Structuring Offshore CCS Contracts: Risk Allocation, Liability, and Investor Confidence in Indonesia 2026

Indonesia is accelerating its carbon capture and storage development to support its national net-zero target by 2060. With new regulations governing CCS activities, attention is now shifting toward how contracts can allocate risk, liability, and long-term responsibility across the value chain. Clear contractual structuring is essential to secure investment, ensure regulatory compliance, and build confidence among developers, financiers, and offtakers as Indonesia positions itself to become a regional CCS hub.

Introduction

Indonesia’s commitment to achieving its net-zero target has elevated offshore Carbon Capture and Storage (CCS) as a critical legal and policy instrument within the national energy transition agenda. As a state with extensive offshore basins and long-standing experience in oil and gas operations, Indonesia possesses the geological and technical conditions necessary for large-scale CCS deployment.[1] However, the legal regime governing CCS activities remains in its early stage of development, and much of the regulatory architecture is still derived from general environmental, spatial planning, and upstream energy laws. This creates a substantial reliance on contracts to define risk allocation, liability, and long-term responsibility across the CCS value chain.

Offshore CCS involves a sequence of legally distinct activities, beginning with the construction and operation of capture facilities, followed by transportation of carbon dioxide, offshore injection, and permanent geological storage.[2] Each stage creates potential exposure to civil, administrative, and environmental liability. The long temporal horizon of CCS also raises potential complex issues regarding post-closure obligations, monitoring and verification duties, transfer of responsibility to the state, and the duration of liability once injection activities cease. These matters cannot be left ambiguous, as they directly impact project bankability, insurance availability, and investors’ willingness to undertake long-term risks.[3]

In Indonesia, where the regulatory framework is still evolving, the contractual architecture becomes the primary tool for allocating risks between emitters, transport operators, storage operators, and the government. Clear and enforceable contractual terms are essential to ensure legal certainty and to prevent gaps between contractual obligations and statutory requirements. Proper structuring will also support regulatory objectives by ensuring that environmental safeguards, financial security mechanisms, and monitoring standards are embedded into private arrangements.[4]

Against this backdrop, the design of offshore CCS contracts will play a decisive role in shaping investor confidence and determining whether Indonesia can position itself as a credible jurisdiction for regional CCS development.

Legal Risk Identification

Contractual Architecture Across Indonesia’s CCS Value Chain

Contractual architecture for offshore CCS in Indonesia must be developed within a rapidly evolving regulatory landscape and across a value chain that includes the capture, transport, and permanent storage of carbon dioxide. Indonesia has accelerated its policy efforts, issuing three key regulations within one year, namely MEMR Regulation 2 of 2023, SKK Migas Working Guideline PTK-070 of 2024, and Presidential Regulation 14 of 2024.[5] These instruments establish the foundations for CCS operations and replicate many existing upstream oil and gas processes, reflecting the historical link between CCS technology and the upstream sector.[6] As a result, contractual structures must align with both the established petroleum regulatory framework and the specific requirements introduced for CCS.

At the capture stage, contracts must consider the technical distinctions among post-combustion, pre-combustion, and oxy-fuel methods, each of which carries different performance standards, cost structures, and operational risks.[7] The transport phase requires agreements that regulate pipeline permitting, safety obligations, continuity of service, and integration with existing gas or oil pipeline networks. Maritime transport may also be relevant for certain projects and must be governed by agreements that allocate navigational risk and operational responsibilities.[8] The storage phase is the most legally complex.[9] Contracts must regulate well integrity, injection targets, monitoring and reporting duties, post-closure obligations, and the role of the government in approving storage sites and verifying the permanence of containment.[10]

Across all stages, contracts must anticipate regulatory change, clarify indemnity and liability allocation, address third-party access, and ensure coordination between operators, insurers, government authorities, and investors. Because CCS projects involve long-term responsibilities that continue well after operations cease, contractual clarity becomes essential to ensuring investor confidence and regulatory compliance. In this sense, contractual architecture is central to transforming Indonesia’s CCS ambitions into a workable and predictable legal ecosystem that supports the national target of achieving net-zero emissions by 2060.[11]

Allocation of Risk and Liability in the Indonesian Context

Allocation of risk and liability in Indonesia’s CCS regime is shaped by the interaction between MEMR Regulation 2 of 2023, SKK Migas Guideline PTK-070 of 2024, and Presidential Regulation 14 of 2024.

The Minister of Energy and Mineral Resources Regulation Number 2 of 2023 on the Implementation of Carbon Capture and Storage and Carbon Capture Utilization, and Storage for Upstream Oil and Gas Business Activities (“MEMR Regulation 2 of 2023”) places primary responsibility on operators during the capture, transport, and injection phases. Under this regulation, operators bear full liability for well integrity, leakage prevention, monitoring, and reporting, and any operational failure arising from non-compliance with technical standards.

Additional obligations arise from the SKK Migas Working Guideline Number PTK-070/SKKIA0000/2024/S9 (“SKK Migas Guideline PTK-070 of 2024”), which applies to contractors performing CCS activities within the upstream regime. This guideline assigns responsibility for reservoir performance, injection reliability, data accuracy, and adherence to upstream contractual obligations. As a result, CCS project documents and production sharing contracts must clearly allocate operational and financial risks between the government and contractors.[12]

The long-term liability framework is articulated in Presidential Regulation Number 14 of 2024 on the Implementation of Carbon Capture and Storage (“Presidential Regulation 14 of 2024”). Operators maintain responsibility throughout operations and during the mandatory post-closure monitoring period. Liability may transfer to the state only after the operator proves reservoir stability, completes monitoring obligations, and satisfies the required financial assurance mechanisms. This allocation structure underscores the need for CCS contracts that clearly define monitoring and remediation obligations, establish insurance coverage against operational and post-closure liabilities (e.g. CO₂ leakage, contamination), indemnity arrangements that allocate responsibility for both direct and indirect damages, and responsibility for third-party claims in order to support investment certainty and environmental protection.

Table of Regulatory Framework for CCS Risk and Liability in Indonesia

The matrix shows that Indonesia places most CCS risks and liabilities on the operator during all stages of the value chain. MEMR Regulation 2 of 2023 assigns responsibility for technical performance, leakage prevention, and compliance directly to the operator. The SKK Migas Guideline PTK-070 of 2024 reinforces this approach by requiring operators to manage reservoir integrity and align CCS operations with upstream contractual duties. Presidential Regulation Number 14 of 2024 introduces a pathway for transferring long-term responsibility to the state, but only after the operator completes monitoring and proves geological stability. Taken together, the framework reflects a cautious regulatory stance that protects the state from early exposure while signaling that investors must rely on strong contractual provisions on indemnity, insurance, and financial assurance to establish project certainty.

Insurance and Long-Term Responsibility

Insurance and long-term responsibility represent essential components in structuring CCS projects in Indonesia, particularly because the regulatory framework requires developers to demonstrate financial robustness throughout the project lifecycle. MEMR Regulation 2 of 2023 obliges operators to provide financial assurance for operational risks, including leakage, well integrity issues, and long-term monitoring. This requirement aligns closely with emerging international insurance products that address CCS-specific risks.

One example is the Carbon Capture and Storage Leakage Risk insurance facility developed by Howden and underwritten at Lloyd’s, which provides coverage for environmental damage and revenue loss caused by both sudden and gradual CO₂ leakage. The policy also protects against financial losses arising from the devaluation of carbon offsets and the clawback of tax credits. As additional instruments further strengthen bankability of CCS projects, tax and contingent risk insurance provides how future tax credits will be treated. Credit insurance mitigates counterparty default risks in long-term offtake agreements. Technology performance insurance ensures that equipment works as promised and generates enough revenue to cover debt obligations. [13]

These instruments complement Indonesia’s long-term liability rules under Presidential Regulation Number 14 of 2024, which allows the transfer of responsibility to the state only after storage is proven permanent. Collectively, they form an integrated risk management framework that supports investor confidence and ensures that CCS liabilities are properly allocated and financed.

Policy and Governance Relevance

Policy coherence and institutional coordination are central to ensuring that contractual arrangements for offshore CCS projects in Indonesia operate within a predictable legal environment. Presidential Regulation No. 14 of 2024 must be integrated with sectoral laws on environment, upstream oil and gas, marine governance, and spatial planning, so that regulatory obligations are harmonized across the CCS value chain. Specifically, policy must explicitly adhere the health of marine ecosystems. Clear governance rules on permitting, monitoring, cross-border CO₂ transport, and post-closure stewardship are essential to support investor certainty and to clarify which state institutions hold oversight authority at each project phase. Integrating rigorous marine protection standards into this framework is critical, as it safeguards biodiversity, fisheries, and coastal communities from potential harms, ensuring that climate solutions do not come at the expense of the ocean’s health. Strengthening governance capacity will also help Indonesia balance its dual objectives: attracting CCS investment to meet its 2060 net-zero target while ensuring that environmental protection and long-term liability obligations remain credible and enforceable.

Closing Reflections

The advancement of offshore CCS in Indonesia relies on contracts that allocate risk, liability, and long-term responsibility with clarity and consistency under the country’s emerging regulatory framework. As Indonesia seeks to establish itself as a regional CCS hub, the strength of its contractual arrangements becomes central to protecting environmental integrity, supporting investor confidence, and ensuring the financial stability of projects. Effective integration of legal, technical, and insurance provisions will determine the reliability of each stage of the CCS value chain. By reinforcing these contractual foundations, Indonesia can accelerate progress toward its 2060 net-zero commitment and strengthen its position in regional climate governance. (MRA)

References

Laws and Regulation

Presidential Regulation Number 14 of 2024 on the Implementation of Carbon Capture and Storage

Minister of Energy and Mineral Resources Regulation Number 2 of 2023 on the Implementation of Carbon Capture and Storage and Carbon Capture Utilization and Storage for Upstream Oil and Gas Business Activities

SKK Migas Working Guideline Number PTK-070/SKKIA0000/2024/S9 on the Implementation of Carbon Capture and Storage and Carbon Capture Utilization and Storage in Oil and Gas Mining Concession Working Areas

Literature

Center for International Environmental Law, ‘Deep Trouble The Risks of Offshore Carbon Capture and Storage’ (2024) <https://www.ciel.org/reports/deep-trouble-the-risks-of-offshore-carbon-capture-and-storage-november-2023/>

Fawwaz A, ‘Transportasi Lintas Batas Karbon Dioksida Melalui Kapal Untuk Penyimpanan : Tinjauan UNCLOS Di Indonesia’ (2025) 1 SAMI: Law Review 118

HukumOnline, ‘SKK Migas Kenalkan Pedoman Tata Kerja Tentang CCS Dan CCUS Pada Wilayah Kerja KKKS: Dua Bentuk POD Wajib Disampaikan KKKS’ (2024) <https://pro.hukumonline.com/a/lt65baec6b99917/skk-migas-kenalkan-pedoman-tata-kerja-tentang-ccs-dan-ccus-pada-wilayah-kerja-kkks–dua-bentuk-pod-wajib-disampaikan-kkks>

IEA, ‘Environmental Assessment for CO2 Capture and Storage’ (2007)

Lewis M and Righetti T, ‘Contracting the Void : Land , Capital , and Sequestration’ (2025) 50 Columbia Journal of Environmental Law 361

Mayaka RB and others, ‘A Normative Analysis on the Implementation of Carbon Capture and Storage in Order to Achieve Net Zero Emissions in Indonesia Raphael’ (2024) 10 UNNES Law Journal 1

McGrath A and Jonker A, ‘What Is Carbon Capture and Storage (CCS)?’ IBM Think (2022) <https://www.ibm.com/id-id/think/topics/carbon-capture-storage>

Nugraha A and others, ‘Assessment of Indonesia’s Position on the Net Zero Emission’ (2024) 1395 IOP Conference Series: Earth and Environmental Science 1

Rooke T, ‘Insurance for Carbon Capture and Storage (CCS) Projects’ Howden (2025) <https://www.howdengroup.com/uk-en/sector/climate-risk-and-resilience/carbon-capture-and-storage-insurance>

Satwika K and Pratama MI, ‘Indonesia’s Carbon Capture and Storage (CCS) Regulatory Overview: Steps to Become Asia-Pacific Hub?’ [2024] Assegaf Hamzah & Partners <https://www.ahp.id/indonesias-carbon-capture-and-storage-ccs-regulatory-overview-steps-to-become-asia-pacific-hub/#:~:text=Indonesia’s Carbon Capture and Storage,to become Asia-Pacific Hub?>

Footnotes :

[1] Adhitya Nugraha and others, ‘Assessment of Indonesia’s Position on the Net Zero Emission’ (2024) 1395 IOP Conference Series: Earth and Environmental Science 1, 1–2.

[2] Madeleine Lewis and Tara Righetti, ‘Contracting the Void : Land , Capital , and Sequestration’ (2025) 50 Columbia Journal of Environmental Law 361, 359.

[3] IEA, ‘Environmental Assessment for CO₂ Capture and Storage’ (2007) 6–7.

[4]Raphael Bertrand Mayaka and others, ‘A Normative Analysis on the Implementation of Carbon Capture and Storage in Order to Achieve Net Zero Emissions in Indonesia Raphael’ (2024) 10 UNNES Law Journal 1, 2–6.

[5] Draps F and others, ‘Indonesia issues further regulations for CCS and CCUS deployment – A quick guide to Presidential regulation 14/2024 and SKK Migas regulation PTK-070’ (2024) <https://www.ashurst.com/en/insights/indonesia-issues-further-regulations-for-ccs-and-ccus-deployment>

[6] Prayudi H and others, ‘Legal Status and Cross-Border Transport in Carbon Capture and Storage (CCS): an International and Indonesian Law Perpective’ (2025) 7 Law Development Journal 340, 341-342

[7] IEA, ‘Legal and Regulatory Frameworks for CCUS: An IEA CCUS Handbook’ (2022) <https://cdrlaw.org/resources/legal-and-regulatory-frameworks-for-ccus-an-iea-ccus-handbook/>

[8] Asyraf Fawwaz, ‘Transportasi Lintas Batas Karbon Dioksida Melalui Kapal Untuk Penyimpanan : Tinjauan UNCLOS Di Indonesia’ (2025) 1 SAMI: Law Review 118, 119–121.

[9] Amanda McGrath and Alexandra Jonker, ‘What Is Carbon Capture and Storage (CCS)?’ IBM Think (2022) <https://www.ibm.com/id-id/think/topics/carbon-capture-storage>.

[10] Center for International Environmental Law, ‘Deep Trouble The Risks of Offshore Carbon Capture and Storage’ (2024) 3 <https://www.ciel.org/reports/deep-trouble-the-risks-of-offshore-carbon-capture-and-storage-november-2023/>.

[11] Kanya Satwika and M Insan Pratama, ‘Indonesia’s Carbon Capture and Storage (CCS) Regulatory Overview: Steps to Become Asia-Pacific Hub?’ [2024] Assegaf Hamzah & Partners <https://www.ahp.id/indonesias-carbon-capture-and-storage-ccs-regulatory-overview-steps-to-become-asia-pacific-hub/#:~:text=Indonesia’s Carbon Capture and Storage,to become Asia-Pacific Hub?>.

[12] HukumOnline, ‘SKK Migas Kenalkan Pedoman Tata Kerja Tentang CCS Dan CCUS Pada Wilayah Kerja KKKS: Dua Bentuk POD Wajib Disampaikan KKKS’ (2024) <https://pro.hukumonline.com/a/lt65baec6b99917/skk-migas-kenalkan-pedoman-tata-kerja-tentang-ccs-dan-ccus-pada-wilayah-kerja-kkks–dua-bentuk-pod-wajib-disampaikan-kkks>.

[13] Tony Rooke, ‘Insurance for Carbon Capture and Storage (CCS) Projects’ Howden (2025) <https://www.howdengroup.com/uk-en/sector/climate-risk-and-resilience/carbon-capture-and-storage-insurance>.

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