ESG and Climate Change Update: Carbon Trading for the Power Plant Subsector

3 Feb

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Over these past few years, we have witnessed the issuance of monumental regulations regarding carbon trading as a way to tackle the global climate change issue. First, with the issuance of the Presidential Regulation No. 98 of 2021 concerning the Implementation of Carbon Economic Value for Achieving Nationally Determined Contribution (“NDC”) Targets and Control of Greenhouse Gas (“GHG”) Emissions in National Development (“PR 98/2021”) which we have highlighted in this ARMA Update, and the Minister of Environment and Forestry (“MOEF”) Regulation No. 21 of 2022 regarding the Guidelines of Carbon Economic Value Implementation (“MOEF Reg 21/2022”) was issued as the implementing regulation of PR 98/2021 which we have highlighted in this ARMA Update.

More recently, the Minister of Energy and Mineral Resources (“MEMR”) has followed suit in issuing its implementing regulation, which is the MEMR Regulation No. 16 of 2022 regarding the Guidelines of the Carbon Economic Value in the Power Plant Sub-sector (“MEMR Reg 16/2022”).

This ARMA Update will cover the crucial aspects stipulated in MEMR Reg 16/2022, including the determination of emission upper limits in the subsector and for business actors, carbon trading, the planning and reporting obligations, as well as the MEMR’s web-based application for calculation and reporting by power plants.

Emissions Upper Limit Technical Approval (Persetujuan Teknis Batas Atas Emisi or PTBAE)

MEMR will be issuing the Emissions Upper Limit Technical Approval (Persetujuan Teknis Batas Atas Emisi or “PTBAE”) for each type of power plant, which would be the maximum GHG emission levels for the power plant in a certain period of time.¹ The PTBAE will be executed in 3 (three) phases, (i) phase one from 2023 to 2024; (ii) phase two from 2025 to 2027; and (iii) phase three from 2028 to 2030.² The first phase of the PTBAE execution would only apply to coal steam power plants.

The PTBAE for coal steam power plants that are connected to the PT Perusahaan Listrik Negara (“PT PLN”)’s network will be determined at the latest 20 (twenty) days after the issuance of the MEMR Reg 16/2022, which would have been due on 25 January 2023. On the other hand, for coal steam power plants that are outside of PT PLN’s business area and/or is supplying electricity for self-consumption, the PTBAE determination deadline would be on 31 December 2024.³

Emission Upper Limit Technical Approval for Business Actors (Persetujuan Teknis Batas Atas Emisi Pelaku Usaha or PTBAE-PU)

MEMR, through the Director General of Electricity, shall determine the Emission Upper Limit Technical Approval for Business Actors (Persetujuan Teknis Batas Atas Emisi Pelaku Usaha or “PTBAE-PU”) to each power plant unit, which should be determined by 31 January of each year. The PTBAE-PU serves as the GHG emission quotas given to business actors for a certain period of time.⁴ The PTBAE-PU given to business actors may not exceed the accumulated value of the PTBAE, and the PTBAE-PU determination allows its holder to carry out carbon trading.⁵

PTBAE-PU for coal steam power plants for year 2023 is 100% (one hundred percent). After 2023, the PTBAE-PU allocation will be determined based on the carbon trading transaction results from the previous year, with the following conditions:⁶

(i) The PTBAE-PU is allocated following the transaction results if the carbon trading results are more or equal to 85% (eighty-five percent); or (ii) The PTBAE-PU is allocated to be 85% (eighty-five percent) if the carbon trading transaction results are less than 85% (eighty-five percent).

Should there be a lack of supply of PTBAE-PU, MEMR may hold an auction of PTBAE-PU to increase the supply in the carbon market. The auction results will be used for activities that reduce GHG emissions in the power plan subsector, such as the development of new and renewable energy, energy efficiency, and/or other GHG emission mitigation actions in the power plant subsector.⁷

GHG Monitoring Plan

In order to participate in carbon trading, the business actor must arrange a yearly GHG monitoring plan for each power plant unit. The monitoring plan consists of the power plant’s gross electricity production plan as well as the GHG emission level target. Agreements or contracts that consist of the gross electricity production plan may also be included as supporting data to the monitoring plan.⁸ The monitoring plan will need to be submitted to the MEMR through the Director General of Electricity at the latest on 31 December of each year.⁹ If not submitted, the business actor may not participate in carbon trading during that year.¹⁰

Emission Reduction Certificates (Sertifikat Pengurangan Emisi GRK or SPE-GRK)

GHG Emission Reduction Certificates (Sertifikat Pengurangan Emisi GRK or “SPE-GRK”) will be issued by the MOEF from emission reduction activities in the energy sector which consist of (i) generation from new and renewable energy resources; (ii) activities in the transportation, construction, and industrial sub-sectors including energy efficiency implementation; and (iii) other activities in the energy sector. The SPE-GRK may then be used for GHG emission offsets for businesses and/or activities that do not possess a PTBAE.¹¹ The emission reduction certificates in the energy sector issued by other certification agencies may be deemed equivalent to the SPE-GRK, through mutual recognition as regulated in PR 98/2021 and MOEF Reg 21/2022.¹² The SPE-GRK and/or other emission reduction certificates that have been deemed equivalent must be reported within 5 (five) days of its issuance.

Carbon Trading

Every power plant unit may be able to carry out carbon trading, including emission trading and GHG emission offset, through their PTBAE-PU and/or SPE-GRK. The surplus PTBAE-PU at the end of each year may be traded in the next year, and shall be valid to be traded for 2 (two) years as long as it does not exceed its execution phase.¹³

The carbon trading may be carried out domestically and/or internationally, in accordance with the PR 98/2021 and the MOEF Reg 21/2022. The carbon trading may be through a market mechanism through carbon exchange (bursa karbon) and/or direct trading.¹⁴ However, it is to be noted that carbon trading through emission trading cannot be carried out between power plant units that are located in the same power plant generation unit.¹⁵

The results of a carbon trading transaction must be recorded and reported. For emission trading transactions must be reported by attaching the statement letter of approval of the carbon unit transfer to other power plants, as well as the proof of financial transaction for the unit carbon transfer. On the other hand, GHG emission offsets must be reported by attaching the documentary proof of the offset.¹⁶

Reporting Obligations

Business actors participating in carbon trading must submit a GHG emission report for each power plant unit that includes the unit’s activity and operation data, which must be submitted at the latest on 31 January of the following year.¹⁷ The GHG emission report is arranged based on the power plant’s GHG emission calculation and measurement in accordance with the guideline issued by the Director General of Electricity.¹⁸

The GHG emission report will be evaluated by MEMR through the Director General of Electricity and may carry out field verification and/or request for other supporting documents which will determine whether the GHG emission report is in accordance or not in accordance with the power plant’s activity and operation data.¹⁹

If determined to be not in accordance, the GHG emission report will be returned to be corrected by the business actor. The corrected GHG emission report must be submitted again within 5 (five) working days from the date of the report’s return. Suppose the corrected report is determined to still not appropriate or the corrected report is not submitted within the time limit. In that case, the business actor will be deemed not to have submitted the GHG emission report.²⁰

The report that has been deemed acceptable shall be validated and verified by an independent validator and verifier at the latest on 31 March.²¹ The validated and verified GHG emission report, along with the PTBAE-PU implementation report and the GHG emission offset implementation proof, must then be submitted to the MEMR’s Director General of Electricity. If not submitted, the carbon trading transactions that have been carried out will not be accounted for.²²

APPLE-Gatrik

MEMR has developed the Electricity Emission Calculation and Reporting Application (Aplikasi Penghitungan dan Pelaporan Emisi Ketenagalistrikan or “APPLE-Gatrik”), which is a web-based application developed by the MEMR’s Directorate General of Electricity that is used to calculate and report a power plant’s GHG emission levels and its GHG mitigation actions.²³

The recording and reporting in the APPLE-Gatrik system are carried out by interaction and/or sharing of the web-based data and information system with the National Registry System for Climate Change Control (Sistem Registri Nasional Pengendalian Perubahan Iklim or “SRN PPI”). However, suppose the data in the SRN PPI and the APPLE-Gatrik have not been integrated yet. In that case, the business actors must record and report their activities to both of the applications.²⁴

As we have elaborated above, the GHG monitoring plan and GHG emission report will be submitted to the MEMR through APPLE-Gatrik. The business user also uses APPLE-Gatrik to report any SPE-GRK and/or other emission reduction certificates and the carbon trading results.

New and Renewable Energy Power Plants

Power plants that are utilizing new and renewable energy sources may participate in carbon trading through the GHG emission offset mechanism and may be issued the SPE-GRK.²⁵ Further, new and renewable energy power plants must submit a report that consists of the data on the unit’s operation, which must be submitted on 31 January of the following year at the latest. MEMR will evaluate the report through the Director General of Electricity to determine the report’s accordance with the power plant’s activity and operation data. If determined to be not in accordance, the report will be returned to be corrected by the business actor within 5 (five) working days. Suppose the corrected report is determined to still not appropriate or if still not appropriate or the corrected report is not submitted within the time limit. In that case, the business actor will be deemed not to have submitted the report and the MEMR through the Director General of Electricity.²⁶

International Cooperations

In the spirit of encouraging international cooperation, as we have previously seen in PR 98/2021 and MOEF Reg 21/2022, for the energy sector’s NDC achievement, the MEMR may carry out cooperation with other countries, under an agreement and approved by the steering committee, which consists of various government ministries and institutions.²⁷ The cooperation may be in the form of financing for mitigation in the energy sector and mitigation profit sharing in the form of carbon units. This cooperation may also include state-owned enterprises, regional-owned enterprises, business actors, and the community. The distribution and transfer of carbon units to partner countries will be in accordance with PR 98/2021 and MOEF Reg 21/2022.²⁸

Article 1 (16) and 4 (4) of the MEMR Reg 16/2022↩
Article 4 (3) of the MEMR Reg 16/2022↩
Article 5 of the MEMR Reg 16/2022↩
Article 1 (17) and 10 (2) of the MEMR Reg 16/2022↩
Article 10 (2) and (5) of the MEMR Reg 16/2022↩
Article 12 of the MEMR Reg 16/2022↩
Article 31 of the MEMR Reg 16/2022↩
Article 7 of the MEMR Reg 16/2022↩
Article 8 of the MEMR Reg 16/2022↩
Article 9 of the MEMR Reg 16/2022↩
Article 16 of the MEMR Reg 16/2022↩
Article 17 of the MEMR Reg 16/2022↩
Article 13 of the MEMR Reg 16/2022↩
Article 14 of the MEMR Reg 16/2022↩
Article 15 of the MEMR Reg 16/2022↩
Article 19 of the MEMR Reg 16/2022↩
Article 21 of the MEMR Reg 16/2022↩
Article 22 of the MEMR Reg 16/2022↩
Article 23 of the MEMR Reg 16/2022↩
Article 24 of the MEMR Reg 16/2022↩
Article 25 of the MEMR Reg 16/2022↩
Article 28 of the MEMR Reg 16/2022↩
Article 1 (20) of the MEMR Reg 16/2022↩
Article 20 of the MEMR Reg 16/2022↩
Artilce 2 (2) Jo. 16 (3) of the MEMR Reg 16/2022↩
Article 34 of the MEMR Reg 16/2022↩
Article 84 of PR 98/2021↩
Article 35 of the MEMR Reg 16/2022↩

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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