomy (CGT)</a> is the initial phase under the initiative and is undergoing due process – which involves a public consultation through this month.
<img src="https://illuminem.b-cdn.net/articlebody/fec8e59e4127404b29795a231df70713128a0085.png" alt="Source: IEEFA summary based on Common Ground Taxonomy table">
The CGT, while it has been viewed as a harmonisation program, does not create a “common” or “single” taxonomy. It does not have legal effect and is not formally endorsed by China or the EU.
As such, once finalised, the CGT simply assists capital providers in determining which asset or project would or would not be accepted as a green investment in both China and the EU. Other jurisdictions could also use it when developing their own taxonomies, for example, by identifying the activity and technical criteria commonly recognised in both markets to achieve alignment.
<h1>The problem with taxonomies</h1>
Taxonomies and their usefulness are linked to their accuracy, which is influenced by politics and lobbying. In October 2021, after six months of resisting industry calls, the South Korean government <a href="https://ieefa.org/ieefa-accepting-gas-as-sustainable-will-hurt-south-koreas-green-finance-credentials/">caved</a> and added liquefied natural gas (LNG) to its near-final green taxonomy.
Likewise, in November 2021, the European Commission signalled that the bloc <a href="https://ieefa.org/ieefa-eu-considers-bowing-out-of-gold-standard-taxonomy-leaving-room-for-china-to-take-the-lead/">is considering a role for gas in the EU green taxonomy</a>. Other Asian markets have indicated <a href="https://ieefa.org/ieefa-accepting-gas-power-plants-as-sustainable-investments-in-asian-taxonomies-heightens-greenwash-risk/">similar intentions</a>, meaning gas or LNG would qualify for green bonds and loans under these taxonomies.
The gas industry can continue to raise funds through the traditional debt market, though the push by lobbyists for gas to be recognised as environmentally “sustainable” in both the EU and Asia indicates that gas corporations can see into their shrinking future. They are fighting for a place in the rapidly growing sustainable finance universe to expand their sources of capital – and potentially lower borrowing costs.
Policymakers have carved a role for gas in the energy transition in some markets. However, even if gas has a role in decarbonising the economy to wean markets off coal, it should not be validated as a green investment.
In addition to coal, gas is a fossil fuel that contributes carbon and methane to the atmosphere, with lifecycle emissions that are dangerous and significantly <a href="https://www.climatebonds.net/files/files/eu-gas-briefing-220221.pdf">worse for the climate than coal</a> in the short term.
Green taxonomies do not limit the energy mix. The absence of gas-powered generation from taxonomies does not prevent it from being considered in decarbonisation plans.
If gas-fired power is recognised as green, ESG-focussed investors may find themselves inadvertently backing the high methane and carbon fuel and risk being accused of greenwashing. This in turn risks undermining investors’ trust and the purpose of green taxonomies.
Reacting to the EU debate on the inclusion of gas in its green taxonomy, a leaked document from the UN-backed Net-zero Asset Owner Alliance, representing about 9 trillion euros of investment, <a href="https://www.bloomberg.com/news/articles/2021-11-08/net-zero-alliance-plans-to-reject-gas-nuclear-as-green-assets">suggested</a> it is against including gas and nuclear technologies in the taxonomy. This was followed by the European Sustainable Investment Forum (EUROSIF), a pan-European sustainable and responsible investment association, <a href="https://www.eurosif.org/wp-content/uploads/2021/11/2021-11-24-Eurosif-Statement-Taxonomy-Gas-Nuclear.pdf">warning</a> that including gas in the taxonomy would jeopardise the credibility of the EU’s sustainable finance agenda and its global standing in financial markets.
<h1>What does this mean for China?</h1>
The addition of gas in green taxonomies in the EU, South Korea and potentially other Asian markets could make room for China to lead in upholding credible green energy financial standards.
Its first green taxonomy in 2015 categorised “clean coal” as a green project that qualified for the issuance of green bonds, drawing widespread criticism, particularly from foreign investors. China has learnt from market trends and adapted and removed fossil fuel electricity-generation projects. Mandatory and improved climate-related disclosures, among other things, are being introduced.
Early this year, the governor of the People’s Bank of China, Yi Gang, stressed that government funding alone would not be sufficient for China to meet its net zero goals – forecast to require an estimated US$22 trillion from 2021 to 2060 – and therefore, market participants must be encouraged to step in and fill the gap.
President Xi Jinping’s pledge to accelerate the country’s transformation to a green and low-carbon economy, and achieve carbon neutrality before 2060, also opened the door to a much more strategic view of how China’s green finance market should develop, and which technologies should be incentivised.
These moves indicate that China is ready to take the reins from the EU – whose green taxonomy was long held as the gold standard – and compete for global green capital. China understands that ESG-focussed investors have become more forensic in their research and decision-making on what the different taxonomies recognise.
Capital providers around the world are urging governments to step up and commit to clear, strong and investable policies that will unlock the capital needed to transition to a net-zero economy.
China has a lot to be proud of with its green taxonomy. As Governor Yi hopes, if it remains strategic, China could see private capital mobilised expeditiously to plug its energy transition financing gap.
This article is also published on <a href="https://ieefa.org/ieefa-accepting-gas-is-unsustainable-will-bolster-chinas-position-on-green-energy-finance/">IEEFA</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Christina Ng

Christina Ng

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