According to an expert, Indonesia requires new regulations to attract investments in carbon capture technology and stay competitive in the global market.

 

Experts suggest that Indonesia's neighboring countries possess significant potential for the geological storage of carbon dioxide (CO2) and are actively working on developing their own regulations to facilitate the widespread adoption of this technology.

JAKARTA - Indonesia needs to take more decisive actions to attract carbon capture investment, considering the potential competition from other ASEAN member countries with similar goals.

Countries like Malaysia, Thailand, Vietnam, and the Philippines have significant potential for the geological storage of CO2 and are actively developing their own regulations to promote the deployment of carbon capture technology, according to research conducted by Akin Gump Strauss Hauer & Feld.

While Indonesia is expected to receive 80 percent of the carbon capture, utilization, and storage (CCUS) investment in the region by 2030, its share is projected to decrease to around 60 percent by 2040 as more countries enhance their CCUS capacity, as stated by the International Energy Association (IEA).

The future CCUS investment in ASEAN will hinge on the legal and regulatory frameworks, as well as incentives offered by countries within the bloc, with a focus on attracting international finance, the IEA report indicates.

Putra Adhiguna, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), emphasized that for Indonesia to compete with its neighbors, it must establish internationally credible projects and robust regulatory frameworks.

To achieve this, it is crucial to develop mechanisms such as failure-to-deliver penalties and clear long-term legal liabilities, ensuring that carbon capture and storage projects can deliver on their promises, he explained.

Both Indonesia and Malaysia are strategically positioned in the region, and the competition is still ongoing," he told The Jakarta Post on Wednesday.

"In terms of regulations and incentives, Indonesia remains quite competitive. For instance, BP Indonesia's Tangguh LNG has announced its CCUS plan, although Malaysia's Petronas has a closer implementation date," he added.

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 scheduled for 2025.

CCS/CCUS is expected to play a crucial role in supporting the clean energy transition across Southeast Asia, as per a report published in June by Bain & Company, Temasek, GenZero, and Amazon Web Services. Carbon capture projects have been gaining momentum worldwide, and this technology has also become one of Indonesia's strategies to achieve net-zero emissions by 2060.

Despite its significance in achieving global net-zero goals, the International Energy Agency (IEA) points out that CCS/CCUS development faces challenges, including a high failure rate due to capital costs, unclear revenue streams, and limited technological readiness. Some critics argue that the technology is unproven and may not effectively address the climate crisis, as reported by The Guardian.

To address these issues, Indonesia introduced Energy Ministerial Regulation No. 2/2023, which focuses on the deployment of CCS/CCUS in the oil and gas industry activities. However, Marjolijn Wajong, the executive director of the Indonesian Petroleum Association (IPA), believes that the existing regulation falls short in efficiently boosting technology implementation. Key areas like leakage risk and quality specifications still lack clarity.

Additionally, it remains uncertain to what extent Indonesia will offer financial incentives to attract investment across the CCS/CCUS value chain. The government's approach regarding tax breaks and credits, similar to those implemented in the United States, the United Kingdom, and some European countries, remains unclear, as stated in the report by Akin Gump Strauss Hauer & Feld.

Marjolijn Wajong further emphasizes the need for CCS/CCUS implementation not only within the upstream oil and gas industry but also in other sectors. She highlighted that the current ministerial rule only regulates the upstream oil and gas sector, and broader implementation is essential to achieve comprehensive climate goals.

Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for ASEAN and East Asia (ERIA), highlighted that apart from the oil and gas industry, carbon capture and storage (CCS) technology could be effectively applied in power plants since these facilities are typically situated in close proximity to potential CO2 storage sites.

Furthermore, in the industrial sector, there are potential candidates for CCS/CCUS applications in the cement, iron and steel, as well as chemical industries, including ammonia and methanol production, he added.

However, he pointed out that these industries are price-sensitive, and implementing CCS may impact their commodity markets' competitiveness and prices.

He emphasized that significant price reductions are necessary before CCS can be viably utilized in the industrial sector.