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Is Indonesia’s ambition to become an international CCUS hub attainable?

Indonesia's current incentive mechanisms for CCUS investment may lack clarity and competitiveness compared with neighboring countries.

Ryan Wiratama Bhaskara and Gusti Sidemen (The Jakarta Post)
Jakarta
Fri, January 31, 2025

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Is Indonesia’s ambition to become an international CCUS hub attainable? The Tambak Lorok gas-fired power plant in Semarang, Central Java, is among several power plants where state electricity company PT PLN is studying the implementation of carbon capture and storage (CCS) technology to reduce carbon emissions. (Courtesy /of Indonesia Power)

C

arbon Capture, Utilization and Storage (CCUS) technology plays a pivotal role in global efforts to mitigate climate change. The technology is currently the only viable emission reduction solution for hard-to-abate industries such as steel, chemicals and cement. CCUS captures CO2 emissions from these industries, transporting such emissions to storage facilities built on domestic or overseas saline aquifers or depleted reservoirs.

Under former president Joko “Jokowi” Widodo’s administration, Indonesia set an ambitious target to make the country an international CCUS hub, as the country is blessed with substantial CO2 storage capacity. As a CCUS hub, Indonesia could provide services to store emitted CO2 from overseas such as Japan, South Korea, China, Taiwan and Singapore, which have no or limited storage capacity.

With an appropriate business model, the CCUS hub could enhance the economic viability of such projects. Furthermore, by tapping into the regional carbon market, these initiatives are poised to generate sustainable profits.

According to a 2024 study by the Economic Research Institute for ASEAN and East Asia, Indonesia’s National Research and Innovation Agency (BRIN) and the Research and Development Centre for Oil and Gas Technology (Lemigas), Indonesia has the potential to store 69 gigatonnes (Gt) of CO2 in saline aquifers, a further 680.57 Gt of CO2 in deep saline aquifers and 10.14 Gt in depleted petroleum reservoirs. Two out of 15 CCUS projects announced by Indonesia’s government are considered prospective for international hub development: The Sunda–Asri Basin and Ubadari Field.

The Sunda–Asri Basin, a saline aquifer located in the West Java Sea, has a storage capacity of 3 Gt of CO2. State oil and gas company Pertamina and ExxonMobil are seeking partners to develop this hub. The Ubadari CCUS project, which is part of the Train III Tangguh LNG plant development, has secured a US$7 billion investment from British Petroleum (Bp). Bp is also seeking overseas partners to collaboratively use the storage, whose capacity reaches 1.8 Gt of CO2. Currently, only 35 million tonnes of CO2 emissions from the LNG plants have been allocated for the storage.

Recognizing the tremendous potential benefits for the nation, the Indonesian government has been rigorously establishing the necessary regulatory frameworks for CCUS development. Regulation of the Energy and Mineral Resources Ministry No. 2/2023 lays the foundation for CCUS deployment under oil and gas business activities. Furthermore, Presidential Regulation No. 14/2024 outlines a framework for CCS and CCUS activities, including provisions for carbon storage and cross-border CO2 transportation.

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To support CCUS implementation in the oil and gas sector, the Upstream Oil and Gas Special Task Force (SKK Migas) released technical guidelines for CCUS project development (PTK-070). In December 2024, the government issued Regulation No.16/2024, detailing the CCS mechanism within the licensing area, specifying special acreages designated for CO2 storage from emitters on a fee basis. 

However, Indonesia’s ambition to become an international CCUS hub appears far from reality, at least in the near future. The current regulatory framework is yet to incentivize overseas partners to invest in CO2 storage in those hubs, despite their promising prospects, causing Indonesia to lag behind its neighbor, Malaysia.

Of the nine advanced CCS projects in Malaysia that Japan announced for the 2024 fiscal year, three are planned to be onstream in 2030. The country has selected the Northern Peninsula, Southern Peninsula and offshore Sarawak of Malaysia as storage sites.

Similarly, South Korea is considering utilizing carbon storage in Malaysia by 2028. Moreover, Malaysia’s state oil company Petronas has entered into agreements with Japan's Ministry of Economy, Trade and Industry (METI) and the Japan Organization for Metals and Energy Security (JOGMEC) to collaborate for the realization of the cross-border CO2 and CCUS projects.

Several factors may contribute to Indonesia's challenges in attracting overseas partners. Existing regulations are barely enough to cover cross-border CCUS projects, as they mainly address technical and management matters, mostly on the storage sites.

A governing regulation on the whole carbon management value chain is urgently needed. For instance, the framework for how CCUS projects will be treated in the National Registry System, which is crucial for registering projects in Indonesia’s carbon market, is not in place yet.

Moreover, Indonesia has not taken proactive steps in developing bilateral agreements or arrangements for cross-border CCS projects. Another issue is that Indonesia's current incentive mechanisms for CCUS investment may lack clarity and competitiveness compared with neighboring countries.

To draw in investment for the proposed international CCUS hubs, Indonesia should consider the following strategies.

First, strengthening institutional capacity. Invest in building robust institutions capable of effectively implementing and enforcing CCUS regulations. This includes training personnel, streamlining administrative procedures and ensuring inter-agency coordination.

Second, enhancing incentive frameworks. Develop clear and attractive fiscal incentives, such as tax breaks, subsidies or carbon credits, to make CCUS projects financially viable for investors. Integrating frameworks with an already established carbon market is also crucial, and learning from other countries’ approaches could provide valuable insights.

Third, ensuring regulatory stability. Commit to long-term policy stability by minimizing abrupt regulatory changes and engaging stakeholders in policy development. A stable regulatory environment fosters investor confidence and long-term planning.

Fourth, promoting international collaboration. Actively seek partnerships with foreign governments and international organizations to share best practices, access funding and enhance technological capabilities in CCUS.

Only with a serious effort in improving the prerequisite conditions can Indonesia’s ambition become a reality. The country’s success in developing an international hub will contribute significantly to global efforts in combating climate change.

***

Ryan Wiratama Bhaskara is a research associate at the Economic Research Institute for ASEAN and East Asia (ERIA), where Gusti Sidemen is a CCS/CCUS fellow. The views expressed are their own.

 

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