The year 2024 will be the hottest year on record, according to an analysis by Copernicus, the European Union's Climate Change Service. The global average temperature increased above 1.5°-1.55°C from the pre-industrial era, surpassing the Paris Agreement threshold. At the same time, China recorded a decline in CO2 emissions for the first time since the easing of pandemic restrictions at the end of 2022. This achievement was driven by increased low-carbon energy capacity, optimized hydroelectric power, and reduced emissions from the industrial and power generation sectors.
China's successful energy transition did not happen instantly. In the 2000s, the country was the world's largest greenhouse gas emitter. However, in 2015, China began drafting legal policies and green industrial strategies, including incorporating sustainable development goals into its five-year plans. These efforts include the establishment of green financial institutions as well as green infrastructure development, regulation and incentives, green financial products, private sector collaboration, and investment in technological innovation. With these measures, China has successfully allocated more than $500 billion to sustainable development projects.
Green financing is financial investment allocated to sustainable projects that have a positive impact on the environment. The concept was born out of the growing threat of global warming due to human activities, such as the burning of fossil fuels and greenhouse gas emissions. Through green financing, countries can address environmental issues while promoting sustainable economic growth.
China's success in supporting green projects depends on four key factors. First, a clear taxonomy in defining green activities so that the financial sector can channel funds appropriately. Second, a range of green financing instruments, from loans to green bonds. Third, transparency rules in the disclosure of environmental benefit reports by financial regulators. Fourth, attractive financial incentives for the private sector to invest in green projects.
In addition, China developed green finance pilot zones since the late 2010s. These zones aim to test different green finance approaches tailored to local economic conditions. These efforts have supported the development of electric vehicles, renewable energy, and pollution reduction in major cities like Beijing in the past decade.
Not only China, Indonesia has also committed to a sustainable energy transition by establishing Nationally Determined Contributions (NDC) since 2016. In 2022, Indonesia increased its greenhouse gas emission reduction target through the Enhanced NDC (ENDC). The government also launched the Energy Transition Mechanism (ETM) to accelerate the transformation of the energy sector in an equitable and affordable manner. However, to achieve these targets, funding of around USD 148-263 billion is required. One of the sustainable financing efforts made is the issuance of Green Sukuk.
Indonesia has been the main pioneer of Green Sukuk since 2018 and has become the largest issuer globally. This instrument is designed to finance green projects with sharia principles, as well as increase the role of the Islamic financial market in supporting environmentally friendly projects. The success of Green Sukuk is reflected in the funding of renewable energy projects, energy efficiency, natural resource conservation, and sustainable transportation development. This instrument is part of the National Medium-Term Development Plan (RPJMN) 2025-2045 in achieving the vision of an advanced, sustainable and equitable Golden Indonesia 2045. By learning from China, Indonesia can strengthen its Green Sukuk strategy to achieve national energy transition targets.
