Unlocking the Value of Carbon Credits in Indonesia’s Geothermal Projects

The climate crisis has pushed countries around the world to accelerate decarbonization efforts through various approaches, from reducing energy consumption and increasing efficiency to utilizing renewable energy and low-carbon hydrogen. Among these solutions, the International Energy Agency (IEA) projects that Carbon Capture and Storage, and Carbon Capture, Utilization, and Storage (CCS/CCUS) must contribute approximately 14% of cumulative CO₂ reductions by 2050, particularly in hard-to-abate industrial sectors including steel, cement, chemicals, and oil and gas sector, where direct electrification remains economically or technically infeasible (IEA, 2023).
The Asia Pacific region is projected to provide 53% of global CO₂ storage capacity by 2050, with Indonesia holding the largest storage potential, particularly in the geological formations of Java and Sumatra. Indonesia has also become the first country in Southeast Asia to issue a comprehensive regulatory framework for CCS/CCUS, through MEMR Regulation No. 2/2023 on CCS/CCUS in Upstream Oil and Gas Activities, subsequently expanded by Presidential Regulation No. 14/2024 establishing a legal framework for carbon storage licence areas beyond upstream oil and gas operations, and also MEMR Regulation No. 16/2024. As of July 2024, the Ministry of Energy and Mineral Resources (MEMR) had identified 15 potential CCS/CCUS projects targeting onstream dates between 2026 and 2030
However, geological potential alone does not translate into investable projects. Investment in CCS/CCUS continues to face significant challenges due to high upfront costs and uncertainties in revenue streams, driven by fluctuating carbon prices and unclear long-term policy support. In addition, the CCS/CCUS value chain is highly interdependent, meaning that delays or failures in one segment can significantly impact the viability of the entire project.
A previous study was conducted by PYC about “Integrating Technoeconomics, Green Industry, and Carbon Markets to Support CCUS Development in Indonesia”. The study mainly focused on identifying the potential for integrating CCUS with green industrial development, analyzing the readiness of the carbon market ecosystem, and formulating supporting strategies and policies (PYC, 2026). Based on the study, PYC formulated a roadmap recommendation as a sequence of implementation stages. However, it has not covered the economic feasibility analysis. Meanwhile, to finance this project, the financial institution needs to understand the risk of the CCS/CCUS value chain.
Another previous study primarily focused on either technical feasibility or individual financing mechanisms. However, there is a lack of integrated frameworks that systematically link the risk identification across the CCS value chain, risk allocation among stakeholders, and appropriate financing instruments to mitigate those risks, that can serve as an input to a bankable financial model. This gap is particularly critical in emerging economies, where regulatory frameworks and financial markets are still evolving. Therefore, this study aims to develop a comprehensive guideline for financial institutions to support the financing of CCS/CCUS Projects.