Overview

One of the most recent trends to have emerged as the globe seeks to transition to a low-carbon future and tackle the ongoing effects of climate change while achieving the global target of Net Zero Emission (“NZE”) involves the application of Carbon Capture and Storage (“CCS”) technologies. In simple terms, CCS involves the capture of carbon dioxide, either deriving from fossil fuels or combustion waste, which is subsequently stored underground.[1] While Indonesia’s CCS potential remains a subject of study and debate, the Minister of Energy and Mineral Resources (“Minister”) has affirmed that the organization of CCS will be one of the main instruments that will be utilized in order to achieve the country’s NZE target by 2060 or sooner.[2] In this regard, CCS implementation may ultimately increase levels of oil-and-gas production via the CO₂ Enhanced Oil Recovery (EOR) or Enhanced Gas Recovery (EGR) methods that work to simultaneously reduce greenhouse gas emissions (“GHG Emissions”) in line with production.[3]

Given that the above potentials may attract further investments and generate economic value through the implementation of CCS-related activities, as well as helping Indonesia to ultimately achieve its Nationally Determined Contribution (“NDC”) target,[4] the government has decided to issue Regulation of the President No. 14 of 2024 on the Organization of Carbon Capture and Storage Activities (“Regulation 14/2024”), which has been in force since 30 January 2024.[5] Broadly speaking, Regulation 14/2024 sets out applicable provisions on the organization of CCS, which may be carried out through either of the following schemes:[6] 

However, it should be noted that Regulation 14/2024 is not the first national regulatory framework to address CCS-related matters. Indeed, the Minister previously established Regulation No. 2 of 2023 (“Regulation 2/2023”), which set out various provisions that specifically addressed CCS-related activities and Carbon Capture, Utilization and Storage (“CCUS”) during upstream oil-and-gas business activities.[11] Nevertheless, although Regulation 14/2024 accommodates a broader scope in terms of its CCS-related provisions, it should be noted that the enforcement of this new framework does not automatically revoke previous regulatory frameworks that specifically address the implementation of CCS, including Regulation 2/2023, on condition that provisions set out under said frameworks do not contradict Regulation 14/2024.[12]

While it seems clear from the above outline that the organization of CCS is ultimately aiming to make a significant contribution to Indonesia’s efforts to tackle global GHG Emissions, the introduction of Regulation 14/2024 has nevertheless attracted criticism from various elements of the general public, including environmental experts. These parties include the Deputy Director of the Indonesian Center for Environmental Law (ICEL), who has stated that this new framework has the potential to distort Indonesia’s future energy transition, as it is not complemented by any clear roadmap that addresses the termination of both fossil fuel use and the operations of coal-powered Steam Power Plants (Pembangkit Listrik Tenaga Uap/PLTU).[13] In this regard, critics are also claiming that CCS  will become a loophole through which oil and gas business actors will be able to engage in greenwashing practices.[14]

Given the importance of CCS in the ongoing energy transition as part of efforts to reduce GHG Emissions, particularly the measures that are specifically outlined under Regulation 14/2024, this edition of Indonesian Law Digest (“ILD”) offers an analysis of this most recent regulatory framework on CCS implementation. Our discussion breaks down as follows:

1. Available Organization Schemes and Implementation Processes
a. Organization of KKS-Based CCS
b. Organization of Exploration Permit-Based CCS
c. Organization of Storage Permit-Based CCS

2. Implementation of CCS
a. Miscellaneous CCS Activities
b. Organization of Measurement, Reporting and Verification (“MRV”) Activities
c. Operational Safety, Environmental Sustainability and Emergency Mitigation
d. Cross-Border Carbon Transportation

3. Termination of CCS
a. Business Schemes and Applicable Sanctions
b. CCS: Economic Aspects and Business Schemes
c. Implementation of Carbon Economic Value (Nilai Ekonomi Karbon – “NEK”)
d. Applicable Administrative Sanctions

I.    Available Organization Schemes and Implementation Processes

A.   Organization of KKS-Based CCS

At its core, the organization of KKS-based CCS should be carried out by Contractors operating within mining working areas who are engaged in exploration and exploitation activities (“Working Areas”).[15] In this regard, the aforementioned KKS-based CCS should be undertaken as a part of mining operations that are carried out based on KKS that take one of the following forms:[16]

In order to engage in KKS-based CCS activities in Working Areas, eligible Contractors are required to submit mandatory CCS organization plans along with relevant carbon storage capacity certification (“Organization Plans”)[17] to the Special Task Force for Upstream Oil and Gas (Satuan Kerja Khusus Pelaksanaan Kegiatan Usaha Minyak dan Gas Bumi – “SKK Migas”) or the Aceh Oil and Gas Organizational Body (Badan Pengelola Migas Aceh – “BPMA”) in line with their relevant jurisdictions.[18] In this regard, any such Organization Plans should be submitted as a part of applications for Plan of Field Development (“POD”) approvals. The procedure for the submission of Organization Plans and their respective PODs breaks down as follows:[19]

It should also be noted that the submission of Organization Plans must be accompanied by certification that covers the relevant carbon storage facilities.[20] Moreover, upon securing approvals for the above-described POD, Contractors must follow up the issuance of said approvals by amending their KKS and completing the following process:[21]

If ultimately approved to organize CCS activities, Contractors are authorized to utilize any depleted reservoirs or saltwater aquifers that are located in Working Areas during the organization of CCS.[22] Moreover, emissions producers may utilize operational CCS facilities that are operated by Contractors, provided that any such facilities meet the applicable feasibility requirements (i.e. technical, economic and operational safety feasibility).[23] Ultimately, if the implementation of ZTI within Working Areas expands beyond the limits of the areas in question and has the potential to be utilized as carbon storage facilities, then contractors may submit plans for the expansion of Working Areas to SKK Migas in order to be approved by the Minister.[24]

B.    Organization of Exploration Permit-Based CCS

In addition to the above-mentioned KKS-based CCS, Regulation 14/2024 also addresses Permit-based CCS, which should be implemented based on Permits that are secured from the Minister in Carbon Storage License Areas (Wilayah Izin Penyimpanan Karbon – “WIPK”).^[25] In this regard, Regulation 14/2024 states that said CCS should be organized based on the following aspects:[26]

Under Regulation 14/2024, the process involved in determinations of WIPK comprises several phases, as summarized in the following flowchart: [29]

While the above illustration shows that Businesses that have been appointed as Winners will be required to secure their Exploration Permits by submitting their applications via the OSS system, it is important to note that all Winners must first meet the following requirements:[30]

Once secured, an Exploration Permit will remain effective for six years and may be extended once for a maximum period of four years.[35] However, it should be noted that Exploration Permits are prohibited from being transferred to any other parties.[36] Furthermore, holders of Exploration Permits are mandated to carry out the following matters:[37]

1. Submit work plans to the Minister on the implementation of certain ZTI Exploration commitments in order to secure approval;
2. Secure approval from the Minister on the work plan above prior to engagement in any ZTI Exploration activities.

Once processes of ZTI Exploration have been carried out and the commercial capacity of the relevant carbon storage has been determined, the holders of Exploration Permits must submit a Plan for ZTI Development and Operation (“ZTI PDO”) to the Minister for approval. In this regard, said ZTI PDO must at least include the results of a study that addresses various aspects, including geophysics, engineering, economic factors, termination, monitoring and MRV.[38] The aforementioned study, as submitted to the Minister, must include 19 types of information, including the following:[39]

Additionally, ZTI PDO must also be accompanied by carbon storage capacity certification.[40] Given that the Minister is responsible for approving or rejecting submitted ZTI PDO, the applicable procedures for said submissions will be addressed under a forthcoming Regulation of the Minister.[41]

C.    Organization of Storage Permit-Based CCS

Regulation 14/2024 states that the organization of Storage Permit-based CCS may be carried out within WIPK, as stipulated by the Minister.[42] In this regard, holders of Exploration Permits are qualified to secure Storage Permits once their ZTI PDO have been approved by the Minister.[43] However, it is important to note that only BU are permitted to secure Storage Permits,[44] In this regard, any BUT that act as Exploration Permit holders, who have their ZTI PDO approved by the Minister and who wish to secure Storage Permits are first required to establish BU prior to applying to secure said permits.[45]

Similar to the CCS scheme, as elaborated upon above, holders of Exploration Permits must satisfy four forms of requirements in order to ultimately secure Storage Permits, as summarized in the table below:[46]

Once issued, a Storage Permit will remain valid for a maximum period of 30 years and may be extended for a further 20-year period by taking the relevant storage capacity into consideration.[51] As with Exploration Permits, holders of Storage Permits are prohibited from transferring their permits to any other parties[52] and are mandated to carry out the following matters:[53]

1. Submit annual plans that address operational carbon storage activities;
2. Secure approvals from the Minister for the above-described annual plans prior to carrying out any operational carbon storage activities.

D.   Implementation of CCS

Broadly speaking, the implementation of CCS should commence after the following conditions have first been fulfilled:

The implementation of CCS should comprise 11 phases at the least, as summarized in the following flowchart:[56]

In addition to the above-outlined CCS implementation phases, Regulation 14/2024 also addresses a number of aspects that specifically relate to certain CCS implementation phases, as summarized in the following table:

It should also be noted that any storage of carbon originating from overseas may only be carried out by carbon producers who have invested in and/or who are affiliated with investments in Indonesia.[62]

II.  Miscellaneous CCS Activities

A.   Organization of MRV Activities

In essence, the persons-in-charge (“PIC”) of any Contractors or holders of Storage Permits that are engaging in CCS activities are mandated to carry out MRV activities in order to ensure the quality, credibility, feasibility, comprehensiveness, accuracy and validity of the amounts of carbon that are stored in ZTI. MRV activities comprise three main activities, as their name encapsulates. The following table summarizes these activities, as outlined under Regulation 14/2024:[63]

It should also be noted that Contractors or holders of Storage Permits are required to submit their MRV results to the MRV Team under the Ministry of Environment and Forestry for subsequent forwarding to the Minister.[67] Furthermore, MRV results should also be reported through the National Registry System for Climate Change Control (Sistem Registri Nasional Pengendalian Perubahan Iklim – “SRN-PPI”).[68]

B.   Operational Safety, Environmental Sustainability and Emergency Mitigation

Throughout the implementation of the various processes involved in the organization of CCS, Contractors or holders of Storage Permits are required to perform operational safety monitoring in order to ensure the safety of their workers, installations and equipment, as well as the environment and/or general safety, as applicable under relevant laws and regulations. Said monitoring facilities should commence operations from the granting of approval for an Organization Plan and continue until 10 years after the termination of the relevant CCS activities.[69]

In relation to the above matters, Contractors and holders of Storage Permits are bound by the following financial obligations:

Prior to the implementation of any monitoring activities, Contractors and holders of Storage Permits are required to submit monitoring plans. Said plans must adhere to the following requirements:[72]

1. The characteristics of the relevant CCS location must be taken into account;
2. Direct or indirect methods for the identification of any potential risk must be utilized (e.g. leakage, land/water contamination, ZTI integrity and other potential risks); and
3. Good engineering principles must be applied and certain required skills must be possessed (e.g. in order to identify potential risks relating to leakage or carbon mobility).[73]

Within the context of operational safety monitoring, Contractors and holders of Storage Permits are bound by the following reporting obligations:[74]

However, it is important to note that in the event that a leakage incident increases the relevant GHG inventory, then the relevant Contractors and holders of Storage Permits are required to carry out emissions balancing.[75] Moreover, Contractors and holders of Storage Permits are also required to establish emergency mitigation systems that are capable of dealing with any emergencies that have the potential to endanger the safety of workers, installations, the environment and/or other elements. Said emergency mitigation systems must encompass the following aspects:[76]

1. Risk evaluation;
2. Emergency mitigation procedures (e.g. mitigation measures that will be implemented during identified emergencies, reporting systems and stakeholder coordination). These procedures must be updated annually;[77]
3. Emergency equipment (e.g. including early warning equipment);
4. Educated and trained personnel, as first responders;[78] and
5. Regular training through simulations.[79]

C.    Cross-Border Carbon Transportation

Regulation 14/2024 allows for cross-border carbon transportation to be implemented in an effort to facilitate the organization of cross-border CCS efforts, which should be based on bilateral cooperation between countries. Any such bilateral agreements should serve as guidelines for all of the relevant parties involved regarding the issuance of necessary recommendations or licenses in compliance with laws and regulations that are applicable in both of the respective countries.[80] Every stage of any cross-border carbon transportation activities that involves the transportation of carbon into Indonesian customs areas must be carried out through means of transportation that are in accordance with the applicable standards and good engineering principles. Furthermore, various aspects pertaining to safety, occupational health and environmental protection must also be taken into account.[81]

Any carbon that is transported into Indonesian customs areas must be registered by the relevant importer once only the first time that any such carbon is imported. Further provisions on the various rights and obligations that relate to the cross-border carbon handover mechanism will be further regulated under applicable regulations and should be implemented in reference to agreements that are drawn up between relevant emitters and Contractors, holders of Transportation Permits and/or Storage Permits.[82]

D.   Termination of CCS

Pursuant to Regulation 14/2024, CCS activities should be terminated if any of the following conditions are fulfilled:[83]

Prior to engaging in any CCS termination, Contractors and holders of Storage Permits are required to submit a plan that addresses the termination of CCS activities (“Termination Plan”) to the Minister (via SKK Migas for Contractors). Said Termination Plan must include the following information at the very least:[84]

In the event that CCS terminations result from force-majeure events, then the relevant Contractors or holders of Storage Permits are required to report to the Minister within the following timeframes:[85]

1. Via electronic means: must be submitted within 1 x 24 hours;
2. Via written means: must be submitted within 2 x 24 hours; and
3. Progress reports that address the CCS termination: must be submitted every 24 hours.

It should also be noted that the various rights, obligations and responsibilities of Contractors or holders of Storage Permits on the organization of CCS will be terminated once the following conditions are met:[86]

It should be noted that Contractors may submit applications for the return of Working Areas with ZTI to the Minister prior to the termination of their KKS. In such cases, said applications should be submitted to SKK Migas, while the rights, obligations and responsibilities of the relevant Contractors will be transferred to the Minister along with the approval for the return of the Working Area, as issued by the Minister.[87]

III. Business Schemes and Applicable Sanctions

A.   CCS: Economic Aspects and Business Schemes

Regulation 14/2024 states that the organization of CCS may be monetized based on the organizers of CCS activities. The table below sets out the various types of monetization that are available for CCS activities under Regulation 14/2024:[88]

Incomes in the form of storage fees for Contractors will be divided up in accordance with the applicable laws and regulations on taxation within the upstream oil and gas sector. Meanwhile, storage fees for the holders of Storage Permits will be subject to the non-tax state revenue obligation, which must be paid to the government.[89]

Furthermore, Regulation 14/2024 states that Contractors and/or Permit holders are entitled to enjoy tax and non-tax incentives from the government. The granting of said incentives should be implemented in accordance with applicable laws and regulations.[90] However, it should be noted that tax incentives for Contractors are limited to tax obligations that relate to the organization of upstream oil and gas activities.[91]

In addition, Regulation 14/2024 also features aspects that relate to the management of CCS assets (that take the form of either goods or equipment), as detailed below:[92]

B.   Implementation of NEK

Broadly speaking, NEK, as it relates to CCS activities, should be implemented in accordance with Regulation of the Minister of Environment and Forestry No. 21 of 2022 on Governance of the Application of Carbon Economic Value (“Regulation 21/2022”).[93] In this regard, the PIC of CCS activities are required to record and report the implementation of Carbon Economic Value as SRN-PPI.[94]

In relation to the above matters, Regulation 14/2024 states that climate-change mitigation measures that are undertaken during CCS activities may be carried out through the implementation of NEK.[95] While Regulation 14/2024 does not explicitly list the available means of NEK implementation, said framework states that said means include carbon trading, which requires GHG reduction certification (Sertifikat Pengurangan Emisi Gas Rumah Kaca/SPE-GRK) as proof of GHG Emissions reduction during the implementation of mitigation measures.[96]

It should also be noted that Hukumonline’s Legal Research and Analysis Team previously put together a discussion on the implementation of NEK through carbon trading undertaken through the Indonesian Carbon Exchange (IDXCarbon). Our analysis of this area may be accessed in the following edition of ILD: “Establishment of IDXCarbon as Indonesia’s Carbon Exchange: Understanding Operational Provisions”.

C.    Applicable Administrative Sanctions

It is important to note that any failure to comply with the obligations or prohibitions outlined under Regulation 14/2024 will result in the imposition of administrative sanctions. Details of the applicable procedures in this regard will be set out under a forthcoming regulatory framework. Overall, the forms of administrative sanctions that apply to non-compliant Contractors and/or Permit holders break down as follows:[97]

Conclusion

In the larger picture, Regulation 14/2024 contains a comprehensive set of provisions that specifically address the organization of CCS, including the required licenses and the relevant governmental ministries that are involved with the various applicable business processes. Furthermore, it should also be noted that necessary considerations have been taken to ensure that the provisions that feature under Regulation 14/2024 will guarantee the environmental sustainability of CCS operations.

In addition, coordination with the Minister of Environment and Forestry, as well as with the Minister of Maritime Affairs and Fisheries, will also be required in order to ensure such sustainability. Regardless of the comprehensiveness of the new provisions, environmental experts remain concerned that CCS operations may ultimately become a vehicle for greenwashing and will potentially set Indonesia back in its efforts to affect an effective energy transition. However, the expectation is that further implementing provisions to Regulation 14/2024 will ultimately be able to address these concerns.

Source : hukumonline.com