Divya Karyza, Jakarta – Indonesia's state asset fund Danantara faces significant financial risks and must exercise caution as it considers carbon capture and storage (CCS) projects, as the current carbon price offers a negligible incentive against costs that can be 50 times higher, a leading energy analyst warns.
Putra Adhiguna, managing director of the Energy Shift Institute, in an interview with The Jakarta Post highlighted the stark economic challenges of CCS/CCUS, pointing to global projects that frequently underperform and carry long-term liability concerns.
"CCUS projects are often considered high-risk, as many projects globally are 20 to 40 percent below their initial performance promises and carry long-term carbon dioxide [CO2] storage liabilities," Putra said on Thursday. "Danantara needs to carefully consider the urgency."
His caution comes amid the government's push to establish Indonesia as a CCS hub, leveraging its vast potential storage capacity in depleted oil and gas fields. Newly issued Presidential Regulation No. 110/2025 on the Economic Value of Carbon (NEK) was a step forward, he explained, but the rewards were too low.
"The presidential regulation demonstrates the government's commitment and provides an incentive, but the amount is expected to be very small compared to the high costs of CCS/CCUS," he explained. "[Compared to] the NEK of US$2 per tonne of CO2, CCS costs could be 50 times higher, around $100 per tonne."
This risk-reward imbalance presents a core dilemma for Danantara, which is mandated to finance national strategic projects while maintaining commercial viability.
Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), did not expect the new rule to get new investors interested in Indonesian CCS/CCUS projects. He noted that CCS projects were not yet formally recognized in Indonesia's national climate targets (NDC) as part of emission reduction efforts, which has created uncertainty.
"Critical rules for international funding and emission credit claims are also missing. Until the carbon price reflects true costs and these policy gaps are resolved, investor interest will remain low despite the new regulation," he told the Post on Thursday.
Fabby expressed strong reservations about Danantara's possible involvement in such projects, pointing to their long timelines, high costs and significant risks: "In my opinion, Danantara shouldn't have gotten involved."
He argued that such ventures were better suited for large corporations with the financial capacity to bear the inherent risks. For an investment company like Danantara, the decision ultimately boiled down to its "appetite for the project list and its risk appetite," suggesting the undertaking may not align with a prudent investment strategy.
From the government's perspective, CCS is key to enhancing Indonesia's competitiveness in clean energy.
Nurul Ichwan, investment promotion undersecretary at the Investment and Downstream Ministry, said that "it makes sense" for Danantara to be involved in CCS/CCUS projects, because it matched the agency's objective to advance national strategic projects, "as long as the projects are profitable."
Speaking to reporters in Jakarta on Oct. 7, he went on to say that there is ample financing available for green investments, but the main challenge in Indonesia is a lack of demand from project developers.
"Currently, only a few large companies like BP and Exxon are actively pursuing these projects," he said, adding that the government is mulling over a plan to provide incentives for oil and gas companies and the necessary laws are in place, but the specific implementing regulations are still being discussed with the Finance Ministry.
"The Investment Ministry evaluates and forwards suitable investment proposals to Danantara, which will then conduct its own financial assessment."
Uncertainty on the ground
On the operational side, significant hurdles remain.
Kamia Handayani, vice president of energy transition and sustainability at state-owned electricity company PLN, said the company's five ongoing CCS studies were still in a preliminary phase and had not yet progressed to pilot projects because of a lack of financial support and a clear regulatory framework.
"That's just the study phase, so [we] haven't entered piloting yet because piloting requires financial support and all sorts of things," Kamia said in Jakarta on Oct. 8.
She acknowledged that government incentives were crucial for such projects to be viable, citing Canada as an example.
Kamia went on to explain that the current study provided an initial, indicative cost assessment. However, a pilot project requires a far more comprehensive analysis.
"This must extend beyond the technical and capture costs already examined to include critical elements like transportation, storage site viability and the regulatory framework. A thorough financial model is also essential, exploring potential revenue from carbon credits or government incentives."
When asked whether PLN had coordinated with the Finance Ministry regarding such incentives, she stated that "there hasn't been any coordination yet."
The disconnect between high-level policy support and the on-the-ground need for concrete financial mechanisms underscores the challenge for Danantara.
Putra's analysis suggests that, for Danantara to invest prudently, the government must first provide assurances for long-term storage liability and develop a more robust incentive structure that bridges the cost gap.
In a separate media briefing, BP chief economist Spencer Dale cautioned that the high cost of CCS presents a significant timing and willingness challenge for Indonesia.
He likened decarbonization to a student's homework: you start with the easy tasks first.
"There are easier ways to reduce carbon," Dale said in a media roundtable event on Oct. 10, pointing to the rapid build-out of wind and solar power.
Societies naturally prioritize these cheaper options, leaving expensive technologies like CCS for later.
The core hurdle is a lack of public willingness to pay a premium for deep decarbonization when more affordable alternatives are available.
Opportunities for Indonesia
While acknowledging that CCS remains an expensive decarbonization tool compared to renewables, Dale outlined a promising business model: Cross-border carbon storage.
For countries with high emissions and poor geology, Indonesia could offer a vital service, importing and storing their CO2.
"This could be a very profitable industry for Indonesia," Dale explained, adding that while CCS does not directly contribute to energy security, it creates a new revenue stream by leveraging the nation's superior geological storage sites and growing human capital.
The initiative could directly boost the oil and gas sector. Dale pointed to a potential "package of services", where Indonesia exports natural gas and simultaneously offers to repatriate and store the resulting emissions.
"That would then generate greater investment upstream as well as in the carbon storage component," he said.