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The expansion of decentralization, especially post-reform, has resulted in an increasing number of matters that must be managed by local governments, one of which is the issue of environmental sustainability. Decently, decentralization has resulted in economic growth and development in the regions. However, on the other hand, it has also created negative externality consequences regarding environmental sustainability - decreased food production, water pollution, decreased air quality, and rising sea levels.

In order to support development without sacrificing environmental aspects, Indonesia is committed in law number 17 of 2004 concerning the Ratification of the Kyoto Protocol to the UNFCCC to implement a clean development mechanism in efforts to reduce Greenhouse Gas (GHG) emissions. Unfortunately, during the 16 years since the regulations were passed, BPS (2020) notes that GHG emissions have consistently increased in the last ten years. One reason is developing policies that need to be oriented towards environmental sustainability. In addition, development strategies and policies are more focused on accelerating economic growth than paying attention to environmental aspects, which leads to increasing GHG emissions.

Currently, the Government is aggressively planning green economic growth, which pursues not only the rate of economic growth but also the quality of growth, namely providing economic, social, and environmental benefits that can improve the community's quality of life through sustainable funding.In this case, Local Governments (LGs) have a significant role in realizing green development goals, which must be distinct from development policies and their financing framework. One option for financing regional development comes from regional loans. Amid regional government fiscal limitations, government debt can be used as a driving force for economic progress while simultaneously impacting environmental sustainability. In various countries, in China, for example, government debt aimed at environmental management innovation encourages environmental sustainability in China. In Indonesia itself, the amount of local government debt is constantly increasing. In 2021, the number of regional government loans was recorded at IDR 17.9 trillion, an increase of 7 times compared to 2017 of IDR 2.3 trillion (DJPK, 2022). Regarding the number of Regional Governments making loans, it has also increased from 29 Regional Governments in 2017 to 92 Regional Governments in 2021. However, unfortunately, many regional loans are not matched by environmental sustainability policies.

This research aims to see the effect of the proportion of local government debt on reducing GHG emissions according to the indicators of the clean development mechanism in the Kyoto Protocol. This study uses a quantitative approach with a linear regression method that considers the variables foreign direct investment, local government debt balance, industry, investment, population, and general government expenditure. The population in this study amounted to 514 district/city governments in Indonesia, with data sources derived from official reports from the central and regional governments. The first hypothesis in this study shows that local government debt can effectively promote sustainable development. The second hypothesis shows that local government debt can effectively promote urban environmental innovation and promote the Kyoto Protocol implementation.