Indonesia’s Carbon Capture Storage Policy in Comparison with Other Countries

By : Setyawati Fitrianggraeni Fajrin Muflihun, Ilma Aulia Nabila, Marcel Raharja[1]

Keywords: Indonesia Carbon Capture Storage, Policy Comparison, International Regulations, CCUS Projects

 Overview of Indonesian Regulation Regarding Carbon Capture Storage (“CCS”)

 Carbon Capture and Storage (“CCS”) is one of the programs the government planned to achieve the goal of net zero emissions. In today’s global energy development, Carbon Capture, Utilization, and Storage (“CCUS”) is increasingly becoming a strategy to reduce CO2 emissions and reusing them to improve oil recovery in depleted oil fields.

CCS and CCUS both play a significant role to achieve sustainable futures, but each carries a different purpose. CCS is a method of reducing carbon emissions that consist of a three-step process involving capturing carbon, compressing, and transporting it to a site where it is permanently injected into rock formations such as saline aquifers or depleted oil and gas reservoirs, the latter of which is becoming more prevalent. Meanwhile, CCUS focuses on repurposing CO2 from industrial processes by transforming it into products like concrete or biodiesel. CCUS is not a novel concept, but this project has expanded exponentially because of national climate goals and policy incentives that have prompted rapid upscaling and widespread adoption in various countries.

Indonesia has many industrial sources of CO2, such as coal-fired power plants; natural gas processing; oil refineries; and various chemical plants. According to the feasibility study of a CCUS Pilot Project in Gundih, Central Java, the total potential CO2 reduction in this is projected to be 2.92 million tons over ten years. Considering that many large geological storage resources still have the potential to be CCUS locations in Java, Sumatra, and Kalimantan, similar studies are now being conducted in these area. A total of 16 CCS/CCUS projects in Indonesia are still in the study/preparation stage, with most targeted to start onstream before 2030.[2]

With the continuation of development and increase of CCS/CCUS projects in Indonesia, the Government has enacted ESDM Minister Regulation Number 2 of 2023 concerning the Implementation of Carbon Capture and Storage, as well as Carbon Capture, Utilization, and Storage in Upstream Oil and Gas Business Activities (“MEMR 2/2023“). Based on Article 1 Number 10 of MEMR 2/2023, CCUS is an activity to reduce GHG Emissions, including capturing Carbon Emissions and/or transporting Carbon Emissions captured, utilizing Carbon Emissions Captured, and storing them to the Injection Target Zone[3] safely and permanently following good engineering principles.

The MEMR 2/2023 is divided into the following five focuses;

1. Stages in setting up CCS and CCUS
2. Monitoring and measurement, reporting, and verification requirements
3. Management and Oversight
4. Monetization of CCS and CCUS projects
5. Closure of CCS and CCUS activities

 

1. Stages in setting up CCS/CCUS

Article 10 Of MEMR 2/2023 stipulates that there are two stages in setting up a CCS or CCUS project, planning and implementation phases. In the planning phase, the contractor of an oil and gas working area must submit a proposal or study to the relevant Indonesian regulator.[4] CCS and CCUS activities may only be conducted by contractors contracted by the relevant authority to explore and exploit a working area. If the CCS/CCUS activity is included in the initial field development plan, the proposal or study should be submitted to the ESDM.[5] Nevertheless, suppose the CCS/CCUS activity is part of a subsequent field development plan. In that case, the proposal or study should be submitted to the Special Task Force for Upstream Oil and Gas Business Activities (“SKK Migas”) or the Oil and Gas Management Agency for Aceh (“BPMA”).[6]

The contractor of an oil and gas working area may proceed to the implementation phase and initiate CCS/CCUS activities after obtaining approval for its proposal or study from the relevant regulator.[7] During this implementation phase, the contractor shall ensure the completion of the following task:[8]

• Preparation of documents on the mitigation and handling of environmental, social, and community involvement impacts in accordance with the applicable laws and regulations
• Engineering, procurement, and construction processes
• Commissioning and activity operation of CCS or CCUS
• Implementation of the safety operation management
• Management of environmental aspect
• Implementation of emergency operation
• Implementation of repair and maintenance operation
• Implementation of monitoring and MRV; and
• Closure of CCS or CCUS.

2. Monitoring and measurement, reporting, and verification requirements

Monitoring activities—that guarantee the safety of the workers, installations and equipment, the environment, and the public—will be carried out since the CCS or CCUS implementation plan is approved and continue until  10 (ten) years after the completion of the closure of CCS activities.[9] In addition, the Contractor shall reserve the cost of monitoring activities for 10 (ten) years after the completion of the closure of CCS or CCUS activities.[10] All of the expenses and expense reserves for monitoring activities are calculated as part of operational costs in accordance to laws and regulations.[11] These expense reserves are deposited in a joint account on behalf of the Contractor and Special Task Force for Upstream Oil and Gas Business Activities (“SKK Migas”) or Aceh Upstream Oil and Gas Management or Badan Pengelola Migas Aceh (“BPMA”), conducted in accordance to laws and regulations.[12] The CCS implementation plan, including the details of the monitoring activities and operational costs,  by the Contractor is then subject to approval from SKK Migas or BPMA.[13]

3. Management and Oversight

The Directorate General of Oil and Gas “DGOG”) is tasked by the ESDM with overseeing the implementation of CCS/CCUS activities.[14] DGOG also provides contractors conducting CCS/CCUS activities with facilitation, consultation, technical guidance, and/or socialization.[15] The DGOG, through the Oil and Gas Inspector, shall conduct the following;[16]

• Inspection to assure the safety of the CCS/CCUS equipment, installations, and facilities; and
• Annual or as-needed supervision of CCS/CCUS monitoring activities.

4. Monetization of CCS and CCUS[17]

According to the MEMR 2/2023, carbon emissions are divided into those originating from upstream oil and gas operations and those that do not.[18] For carbon emissions arising from upstream oil and gas operations, the monetization of CCS or CCUS consists of:[19]

1. Carbon trading in accordance with laws and regulations; or
2. Operational costs reimbursement of joint facility utilization

However, for carbon emissions not originating from upstream oil and gas operations, the monetization of the CCUS comes from injection and storage services.[20] The earnings from monetizing both types of carbon emissions will be treated according to the relevant laws and regulations.

5. Closure of CCS/CCUS Activities

According to Article 22 of MEMR 2/2023, CCS or CCUS activities will be terminated if one of the following situations occurs:

• The storage capacity in the Injection Target Zone is reached;
• There are no remaining carbon emissions left to be injected;
• Occurrence of unsafe conditions;
• Force majeure events, as stipulated in the cooperation contract, leading to the closure of CCS or CCUS activities; or
• Expiration of cooperation contract

 

The Policy Regarding CCUS/CCS In Other Countries

Global legal and regulatory policies related to CCS are dynamic with significant developments. Many countries are in the early stages of developing their policies to support and facilitate the deployment of CCUS/CCS-related technologies.

In the United States, the federal government has committed to infrastructure and project-specific financing through the Infrastructure Investment and Works Act and additional enhancements to the 45Q tax credit scheme through the Inflation Reduction Act in 2022. Meanwhile, the expansion of CCS-specific laws and new federal laws to regulate leasing and supervision of offshore CCS operations continue to be planned. Furthermore, several countries, such as the United States, Australia, China, and the United Kingdom, can be used as examples in developing legal policies related to CCS. The comparison is provided in the table below.

Table: Comparison of Legal Policies on CCS in Other Countries[21]

Carbon Capture Storage’s Policy Pros and Cons

 Advantages of CCS[29]

As described above regarding several legal policies related to CCS in various countries, in its implementation, there are several advantages and disadvantages in the application of CCS / CCUS in multiple countries. In America, the CHIPS Act (US) in 2022 helps provide funds for enhanced research, development, and demonstration of carbon removal. The US also enacted the historic Inflation Reduction Act (US) of 2022, which includes enhancements to Internal Revenue Service section 45Q (which provides a tax credit for CO2 storage). This new law increases the US federal income tax credit under IRC Section 45Q (the Section 45Q credit) available for US CCUS projects, lowers the annual capture requirements, and introduces a limited 5-year direct pay provision (allowing for an alternative monetization option for companies) and provisions related to the transfer of CCUS tax credits.[30]

 Disadvantages of CCS

It remains to be seen whether Indonesia will adopt some of the mechanisms used in other jurisdictions to enhance the economic and financial raison for adopting CCS and CCUS Projects. This will go a long way to persuade stakeholders to invest in a sustainable future and realize Indonesia’s target of reducing CO2.

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References:  

[1] Setyawati Fitrianggraeni serves as the Managing Partner at Anggraeni and Partners in Indonesia. She is also an Assistant Professor at the Faculty of Law, University of Indonesia, and a Ph.D. candidate at the World Maritime University in Malmo, Sweden and Marcel Raharja is a junior associate in Anggraeni and Partners. We also acknowledge the contributions of our external contributor, Ilma Aulia Nabila. The writers wish to express their gratitude to Dr. Hary Elias for his valuable feedback on the article

[2] Ministry of Energy and Mineral Resources, News, Carbon Capture, Utilization, and Storage (CCUS) Sebagai Solusi Pengurangan Emisi, https://www.esdm.go.id/id/berita-unit/direktorat-jenderal-ketenagalistrikan/carbon-capture-utilizaton-and-storage-ccus-sebagai-solusi-pengurangan-emisi accessed March 24, 2023, at 10:00 AM

[3] According to Article 1, Sub-Article 9 of MEMR 2/2023, Injection Target Zone is a rock unit in geology formation that is able to store injected carbon emission safely and permanently.

[4] MEMR 2/2023, Art. 11 (1).

[5] MEMR 2/2023, Art. 11(2) a.

[6] MEMR 2/2023, Art. 11 (2) b.

[7] MEMR 2/2023, Art. 19 (1).

[8] MEMR 2/2023, Art. 19 (2).

[9] MEMR 2/2023, Article 27, Sub-Article (1) and (3).

[10] MEMR 2/2023, Article 27, Sub-Article 5.

[11] MEMR 2/2023, Article 27, Sub-Article 6.

[12] MEMR 2/2023, Article 27, Sub-Article 8.

[13] MEMR 2/2023, Article 27, Sub-Article 7.

[14] MEMR 2/2023, Art. 53.

[15] MEMR 2/2023, Art. 54.

[16] MEMR 2/2023, Art. 55 (2).

[17] MEMR 2/2023, Chapter III.

[18] MEMR 2/2023, Art. 42 (1).

[19] Ibid.

[20] MEMR 2/2023, Art. 42 (2).

[21] Global CCS Institute, https://status22.globalccsinstitute.com/2022-status-report/regional-overview/ accessed March 24, 2023.

[22] Clean Air Task Force, Fact Sheet: Carbon Management Provisions in the Infrastructure Investment and Jobs Act, December 10 2021https://www.catf.us/resource/carbon-management-provisions-in-the-infrastructure-investments-and-jobs-act/ accessed March 24, 2023, at 12:50 AM

[23] Democrats Science House, Ensuring the US is Equipped to Lead in Science and Innovation, https://science.house.gov/imo/media/doc/the_chips_and_science_act.pdf?mc_cid=d904691b73&mc_eid=10a5ff616d accessed March 24, 2023, at 12:50 AM

[24] Ministry of Industry of Australia, The Hon. Angus Taylor MP Archived Content, New ERF Method and 2022 Priorities Announced, https://www.minister.industry.gov.au/ministers/taylor/media-releases/new-erf-method-and-2022-priorities-announced accessed March 24, 2023, at 12:50 AM

[25] Government of Western Australia, Draft Bill to help WA’s resources industry reduce emissions, https://www.mediastatements.wa.gov.au/Pages/McGowan/2022/03/Draft-Bill-to-help-WAs-resources-industry-reduce-emissions.aspx accessed March 24, 2023, at 12:50 AM

[26] The People’s Bank of Chine, The People’s Bank of China Launces the Carbon Emission Reduction Facility, http://www.pbc.gov.cn/en/3688006/3995557/4385345/index.html?&&&&&&&&&&header=false&footer=false&releatedInsights=false&shareInsights=true&xyz=1543190452255 accessed March 24, 2023, at 12:50 AM

[27] UK Government, CCUS Innovation 2.0 Call 2 Guidance, Department of Business Industry Energy & Industry Strategy 2022.

[28] UK Government, CCUS Investor Roadmap: Capturing Carbon and a Global Opportunity 2022.

[29] Global CCS Institute, Regional Overview: Global Carbon, 4. Regional Overview – Global Carbon (globalccsinstitute.com), retrieved on 14 June 2023.

[30] EY, Why Carbon Capture just became an economic fastball, https://www.ey.com/en_us/energy-resources/why-carbon-capture-just-became-an-economic-fastball, retrieved on 14 June 2023.

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