Dissecting Indonesia’s Regulation on Carbon Capture Storage: Analysis on Presidential Regulation Number 14 of 2024 on Carbon Capture Storage
Setyawati Fitrianggraeni, Reynalda Alya Ilyas, Jericho Xavier Ralf
Introduction
The government’s goal of reaching the net-zero emissions target by 2060 or earlier highlights the pivotal transformation of Indonesia’s energy sector is moving towards renewable energy.[1] [2] Despite substantial fossil fuel reliance, strategic policy like Presidential Regulation Number 112 of 2022 on Acceleration of Renewable Energy Development for Electricity Supply aims to foster renewable energy investments. However, challenges such as regulatory hurdles and the need for bankable projects persist. The introduction of Presidential Regulation Number 14 of 2024 on Carbon Capture and Storage (“PR 112/2022“) exemplifies Indonesia’s multifaceted approach to meeting its renewable energy and decarbonization goals amidst these challenges.
Indonesia’s Renewable Energy Stance
Indonesia’s Ministry of Energy and Mineral Resources Regulation Number 2 of 2023 on Implementation of Carbon Capture and Storage (“CCS”) and Carbon Capture, Utilization and Storage (“CCUS”)[3] in Upstream Oil and Gas Business Activities aimed at enhancing the country’s renewable energy development, is a pivotal element in understanding its energy transition dynamics. This regulation is a part of Indonesia’s broader strategy to incorporate more sustainable energy sources into its mix that underscores the country’s commitment to reducing its carbon footprint and aligning with global climate goals. Despite these efforts and the initial ambitious target of achieving a 23% renewable energy mix by 2025, challenges such as the entrenched reliance on coal and systemic issues like fossil fuel subsidies have led to adjustments in expectations.[4]
Carbon Trading
Carbon trading in Indonesia is an integral component of the country’s strategy to reduce greenhouse gas emissions and combat climate change. Under the framework established by the Ministry of Environment and Forestry[5] , carbon trading allows entities that emit greenhouse gases to purchase carbon credits from those who have successfully reduced their emissions below a certain threshold. This system is designed to incentivize reductions in carbon emissions through a market-driven approach. Indonesia’s foray into carbon trading is also aligned with its commitments under the Paris Agreement to lower carbon emissions and transition towards a more sustainable energy landscape.
The implementation of carbon trading in Indonesia is facilitated by regulations that establish a cap-and-trade system such as in Ministry of Energy and Mineral Resources Regulation Number 3 of 2023 on Implementation of CCS and CCUS. This involves setting a cap on total greenhouse gas emissions and Licensing the trading of emission allowances and carbon credits within this cap, promoting cost-effective emissions reductions across different sectors of the economy. By participating in carbon trading, Indonesia aims to attract investment in renewable energy and low-carbon technologies, fostering economic growth while ensuring environmental sustainability.
Carbon Capture Storage Laws in Indonesia
The recent enactment of the Presidential Regulation Number 14 of 2024 on Carbon Capture and Storage (“PR 14/2024”) provided legal basis for the implementation of CCS done by Contractor based on a Cooperation Contract in the form of:[6]
The law also stipulatesthat the implementation of CCS on a Carbon Storage License Area (Wilayah Izin Penyimpanan Karbon) shall be executed by the license holder based on an Exploration License or Storage Operation License.[7] The regulation is aimed to provide legal basis and legal certainty to all parties involved in emission reduction activities in the Oil and Gas industry. The regulation also stated that Contractor or holder of Storage Operation License shall conduct, among others, monitoring to guarantee the safety of the worker, the safety of the equipment used, and environmental safety.[8]
The law states that CCS implementation is divided into 2 Licenses: Exploration License; and Storage Operation License, which are both issued by the ministry.[9] In addition to issuing the licenses, the ministry delegates its authority to the minister/head of the agency that organizes government affairs in the field of investment/investment coordination.[10] Exploration License are applicable for Business Entities and Permanent Establishments (Badan Usaha dan Bentuk Usaha Tetap) and Storage Operation License is only applicable for business entity.[11]
The law explains that the Ministry of Energy and Mineral Resources (“MEMR”) shall be the one to prepare the Carbon Storage License Area and the area itself may come from the suggestion or proposal of Business Entities or Permanent Establishments.[12] There are 3 area referred to as the Carbon Storage License Area:[13]
The execution of CCS implementation in the Carbon Storage License Area can only be carried out after Business Entities obtain a Storage Operation License[14] and CCS implementation in the Working Area is carried out after the Contractor obtains approval of the proposed field development plan or its amendments.[15]
The regulation further addresses various methods of carbon capture, including separation at oil and gas production facilities, carbon capture from combustion processes, and direct air capture among others.[16] It mandates that captured carbon be processed and purified to meet specific safety and quality standards before transportation and injection, ensuring diverse and stringent environmental and operational safety practices.[17]
Additionally, the regulation details the injection and storage mechanisms for carbon, specifying acceptable geological formations like depleted reservoirs, saline aquifers, or coal seams.[18] It emphasizes compliance with laws, standards, and engineering practices for carbon storage activities[19] , and requires that annual work plans for storage operations be approved by the Minister of Energy and Mineral Resources, ensuring alignment with environmental standards and approvals.[20]
In CCS, closure occurs under conditions such as full storage capacity, cessation of carbon injection, expiration of licenses, unsafe conditions, force majeure, or economic non-viability.[21] Upon these events, the contractor submits a closure plan to MEMR via SKK Migas. The Ministry then reviews and decides on the plan, leading to the post-closure process. [22]
Risk and Challenges
Even though CCS offers so much potential for Indonesia in their NZE 2060 plan, there are certain risks and challenges associated with implementation of CCS in Indonesia. Some challenges are briefly described as follows:[23]
Potential Sanctions
On the other hand, currently the regulation only states administrative sanctions which mostly covers the obligation of contractors and Operation License Holder to submit a commitment working plan to execute the CCS activities, transfer of licenses, acquiring relevant licenses, and any other obligation required by the law in regards to executing a ccs activities.
For any Contractors or Operation License Holder that violates any of the sanctions stated in the regulation will be liable to:[27]
Conclusion
Indonesia has been progressively upholding its commitment to the NZE 2060 goal. With the enactment of PR 14/2024, business actors and relevant parties are to expect a much clearer legal foundation for CCS activities in Indonesia. However, issues of concern regarding the implementation of CCS still persist, with the high-cost requirements to invest on the technology and the environmental challenges that is holding back the progression of CCS activities, Indonesia have yet to effectively regulate CCS to maximize its potential. This is due to the amount of foreign investors required to conduct such activities, trying to bring and update Indonesia’s technologies through investment.
By further taking actions to steadily attract foreign investors and establish a better functioning regulation, Indonesia may be the leading country for CCS implementation. Locals must be given proper education on the CCS activity such as understanding of Analisis Manajemen Dampak Lingkungan (“AMDAL”)[28] as a required document as it may concerned potential environmental disputes. Further actions in providing awareness and incentives to locals that may be affected by the CCS activities may also be the key to produce a sustainable outcome.
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Footnote :
[1] Ministry of Energy and Mineral Resources, “Ini Prinsip dan Peta Jalan Pemerintah Capai Net Zero Emission”. Kementerian ESDM RI – Media Center – Arsip Berita – Ini Prinsip dan Peta Jalan Pemerintah Capai Net Zero Emission . Accessed on 2 April 2024.
[2] United Nations Climate Change, “Long-Term Strategy for Low Carbon and Climate Change Resilience 2050 (Indonesia LTS-LCCR 2050)”. Long-Term Strategy for Low Carbon and Climate Resilience 2050 (Indonesia LTS-LCCR 2050) | UNFCCC . Accessed on 17 April 2024.
[3] Carbon Capture, Utilization and Storage (CCUS) is a process that captures carbon dioxide emissions from sources like coal-fired power plants and either reuses or stores it, preventing CO2 from entering the atmosphere.
[4] Institute for Essential Services Reform. “Reaching the Target of 23% Renewable Energy Mix by 2025.” Reaching the Target of 23% Renewable Energy Mix by 2025 – IESR . Accessed on 2 April 2024.
[5] Ministry of Environment and Forestry Regulation Number 7 of 2023 on Procedures for Carbon Trading in the Forestry Sector
[6] PR 14/2024, Article 2 paragraph (3).
[7] PR 14/2024, Article 3.
[8] Shiddiq, “Perpres Nomor 14 Tahun 2024: Carbon Capture Storage”. Media Nikel Indonesia. Perpres Nomor 14 Tahun 2024: Carbon Capture Storage | Media Nikel Indonesia . Accessed on 2 April 2024.
[9] PR 14/2024, Chapter IV.
[10] PR 14/2024, Article 9 paragraph (1) jo. Paragraph (2).
[11] PR 14/2024, Article 9.
[12] PR 14/2024, Article 10 paragraph (1) jo. Paragraph (2).
[13] PR 14/2024, Article 9 paragraph (5).
[14] PR 14/2024, Article 28 paragraph (1).
[15] PR 14/2024, Article 28 paragraph (2).
[16] PR 14/2024, Article 29 paragraph (1).
[17] PR 14/2024, Article 29 paragraph (4).
[18] PR 14/2024, Article 34 paragraph (1).
[19] PR 14/2024, Article 34 paragraph (2).
[20] PR 14/2024, Article 34 paragraph (3) jo. Article 26 paragraph (2).
[21] PR 14/2024, Article 36 paragraph (1).
[22] PR 14/2024, Article 36, Article 37 paragraph (1).
[23] Mahinda, Aryakasa. “Indonesia aims to lead Southeast Asia in CCS/CCUS technology”. Indonesia Business Post. Indonesia aims to lead Southeast Asia in CCS/CCUS technology | RISK & OPP – Indonesia Business Post . Accessed on 2 April 2024.
[24] Sari Dewi. “Carbon Capture Storage (CCS) adalah: Cara Kerja & Implikasinya”. Carbon Capture Storage (CCS) adalah: Cara Kerja & Implikasinya ( solarindustri.com ) . accessed on 2 April 2024.
[25] Pertamina. “Carbon Capture Storage (CCS) Sebagai Pendorong Perekonomian Indonesia: Memanfaatkan Potensi untuk Masa Depan Hijau”. Carbon Capture Storage (CCS) Sebagai Pendorong Perekonomian Indonesia: Memanfaatkan Potensi untuk Masa Depan Hijau | Pertamina . Accessed on 23 April 2024.
[26] Antarnews. “Luhut: Indonesia bidik jadi hub regional “carbon capture and storage””. Luhut: Indonesia bidik jadi hub regional “carbon capture and storage” – ANTARA News . Accessed on 24 April 2024.
[27] PR 14/2024, Article 74 paragraph (4) and Article 75 paragraph (2)
[28] AMDAL is a study of the significant impacts of business plan and activities on the environment. AMDAL is also one of the most important requirements for the decision-making process regarding the conduct of businesses and activities in Indonesia.
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