Before, climate change might seem like a distant threat, but now it has become a household phrase – indicating our pressing reality as it is now one of the most significant threats to our planet. The escalating temperatures, rising sea levels, and increasing frequency of extreme weather events have showcased the urgent need for a collective and comprehensive response. In this context, the Paris Agreement stands as a beacon of hope. Adopted in 2016, this accord stands as a landmark commitment by nations to combat global warming and its consequences. The agreement established a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. Key to this agreement is Article 2.1 ( c ), which is a call for countries to make their financial activities consistent to achieve low greenhouse gas (GHG) emissions and climate-resilient development. This important mandate emphasizes the pathway to a sustainable future, and it holds relevance for the Asia-Pacific region, where climate impacts are deeply experienced.
Our latest policy paper explores the progress made in implementing Article 2.1 ( c ) within five Asian countries: India, Indonesia, Vietnam, Singapore, and the Philippines. In aligning with the approach of the Overseas Development Institute (ODI), we assess these countries’ attempts across four distinct categories: Financial Policies and Regulations, Fiscal Policy Levers, Public Finance, and Information Instruments.
All five countries have committed to significant efforts to combat climate change, with four of these nations having set ambitious targets for achieving ‘net zero’ emissions . For example, Indonesia has committed to reducing its carbon emissions by 31.89% in 2030. These nations’ dedication to the development of renewable technologies can be seen by the target they set for the share of electricity generation from renewable sources by 2030. The analysis in our paper underscores a multitude of promising initiatives throughout the Asia-Pacific regions, including comprehensive action plans, sustainable finance roadmaps, the issuance of green bonds, climate budgeting, budget tagging, and the development of taxonomies.
In relation to fostering Financial Policies and Regulations, our study reveals India’s large roadmap for clean energy and climate mitigation which includes a commitment to combined finance for climate action, supporting agriculture and clean technology, with a particular focus on micro, small, and medium enterprises, offshore wind projects, and green hydrogen production. Indonesia also has established a National Task Force for sustainable finance, while Singapore’s ‘Green Finance Action Plan’ provides guidelines for sustainable finance verification, review, and rating services. Vietnam’s National Green Growth Strategy for 2021-2030 encompasses budget management for green growth. The Philippines, through its ‘Sustainable Finance Roadmap 202T,’ covers market infrastructure, national coordination, and awareness building .
In harnessing Fiscal Policy Levers, India and Indonesia are leading the development of both carbon taxes and emissions trading schemes (ETS). India’s implementation of a carbon tax is still combined with fossil fuel subsidies, while Indonesia is gradually stopping its extensive subsidies for fossil fuel usage. Meanwhile, Vietnam and the Philippines are considering their implementation. Singapore has enacted a carbon tax and created an international carbon trading marketplace. Vietnam’s upcoming domestic carbon emission follows a “polluter pays” approach.
In promoting Public Finance for Sustainability, India has been fighting for green bonds since 2005 and issued its first sovereign Green Bond in 2023. Indonesia has been leading Islamic Finance bonds for climate-related purposes, widely known as sovereign ‘Green Sukuks’ and Singapore has emerged as the largest issuer of green bonds in the ASEAN region.
For Information Instruments, countries like Indonesia, Singapore, and the Philippines have dedicated substantial efforts to the development of taxonomies. These taxonomies provide essential guidelines for sustainable finance, following the principles of the ASEAN Taxonomy for Sustainable Finance.
To understand the application of Article 2.1 ( c ) of the Paris Agreement in five countries, we conducted a literature review and interviews with key stakeholders. We explored regional interpretations, identified best practices, and examined challenges in advancing Article 2.1 ( c ) activities, including the support needed from the UNFCCC process in this matter. The specifics of each country were considered, and the interviewees are those working in the Climate Policy Initiative (CPI) India, Brunei Climate Change Secretariat of the Prime Minister Office, National Development Planning Ministry (Bappenas), Indonesia Infrastructure Finance, and Fiscal Policy Agency, Ministry of Finance.
In our paper, we discover several initiatives and promising steps of Article 2.1 ( c ) implementation from India, Indonesia, Singapore, Vietnam, and the Philippines, but there are several challenges to address. A common challenge across the region is the lack of awareness and understanding about sustainable financing and its risks. Specific obstacles to the full implementation of Article 2.1 ( c ) include the lack of bankable projects, and the absence of an official Green Taxonomy, among many others. To address these challenges, the Indonesian Ministry of Finance has identified areas where support is needed from the UNFCCC, particularly regarding guidance on the transition away from fossil fuels. Although India, Indonesia, Singapore, Vietnam, and the Philippines have launched initiatives to implement Article 2.1 ( c ), substantial challenges remain, which hinder the complete realization of Article 2.1 ( c ) and its correlation to the Paris Agreement’s goals.
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