Indonesia needs new rules to compete for carbon capture investment: Expert

Experts says Indonesia’s neighbours have a great potential for the geological storage of CO2 and are working to develop their own regulations to boost the deployment of the technology.

Divya Karyza

Divya Karyza

The Jakarta Post


A worker carries out activities at the Tangguh liquefied natural gas plant in Bintuni Bay, West Papua, on Sept 21, 2015. PHOTO: TEMPO/THE JAKARTA POST

August 7, 2023

JAKARTA – Indonesia needs to take bolder action to bring in carbon capture investment as it faces potentially tough competition from other ASEAN member countries that are looking to pursue similar goals.

Some of Indonesia’s neighbors, namely Malaysia, Thailand, Vietnam and the Philippines, all have a great potential for the geological storage of CO2 and are working to develop their own regulations to boost the deployment of the technology, according to research from Akin Gump Strauss Hauer & Feld.

Indonesia is projected receive 80 percent of the carbon capture, utilization and storage (CCUS) investment in the region by 2030, but as more countries develop their CCUS capacity, that share is projected to decline to about 60 percent by 2040, according to International Energy Association (IEA).

Future CCUS investment in ASEAN will depend on legal and regulatory frameworks as well as incentives provided by countries in the bloc, with a focus on attracting international finance, the IEA report also says.

Putra Adhiguna, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said that to compete with neighboring countries, Indonesia needs to have internationally credible projects and regulations positioning.

Hence, it is important to develop mechanisms such as failure-to-deliver penalties and clear long-term legal liabilities, which provide assurances that the capture and storage can deliver on what is promised, he said.

Indonesia and Malaysia are geographically positioned in the strategic region, and the competition is still ongoing,” he told The Jakarta Post on Wednesday.

“In terms of regulations and incentives, Indonesia is still quite competitive. In oil and gas, BP Indonesia’s Tangguh LNG has announced its CCUS plan, but Malaysia’s Petronas [has a closer implementation date],” he added.

Read also: SKKMigas approves BP’s carbon capture plan for Tangguh LNG

In 2021, Petronas announced plans to deploy carbon capture and storage (CCS) technology at the Kasawari gas facility in Malaysia, with the first injection into a depleted gas field planned for 2025.

CCS/CCUS are expected to play a critical role in supporting the clean energy transition across Southeast Asia, according to a report published in June by Bain & Company, Temasek, GenZero and Amazon Web Services. Carbon capture projects have been gaining momentum worldwide.

The technology has also become one of Indonesia’s strategies for reaching net-zero emissions by 2060.

Despite its role in helping reach global net-zero goals, IEA said, the development has been plagued by a high failure rate due to high capital costs, unclear revenue streams and limited technological readiness.

Some critics also pointed out that the technology is still unproven and may will not solve the climate crisis, the Guardian reported.

Indonesia introduced the Energy Ministerial Regulation No. 2/2023 on the deployment of CCS/CCUS in the oil and gas industry activities, aiming to address some of those issues.

However, Marjolijn Wajong, the executive director of the Indonesian Petroleum Association (IPA) said the existing regulation is still insufficient to efficiently boost technology implementation.

For instance, it has yet to provide much-needed clarity on important areas such as leakage risk and quality specifications.

Moreover, it is also unclear to what extent Indonesia will look to offer financial incentives to attract investment across the CCS/CCUS value chain, or whether the government will follow similar policies such as tax breaks and credits implemented in the United States, the United Kingdom and some European countries, the same report by Akin Gump Strauss Hauer & Feld said.

“We also want [to suggest] the implementation of CCS/CCUS not only within the upstream oil and gas industry but also for other industries,” she said during the annual IPA Convention and Exhibition press briefing on July 20, adding, the ministerial rule only regulates the upstream oil and gas sector.

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Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for ASEAN and East Asia (ERIA), said that other than the oil and gas industry, the technology could be equally applied in power plants, as these facilities are generally located not far from potential sites for CO2 storage.

In the industrial sector, the cement, iron and steel and chemical industries, including the ammonia and methanol industries, are also potential candidates for CCS/CCUS applications, he said.

“The problem is these sectors are price sensitive [and] using CCS will affect the industries’ commodity markets’ competitiveness and prices,” he said on Wednesday.

“A significant price reduction [is necessary] before CCS can be used in the industrial sector,” he added.

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