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, highlighted the stark economic challenges of CCS/CCUS, pointing to global projects frequently underperform and carry long-term liability concerns.
“CCUS projects are often considered high risk, as many projects globally are 20% to 40% below their initial performance promises and carry long-term carbon dioxide (CO2) storage liabilities,” Putra said.
“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 US$100 per tonne.”
This risk-reward imbalance presents a 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, did not expect the new rule to attract new investors to Indonesian CCS/CCUS projects.
He noted that CCS projects were not yet formally recognised in Indonesia’s national climate targets 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 said.
Fabby expressed 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 got involved,” he said.
He argued that such ventures were better suited to 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 said 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. — The Jakarta Post/ANN
