Article CCS-2-3

Legal Framework of Carbon Capture and Storage: The Legal Challenges and
Way Forward for Indonesia
Introduction to Carbon Capture and Storage

President Joko Widodo (Jokowi) has issued regulations for implementing carbon
capture and storage (“CCS”) activities in the form of a Presidential Regulation
(Perpres). Presidential Regulation Decree Number 14 of 2024 regarding
Implementation of Carbon Capture and Storage was promulgated and stipulated on
Tuesday, January 30 2024. Carbon Capture and Storage or Carbon Capture and
Storage, hereinafter abbreviated (“CCS”), is a business activity that includes
capturing Carbon and/or transporting captured Carbon, injecting and storing
Carbon into the Injection Target Zone (“ZTl”) safely and permanently in accordance
with good engineering rules.
The Purpose of CCS

In line with efforts to achieve Nationally Determined Contributions (“NDC”) and Net
Zero Emissions targets by 2060, Indonesia has great potential in terms of its ability
to host carbon storage, and thus, its potential to attract investment and generate
economic value through CCS-related Activities.
CCS Scheme
a. Under the Cooperation Contract
Cooperation Contracts in the implementation of CCS are implemented by the
Contractor in the work area (Article 2 paragraph 3 of the Presidential
Regulation No. Decree Law 14/2024). The cooperation contract can be in the
form of: Production sharing contract with a mechanism for returning
operating costs; gross split profit sharingprofit-sharing contract; or other
cooperation contracts. In the case of wishing to organize CCS through a
Cooperation Contract, the Contractor through SKK Migas or BPMA according
to their authority submits a plan for organizing CCS (Article 5 Paragraph 1).
However, SKK Migas or Aceh Oil and Gas Management Agency (BPMA) can
approve or reject the CCS implementation plan (Article 5 Paragraph 5)
b. Under the Exploration Permit and Storage Operation Permit

The implementation of CCS in Carbon Storage Permit Areas is carried out by
permit holders based on Exploration Permits and Storage Operation Permits
(Article 3 of Presidential Regulation No. Decree 14/2024), where these
permits are issued by the Minister (Article 9 Paragraph 1).
Implementing CCS based on an Exploration Permit can be carried out by a

Business Entity or Permanent Establishment (Article 9 paragraph 3). The
Minister grants exploration permits if the winner of the limited selection or
auction has fulfilled the administrative, technical, environmental and financial
requirements which are regulated further in (Article 16 paragraph 2). The
exploration permit is valid for 6 (six) years and can be extended once for a
maximum of 4 (four) years (Article 17 paragraph 1).
Implementing CCS based on a Storage Operation License can only be carried
out by Business Entities (Article 9 paragraph 4). There is a prohibition on
Exploration Permit Holders from transferring Exploration Permits (Article 17
paragraph 3). In the event that the Exploration License implementer is in the
form of a consortium, the basic provisions of CCS business activities in the
Storage Operation License are binding for each member of the consortium
(Article 23 paragraph 2). The Minister grants a Storage Operation Permit
after the Exploration Permit holder fulfills administrative, technical,
environmental and financial requirements (Article 24 paragraph 1).
Implementation of CCS through Storage Operation Permits and

Cooperation Contracts
The implementation of CCS is carried out at least through: (Article 28 paragraph 3)
a. risk mitigation for long-term storage;
b. handling environmental, social impacts and public involvement in accordance
with environmental agreements;
c. engineering, procurement, and construction processes;
d. commissioning and operation of CCS activities;
e. implementation of operational safety management;
f. management of environmental aspects;
g. implementation of emergency response activities;
h. implementation of repair and maintenance activities;
i. implementation of Monitoring and MRV at initial data collection and during
operation;
j. closure of CCS activities; And
k. implementation of post-closing monitoring;
In terms of carbon storage capacity, Contractors and Storage Operation License

Holders who organize CCS are required to allocate 70% of the total carbon storage
capacity to be reserved for domestic carbon storage (Article 35 paragraph 2), while
30% of the total carbon storage capacity can be allocated for used as carbon
storage originating from abroad (Article 35 paragraph 3). Storing carbon originating
from abroad can only be carried out by carbon producers who invest and/or are
affiliated with investments in Indonesia (Article 35 paragraph 4).
In the event of unsafe conditions or force majeure, the Contractor or Storage

Operation permit holder carries out a temporary suspension or closure of CCS
activities which must be reported to the Minister (Article 38 paragraph 1 and
paragraph 2).
Business Scheme of CCS

CCS implementation carried out based on a Cooperation Contract can be monetized
in the form of a storage fee and/or other forms, while CCS implementation based
on a Storage Operation License must be monetized in the form of a storage fee
(Article 42 paragraph 1). Income obtained by contractors from monetization results
is applied in accordance with regulations regarding tax treatment of upstream oil
and gas business activities (Article 42 paragraph 2). There are tax and non-tax
incentives that will be given to Contractors, Exploration Permit Holders, Carbon
Transportation Permit Holders, and/or Storage Operation Permit holders in
accordance with applicable regulations (Article 43).
Legal Challenge of CCS Implementation in Indonesia

The implementation of CCS does not yet pay attention to the precautionary
principle. This principle requires proof that CCS has very minimal impact on health,
human safety and the environment in order to operate. In particular, the liability
mechanism if this risk occurs outside this time period is not explained, including the
responsibility and strategy for recovering the released carbon if a leak occurs.
Although this regulation requires Contractors and Storage Operation License
Holders to carry out monitoring within a period of 10 years after CCS closure, it is
worth underlining that environmental risks and hazards can still occur beyond that
time period. In fact, this regulation contains confusion regarding responsibility for
carbon releases, such as in the event of a leak during cross-border carbon
transportation, where the leak is not recorded in Indonesia's greenhouse gas
inventory.
Apart from that, CCS implementation has minimal public participation. Community
participation has only just begun and is limited to the environmental approval
process, where it is too late for communities to participate and submit objections.
Considering the high risks of using CCS, the public should have the right to obtain
information and be actively involved from the start of the CCS implementation
process, even from the time of preparing and determining the Carbon Storage
Permit Area.
CCS Regulation in United States

There are currently 25 countries where CCS is now operating or under development
(McCulloch, 2021). Each country has different policy tools that shape CCS legal
framework and help establish financial incentives to allow CCS rapid
implementation. In the United States, one of the top leaders in CCS technology,
CCS has been supported by various incentives. From Section 45Q Tax Credit in
Energy Improvement and Extension Act of 2008, The Bipartisan Budget Act (BBA)
of 2018, to IRA 2022 which significantly expands the value of CO2 injected into the
subsurface. The financial incentives include mechanisms like tax relief and funding
support: tax credits, tax-exempt financing, tax-advantaged corporate structures,
direct funding, loans, and loan guarantees. One of the most common ways to
monetize CO2 is through Production Tax Credit which can be claimed once CO2 is
“disposed of by the taxpayer in secure geologic storage.” (NPC, 2019). In the latest
IRA 2022, CO2 captured in the industrial and power facilities through CCS can claim
credit of up to $85/tonne of CO2 (tCO2) within 12 years since carbon capture
equipment is in place at a qualified facility (GCI, The U.S. Inflation Reduction Act of
2022, 2022).
Not only financial incentives, the regulatory framework also meticulously addresses
safety and risks associated with CCS from capture, transport, to storage. This
includes Class VI wells in the Underground Injection Control (UIC) Program,
Environmental Protection Agency (EPA) GHG reporting program, pore space access,
Federal and State waters, CO2 pipeline permit, and long-term liability. Based on the
National Petroleum Council report of CCS in 2019, CCS large-scale deployment
needs to be executed through three phases of implementation: activation,
expansion, and at-scale. This is intended to be able to execute CCS projects in a
timely manner, and at the same time monitor the progress of policy and regulation
so that CCS can be fully implemented at scale with ~500 Mtpa within 25 years (A
Roadmap to At-Scale Deployment of. National Petroleum Council Report, 2019).
Key Takeaway
Indonesia can play a role as a leader in CCS. This is because Indonesia has a long
history of subsurface know-how and the supply chain benefitted from the oil and
gas industry. As for policy recommendations, focusing on strengthening an inclusive
regulatory framework would be the main key to helping CCS large-scale
deployment.

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Legal Framework of Carbon Capture and Storage: The Legal Challenges and

Way Forward for Indonesia

Introduction to Carbon Capture and Storage

The Purpose of CCS

b. Under the Exploration Permit and Storage Operation Permit

Implementing CCS based on an Exploration Permit can be carried out by a

Implementation of CCS through Storage Operation Permits and

In terms of carbon storage capacity, Contractors and Storage Operation License

In the event of unsafe conditions or force majeure, the Contractor or Storage

Business Scheme of CCS

Legal Challenge of CCS Implementation in Indonesia

CCS Regulation in United States

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