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Back to topOn 30 January 2024, the President of Indonesia enacted Presidential Regulation No. 14 of 2024 regarding Implementation of Carbon Capture and Storage (CCS) Activities (PR 14/2024).
With the goal of meeting national targets and achieving Net Zero Emissions by 2060, PR 14/2024 emphasises the importance of CCS technology in emissions reduction. It establishes a legal framework for CCS implementation, recognising Indonesia’s potential as a significant carbon storage region. The regulation aims to boost investment appeal and generate economic value from carbon capture, transportation, and storage processes at both national and regional levels.
Unlike the recently issued Minister of Energy and Mineral Resources (MEMR) Regulation No. 2 of 2023 regarding Implementation of Carbon Capture and Storage, and Carbon Capture, Utilisation and Storage in Upstream Oil and Gas Business Activities, PR 14/2024 focuses solely on CCS and does not cover Carbon Capture Utilisation and Storage (CCUS) activities. The summary below outlines the regulatory framework for business owners to engage in CCS activities in Indonesia pursuant to PR 14/2024.
CCS OPERATIONS
CCS operations under PR 14/2024 encompass:
TWO TYPES OF BUSINESS SCHEMES FOR CCS
Essentially, PR 14/2024 provides two schemes to carry out CCS activities in Indonesia:
- Working Areas (Wilayah Kerja) – to be carried out by Cooperation Contract Contractors based on Cooperation Contracts, including Cost-Recovery and Gross-Split Production Sharing Contracts (PSCs); and
- Carbon Storage Licence Areas (Wilayah Izin Penyimpanan Karbon) – to be carried out by Exploration Licence (Izin Ekplorasi) and Storage Operation Licence (Izin Operasi Penyimpanan) holders.
CCS ACTIVITIES BASED ON COOPERATION CONTRACTS
PR 14/2024 allows CCS activities to be conducted within upstream oil and gas Working Areas as part of petroleum operations under the relevant Cooperation Contract. This can be implemented through an amendment to the relevant Cooperation Contract to include provisions on CCS (where the existing relevant Cooperation Contract does not already cover CCS arrangements).
In order to implement CCS activities in the Working Area of a Cooperation Contract, a PSC contractor must submit their CCS implementation plan (along with the carbon storage capacity certification documents):
- as part of their first Plan of Development (Rencana Pengembangan Lapangan – POD) or revision to the approved first POD to the Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi – SKK Migas) or the Oil and Gas Management Agency of Aceh (Badan Pengelola Migas Aceh – BPMA), as applicable, for MEMR approval; or
- as part of their further POD or revision to the approved further POD to be approved by SKK Migas or BPMA, as applicable.
Once approved, the relevant Contractor must submit the proposed amendment to the Cooperation Contract (including the responsibilities of the Contractor in implementing CCS activities for carbon from upstream or non-upstream activities) to SKK Migas or BPMA (as applicable) for MEMR approval.
PR 14/2024 further provides that Contractors can use the depleted reservoir or saline aquifer storage in the relevant Working Area for CCS activities. As further detailed in SKK Migas Working Guideline (Pedoman Tata Kerja – PTK) No. PTK-070/SKKIA0000/2024/S9 regarding Implementation of Carbon Capture and Storage, and Carbon Capture, Utilisation and Storage in the Working Area of Cooperation Contract Contractors (PTK 070/2024), for Contractors who will implement CCS activities in:
- a saline aquifer, the amendment to the Cooperation Contract must be made before the CCS implementation data collection process; and/or
- a depleted reservoir, the amendment to the Cooperation Contract must be made before the CCS implementation development process.
PR 14/2024 allows Cooperation Contract Contractors to apply to widen their Working Areas to SKK Migas for MEMR approval (in the form of an amendment to the Cooperation Contract) where the relevant Injection Target Zone (ITZ) is outside the existing Working Area.
LICENCE-BASED CCS ACTIVITIES
In addition to the CCS scheme based on Cooperation Contracts, PR 14/2024 allows the implementation of CCS activities in a designated Carbon Storage Licence Area by obtaining an Exploration Licence (which may be held by Indonesian entities and foreign permanent establishments) and a Storage Operation Licence (specifically for Indonesian entities).
The Carbon Storage Licence Area may include open space areas, mining business licence areas and/or Working Areas designated by the MEMR (or designated by the MEMR based on a proposal from the applicants). The MEMR may allocate the Carbon Storage Licence Area to business entities or permanent establishments through either (a) limited selection (if the potential Carbon Storage Licence Area is proposed by an investor on a unsolicited basis, in which case the investor will have a right-to-match in the limited selection process) or (b) a tender procurement process, taking into account the relevant technical and financial capabilities required for the proposed CCS activities.
Exploration Licence
The MEMR will grant an Exploration Licence to the winner of the limited selection or tender process (or its directly controlled/owned affiliate) upon the submission of the Exploration Licence application to the Online Single Submission (OSS) business licensing system based on fulfilment of the relevant administrative, technical, environmental and financial requirements.
The Exploration Licence entitles the licence holder to carry out ITZ exploration activities in the relevant licence area through data acquisition, drilling, sub-surface study and ITZ leak risk mitigation activities. An Exploration Licence is valid for six years, with a single extension possible for up to four years.
In order to carry out ITZ exploration activities, Exploration Licence holders must propose a working plan on the implementation of the firm commitment of ITZ exploration activities, to be approved by the MEMR (ITZ Plan for Development and Operation). If any ITZ exploration firm commitment activities have not been implemented, the shares in the relevant Exploration Licence holders cannot be transferred to other parties. Subject to completion of the ITZ exploration firm commitment activities, any transfer of majority shares in an Exploration Licence holder must obtain prior approval from the MEMR. Further details on the arrangements for transfers of shares in Exploration Licence holders will be regulated in a future MEMR regulation.
Storage Operation Licence
In line with PR 14/2024, Exploration Licence holders that have obtained MEMR approval for the ITZ Plan for Development and Operation during the exploration phase are entitled to apply for and obtain a Storage Operation Licence through the OSS system (on behalf of the MEMR) based on fulfilment of the relevant administrative, technical, environmental and financial requirements.
If the Exploration Licence holder is a permanent establishment, then that permanent establishment must establish a fully owned Indonesian business entity to hold the Storage Operation Licence. A Storage Operation Licence entitles the holder to carry out carbon injection and storage activities in the relevant licence area. It is valid for up to 30 years and can be extended for up to 20 years per extension, contingent on a storage capacity assessment.
Any transfer of the majority shares in a Storage Operation Licence holder must obtain prior approval from the MEMR, which will review the application by considering the continuing safety of the carbon storage operations.
In order to carry out carbon storage operations, Storage Operation Licence holders must submit an annual work plan to be approved by the MEMR.
CARBON TRANSPORTATION
PR 14/2024 recognises carbon transportation as part of CCS operations, which may be performed by Cooperation Contract Contractors and Storage Operation Licence holders. Importantly, PR 14/2024 also recognises carbon transportation as a standalone business activity that may be carried out by third-party business entities.
In order to carry out carbon transportation activities, business entities (including Storage Operation Licence holders) must obtain a Carbon Transportation Licence. However, Cooperation Contract Contractors are not required to obtain a separate Carbon Transportation Licence when transporting carbon within or between Working Areas if that activity forms part of their CCS operations under the Cooperation Contract.
Under PR 14/2024, Carbon Transportation Licences will be issued based on the mode of carbon transportation:
OVERSEAS CARBON STORAGE CAPACITY ALLOCATION
Cooperation Contract Contractors and Storage Operation Licence holders engaged in CCS activities must allocate at least 70 percent of their total carbon storage capacity for domestic carbon storage, while the remaining 30 percent can be designated for storing carbon from overseas. However, any allocation of storage for overseas carbon is limited to carbon producers investing in or affiliated with investments in Indonesia. PR 14/2024 does not explain what would constitute a qualifying investment for purposes of storing overseas carbon. We expect this will be covered by future implementing regulations.
MONETISATION OF CCS ACTIVITIES
Under PR 14/2024, Cooperation Contract Contractors and Storage Operation Licence holders that carry out CCS activities are generally entitled to monetise their CCS operations by collecting storage fees from the carbon producers. However, Storage Operation Licence holders are subject to certain royalties payable to the Government for the storage fees received.
PR 14/2024 does not expressly regulate arrangements for the further monetisation of CCS activities through the generation (and sale) of carbon credits.
However, pursuant to PTK 070/2024, Cooperation Contract Contractors may also monetise their CCS operations by trading the carbon credits generated from CCS activities (subject to prevailing laws and regulations), and this monetisation may be treated as a reduction in operating costs (which will ultimately impact the calculation of the cost-recovery or gross-revenue production split based on the relevant PSC).
CONCLUSION
The issuance of PR 14/2024 is a significant development in the creation of a clear regulatory framework for the investment and promotion of CCS activities in Indonesia. PR 14/2024 provides the flexibility for existing oil and gas investors to continue to conduct CCS activities through Cooperation Contracts (including on a cost-recovery basis), while also providing opportunities for new investment and technology from specialist international and domestic CCS operators through the licensing regime.
We expect that further detailed regulations will soon be issued by the MEMR to provide further clarity on the implementation of several provisions in PR 14/2024.
In respect of another important part of the CCS business, the Government has not yet regulated the fees that business entities offering standalone carbon transportation activities will be entitled to receive for providing carbon transportation services to their clients.
Nonetheless, PR 14/2024 represents an important step forward in unlocking Indonesia’s potential as a significant carbon storage region.
