Unveiling Indonesia’s Carbon Capture & Storage: Navigating the Regulatory Frontier

To facilitate the potential of carbon capture and storage (CCS) in Indonesia, the government has issued Presidential Regulation No. 14 of 2024 on the Implementation of Carbon Capture and Storage as of January 30, 2024. This regulation underscores the significance of CCS technology in reducing emissions to meet national targets and attain Net Zero Emissions by 2060. With that, Indonesia has further established a legal framework for the implementation of CCS. The primary objective of this implementation is to enhance investment interest and generate economic value from carbon capture, transportation, and storage processes. Recently, the Indonesian government has enacted three regulations relevant to CCS & Carbon Capture, Utilisation, and Storage (CCUS) as follows:

• Presidential Regulation No. 14 of 2024 on the Implementation of Carbon Capture and Storage (PR. 14/2024);
• Minister of Energy and Mineral Resources (MoEMR) Regulation No. 2 of 2023 on the Implementation of Carbon Capture and Storage and Carbon Capture, Utilisation, and Storage for Upstream Oil and Gas Business Activities (MoEMR Reg. 2/2023);
• SKK Migas Working Guideline No. PTK-070/SKKIA0000/2024/S9 (PTK 070/2024).

In general, the government has tried to encompass the whole regulation regarding the technical and regulatory framework of CCS. The PR 14/2024 exclusively focuses on CCS. The following summary highlights key provisions outlined in PR 14/2024 and some concern in other relevant regulations as mentioned on the above, including the initiation of CCS activities, relevant licensing, and the business process.

CCS Activities Based on Working Area

The process for executing CCS can be done within existing oil and gas blocks and involves a structured process within the framework of oil and gas cooperation contracts (known as “kontrak kerja sama” or “KKS“). Contractors that are operating under KKS, must be authorized to undertake CCS activities within their designated working areas by initiating the CCS implementation plan. This plan is then submitted to either the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) or the Aceh Oil and Gas Management Agency (BPMA) on Aceh area for approval.

The CCS implementation plan is an integral part of the approval request for either the initial field development plan or modifications to an approved plan, or subsequent field development plans and their corresponding changes. MoEMR holds the authority to either approve or reject the CCS implementation concerning the first field development plan, relying on SKK Migas’ recommendation. For CCS plans related to further field development, SKK Migas or BPMA will also have the approval or rejection authority.

In line with PR 14/2024, contractors are permitted to utilize depleted reservoirs or saline aquifers within the designated “Injection Target Zones” (ITZ) within reservoirs of oil & gas working areas for CCS activities. Detailed guidelines, as outlined in PTK 070/2024, govern the implementation of carbon capture and storage, as well as carbon capture, utilization, and storage. Amendments to the KKS are mandatory before commencing CCS activities in the abovementioned area.

CCS Activities Based on Designated Area

The PR 14/2024 facilitates CCS activities within designated Carbon Storage License Areas by introducing an Exploration License and a Storage Operation License. These licenses are accessible to both Indonesian entities and foreign permanent establishments. The Carbon Storage License Area encompasses various zones, including open spaces, mining business areas, and designated Working Areas determined by the MoEMR. Allocation of these areas to business entities or permanent establishments can occur through either a limited selection process or a tender procurement process, with considerations for technical and financial capabilities.

Exploration Licenses are granted by the MoEMR to successful applicants following either limited selection or tender processes. These licenses authorize ITZ exploration activities within the designated area, including data acquisition, drilling, and sub- surface studies. Exploration Licenses are initially valid for six years, with a possible extension of up to four years. To maintain their license, holders must adhere to firm commitments outlined in an approved ITZ Plan for Development and Operation. Any transfer of shares in Exploration License holders requires prior approval from the MoEMR.

Furthermore, the Storage Operation Licenses can be granted to Exploration License holders with approved ITZ Plans, which enable carbon injection and storage activities within the designated area. The approval of the Storage Operation Licenses must be obtained through the OSS system, is valid for up to 30 years, and extendable for 20 years contingent upon storage capacity assessments. For foreign permanent establishments, a fully owned Indonesian entity must hold the Storage Operation License. Any transfer of majority shares requires MoEMR approval, with a focus on ensuring ongoing safety in carbon storage operations. Storage Operation License holders must submit annual work plans for MoEMR approval to conduct carbon storage operations.

Business Process & Monetization

The CCS business process and its monetization can be broadly categorized within the PR 14/2024 through the following activities:

• Carbon Capture
  Carbon capture methods encompass carbon separation at oil and gas production facilities, capturing carbon from combustion, pre-combustion capture, oxyfuel combustion capture, and potentially other evolving techniques aligned with advancements in science and technology. Additionally, carbon capture may involve extracting from the atmosphere using direct air capture technology.

  Furthermore, the captured carbon must undergo further purification to meet the standards outlined in the Indonesian national standard (ref: SNI ISO 27914:2017) or other internationally recognized standards endorsed by the government.

• Transport
  To transport carbon emissions domestically for ITZ, a Carbon Transport License is required. This license allows transportation via pipelines, trucks, ships, or other emerging methods endorsed by advancements in science and technology. The license for pipeline transport is issued by the MoEMR, valid for up to 20 years with extensions possible. For other methods like trucks or ships, the Ministry of Transportation (MoT) handles license issuance, with a validity of up to 10 years, extendable for another 10 years per extension.

  Transporting carbon emissions domestically to the ITZ necessitates obtaining a Carbon Transport License. The transportation can be executed through various methods, including pipes (with a license valid for up to 20 years, extendable for a maximum of 10 years per extension), trucks, ships, and other evolving methods in line with advancements in science and technology (with licenses valid for up to 10 years, extendable for a maximum of 10 years per extension).

  The issuance authority for this license depends on the mode of transportation. If the transport is conducted through an inland or underwater pipeline, the MoEMR holds the authority to provide approval. On the other hand, if transportation involves a ship or truck, the MoT is responsible for issuing the license.

• Injection and Storage
  The carbon injection and storage can be done on the ITZ in the form of a depleted reservoir, saline aquifer storage, or coal seam. The legal entity that practices carbon injection and storage should receive the approval of an operation storage license by MoEMR, based on the consideration of the annual work plan. Furthermore, In the realm of oil and gas upstream operations, the integration of CCS presents lucrative opportunities for monetization. Under KKS, contractors spearheading CCS implementation can realize returns through storage fees and various other channels, all subject to pertinent taxation regulations. As outlined in Chapter VI PTK 070/2024, monetization approaches for carbon capture from oil and gas activities make it possible by adhering to prevailing laws and regulations, this monetization is considered a reduction in calculating the operation costs as regulated in the relevant KKS. Likewise, holders of Storage Operation Licenses can capitalize on CCS deployment through storage fees, accompanied by royalty obligations and adherence to tax laws. It is also anticipated that the MoEMR will issue a distinct regulation to provide clarity on the specifics of the storage fees.

• Measuring, Reporting, and Verification/Validation
  To mitigate risks and increase the credibility of CCS, during the operations, PR 14/2024 also required CCS operators to conduct rigorous measurement, reporting, and verification/validation processes. These steps ensure the quality, credibility, reliability, completeness, accuracy, and correctness of the carbon storage data.

Cross-Border Transportation

All CO2 transport activities entering Indonesian territory, within the Indonesian customs area, must adhere to stringent safety, occupational health, and environmental protection standards. The importer is required to register the CO2 upon its initial import, complying with relevant customs and import regulations. Subsequent imports necessitate only notifications.

Furthermore. In terms of capacity allocation, a strategic approach designates 70% of the carbon storage capacity for domestic emissions, while the remaining 30% is earmarked for the storage of carbon originating from overseas. This meticulous approach ensures precision and adherence to established standards throughout the carbon storage and transport process. 

CCS Closure

The closure of CCS business can be triggered under various circumstances such as:

• The full capacity of carbon storage in the target injection zone;
• Cessation of carbon injection;
• Expiration of the Storage Operation License without extension;
• Conclusion of the KKS period with no continuation of CCS management;
• Temporary cessation and closure due to unsafe conditions;
• Closure necessitated by force majeure conditions; or
• Economic non-viability based on the economic study conducted by the Contractor or Storage Operation License holder.

Approval from the MoEMR is required for closure, contingent on the operator implementing all necessary safeguards to ensure carbon storage integrity.

Divestment/Share Transfer

To facilitate alterations in majority share ownership for the storage operation license, the license holder is allowed to make changes after securing approval from the MoEMR. This approval is contingent upon assessing the sustainability of permanent, secure carbon storage operations, aligning with the stipulations outlined in the storage operation license. Similarly, for exploration licenses, modifications in majority share ownership are sanctioned subsequent to the fulfilment of all firm commitments related to targeted injection exploration. Approval from MoEMR is a prerequisite in this case as well.

Post-Completion Responsibility

The regulatory framework specifies when liability transitions from the contractor or CCS operator to the government. This transition occurs under certain conditions: first, upon the official closure of CCS facilities, which must be verified by the MoEMR; second, upon the expiration or relinquishment of the underlying license (either KKS or CCS Operation License); and third, if no leaks, contamination, unplanned carbon movement, or other risks are detected during the 10-year monitoring period.

During this transition, CCS assets within a block become state assets, whereas those governed by a CCS Operation License remain under the operator’s jurisdiction. Furthermore, although the standard duration of the 10-year monitoring period for liability is not explicitly defined, it is mandatory for the operator or contractor to monitor CCS storage for a decade post-closure, fulfilling reporting obligations to the government. This responsibility includes developing plans to address risks such as leaks and contamination, as well as maintaining an escrow reserve fund specifically for monitoring expenses and necessary mitigation actions.

Sanctions

Administrative sanctions are imposed for non-compliance with specified conditions, including violations related to the prohibition of transferring the Exploration or Storage Operation License, and failure to adhere to reporting obligations. These sanctions manifest in various forms, such as the issuance of warning letters to the suspension of business activities and the eventual revocation of the underlying licenses.

Conclusion & Key Takeaways

The PR 14/2024 marks a pivotal stride towards establishing a coherent regulatory framework for CCS activities in Indonesia. This regulation facilitates the participation of existing oil and gas investors in CCS endeavors while also inviting fresh domestic and international investments under a structured licensing system. Although PR 14/2024 represents significant progress, further regulatory guidance is awaited from the relevant ministry, particularly concerning the fee structures for standalone carbon transportation services, which are integral to CCS operations. In addition, also there remains a pressing need for more comprehensive regulatory provisions, particularly in delineating the procedures for granting Carbon Storage License Areas and elucidating the protocols for license ownership and transfer.

Moreover, beyond traditional financing avenues pursued by investors, exploring alternative financing mechanisms such as Public-Private Partnerships (PPP) holds promise. This approach could foster active government engagement in CCS implementation while offering attractive incentives—such as government support or guarantees and risk-sharing arrangements—to entice investors into the CCS sector.

[JB/GD/FH/AT]

footnote :

President Regulation No. 14 of 2024 on Implementation of Carbon Capture and Storage Activities (PR 14/2024).
Minister of Energy and Mineral Resources No. 3 of 2023 on the Implementation of Carbon Capture and Storage and Carbon Capture, Utilisation and Storage for Upstream Oil and Gas Business Activities (MoEMR Reg. 2/2023).
SKK Migas Working Procedural Guidelines No. PTK-070/SKKIA0000/2024/S9 (PTK 070).
PR 14/2024, Article 4, Par (2).
PR 14/2024, Article 5, Par (1).
PR 14/2024, Article 5, Par (5).
PR 14/2024, Article 6.
PR 14/2024, Article 17, Par (1).
PR 14/2024, Article 18, Par (1).
PR 14/2024, Article 20, Par (1).
PR 14/2024, Article 25, Par (1).
PR 14/2024, Article 29, Par (2).
PR 14/2024, Article 31, Par (5).
PR 14/2024, Article 31, Par (4).
PR 14/2024, Article 31, Par (2).
PR 14/2024, Article 34, Par (1).
PR 14/2024, Article 34, Par (3).
PR 14/2024, Article 42.
PR 14/2024, Article 45.
PR 14/2024, Article 47.
PR 14/2024, Article 45, Par (2).
PR 14/2024, Article 35, Par (2) and (3).
PR 14/2024, Article 36, Par (1).
PR 14/2024, Article 27, Par (1).
PR 14/2024, Article 19, Par (1).
PR 14/2024, Article 19, Par (2).
PR 14/2024, Article 74, Par (1) and (2).
PR 14/2024, Article 74, Par (4).