Remediation of Air Pollution

Pollution (including air pollution) and/or environmental damage control is carried out to preserve the environmental function. The Indonesian government has applied regulations for the emission quality standard. The emission quality standard means the limit or level of pollutant that is allowed to be discharged into the atmosphere. 

A company may dispose waste (including air pollution/emission) to the environmental atmosphere only to the extent such company has fulfilled the emission quality standard and has obtained approval from the government. 

If a business actor disposes emissions to the atmosphere, such business actor shall stipulate it in its environmental documents, and the business actor shall also secure the technical approval of the fulfilment of emission quality standards. 

Minister of Environmental and Forestry Regulation No. 5 of 2021 on Procedures for the Issuance of Technical Approvals and Operational Feasibility Certificates for Environmental Pollution Control Sector requires business actors to also possess the emission controller installation equipped with the operational certificate. 

If they negligently commit an act that causes the exceeding of the emission quality standard limit, such business actors may be subject to administrative sanctions and/or criminal sanctions. There have been more regulations and guidelines issued by governmental bodies recently for implementing the clean air efforts in Indonesia, even though applications are still challenging.

Acceleration of the Development of Renewable Energy

Indonesia has issued regulations to accelerate the development of renewable energy and provide incentives to encourage private entities to develop renewable energy instead of non-renewable energy resources.

Law No. 30 of 2007 on Energy requires the central and regional government to supply more electricity by using new and renewable energy. 

Power generators using new and renewable energy resources receive facilities and/or incentives from the central and/or regional government.

The government and PLN (the state-owned electricity producer) set the mid-term business plan up to 2023, which includes a projection and development plan of 20,923 MW from renewable energy power plants or equivalent to 51,6% from the total power plants that will be operating in Indonesia from 2030-2033. Meanwhile, the National Energy Policy has set the goal that by 2025 the share of new and renewable energy will be at least 23% and 31% by 2050. 

To achieve this target, Presidential Regulation No. 112 of 2022 on the Acceleration of the Development of Renewable Energy for the Supply of Electrical Power sets a target for accelerating development of renewable energy, as follows.

• The government is to prepare the road map to accelerate the termination of coal-fired power plant operation period.
• Prohibit the development of a new coal-fired power plant.
• Government support in fiscal and non-fiscal incentives, including income tax reduction/holiday, imports tax and custom duty exemptions, lower land and building tax, support for geothermal development, and support for financing and guarantee facilities.

Greenhouse Gas Emission

Indonesia has ratified the Paris Agreement to the United Nations Framework Convention on Climate Change through Law No. 16 of 2016 on the Ratification of Paris Agreement to the United Nations Framework Convention on Climate Change, which obliges Indonesia to achieve the Nationally Determined Contributions (NDC). 

Presidential Regulation No. 98 of 2021 on Implementation of Carbon Economic Value to Achieve Nationally Determined Contribution Targets and Control Over Greenhouse Gas Emissions in Relation to National Development provides that Indonesia’s NDC target covers:

• the stipulation of policy, steps, and the implementation of activities in accordance with the government commitment in the form of the reduction of greenhouse gas emissions 29% until 41% in 2030 compared to the baseline of greenhouse gas emissions; and 
• establishing national, regional, and public resilience from various climate change risk or climate resilience organisations. 

The carbon trade is introduced as part of the effort to achieve the NDC target, particularly through the enactment of the Minister of Environment and Forestry Regulation No. 21 of 2022 on Procedures for the Application of Carbon Economic Value, in which the carbon trade may be conducted either in the domestic carbon trade and/or international carbon trade. 

Carbon trade is conducted either through (i) emissions trade; or (ii) greenhouse gas emissions offset. Both emissions trade and greenhouse gas emissions offset may be conducted through carbon exchange and/or direct trade. 

On 26 September 2023, Indonesia officially launched the Indonesia Carbon Trade Exchange (IDX Carbon) managed by PT Bursa Efek Indonesia. On the launching date of the Indonesia Carbon Trade Exchange, there were 459,953-ton unit of carbon traded through 27 transactions. 

Implementation of a Carbon Tax

Law No. 7 of 2021 on Tax Harmonisation was issued for unifying the tax regime in Indonesia to accelerate the economic recovery from the COVID-19 pandemic. The law also provides the basis of the carbon tax imposed on carbon emissions that have a negative impact on the environment. 

The subject of a carbon tax is the individual or entity that purchases goods that contain carbon, and/or conducts activities that emit carbon emissions.

Essential provisions for carbon tax implementation, such as the carbon tax rate, shall be set higher than or equal to the carbon market price per kilogram of carbon. Further, the revenue from carbon taxes can be allocated for climate change control.

Government Regulation No. 50 of 2022 on Procedures for Exercising Rights and Fulfilling Tax Obligations allows payment of carbon tax to be paid by the taxpayer or collected by carbon tax collectors. 

A taxpayer who is responsible for carbon emissions shall submit their annual and periodic tax returns to report the calculation and/or payment of carbon tax, along with their records of activities that produce carbon emissions and/or sales of goods containing carbon, for calculating the carbon tax payable.

The carbon tax implementation was originally targeted to commence from 1 April 2022, but is being postponed until 2025 and will be first imposed on coal-fired power producers at a rate of Rp30,000 (equal to USD2) per 1000 kilogram of carbon dioxide equivalent (CO2e) or an equivalent unit. 

Development of Battery and Electric Vehicle Ecosystems in Indonesia

With the increment of the demand for battery and electric vehicles (EV), Indonesia, as a key player in the supply chain of battery and EV ecosystems, provides various incentives to attract foreign investors to Indonesia. 

The government offers incentives of exemptions or reduction of value-added tax for four-wheeled EV and electric buses, subject to compliance to the local content requirements. 

As for the two-wheeled EVs, the subsidy is in the amount of Rp7 million (equal to approximately USD450) for every purchase of one electric motorcycle by one citizen. 

The subsidised motorcycle producers shall not (i) increase the price of the motorcycles participating in the subsidy programme; or (ii) use less local content in motorcycle production. 

More fiscal incentives for the industrial companies that produce EV, or EV spare-parts and EV raw materials, EV batteries and battery raw materials are being prepared also to attract more foreign investment in the battery and/or EV sectors. 

The government hopes that in 2030, Indonesia could produce 600,000 units of four-wheeled EV and 2,45 million two-wheeled EV in a year.

Regulations on Good Mining Practice for Responsible Mining

The mining industries in Indonesia are obliged by the Mining Law to implement good mining practice, which covers the mining environment management and monitoring, including reclamation and post-mining activities.

Known as an industry that emits pollution and harmful substances into the environment, the obligation to conform to good mining practice is expected to manage the pollution produced by the mining industries under Minister of Energy and Mineral Resources Regulation No. 26 of 2018 on Implementation of Good Mining Principles and Supervision of Minerals and Coal Mining:

• implementation of management and supervision of mining environmental pursuant to the Environmental Documents; and
• countermeasures and remedies to the environment in the event of pollution and/or damage to the environment.

Reclamation is an activity conducted during the stage of mining business to arrange, restore, and improve the environment and ecosystem quality, so that it may function again in accordance with its purposes. 

On the other hand, post-mining activities are planned, systematic, and continuous activities intended to restore natural environment functions and social functions according to local conditions within the entire mining area. 

Mining companies shall make a deposit to the reclamation and post-mining guarantee that may be used by the mining company for the respective activities; or, if the company fails to conduct its obligation, the government may appoint a third party to carry out the reclamation and/or post-mining activities using the guaranteed deposit by the company. 

Green Bonds

Financial Services Authority (OJK) Regulation No. 18 of 2023 on the Issuance and Requirements for Debt Securities and Sukuk Based on Sustainability regulates green bonds offered to the public by issuers for financing and/or refinancing Environmentally Friendly Business Activities (KUBL) for the purpose of protecting, restoring, and improving environmental quality or function.

The issuers must use all of the proceeds from green bonds to finance KUBL. The information memorandum of the bond must obtain an environmental expert’s opinion or assessment, while the issuer may be eligible for certain incentives from OJK.

ESG for Listed Companies and Financial Services Institutions

Publicly listed companies and financial institutions shall disclose information regarding their compliance with ESG provisions as provided under OJK Regulation No. 51 of 2017 on Implementation of Sustainable Finance for Financial Services Institutions, Issuers, and Public Companies and OJK Circular Letter No. 16 of 2021 on Form and Content of an Issuer’s or Public Company’s Annual Report.

OJK requires that financial institutions and public companies implement sustainable finance, including annual submission of a sustainability report, either as part of the company’s annual report or as a standalone report to the OJK.

This disclosure in the sustainability report must, among others, include the following information:

• sustainable strategies;
• summary of sustainability efforts (economic, social and environmental);
• sustainable governance;
• sustainable performance; and
• verification of the report from independent parties.

Failure to comply with these sustainability report requirements shall subject the publicly listed company or financial institution to administrative sanctions in the form of a reprimand or written warning from the OJK.

Carbon Capture and Storage and Carbon Capture, Utilisation, and Storage

Provisions on CCS and CCUS for Upstream Oil and Gas Business Activities are now regulated by the Minister of Energy and Mineral Regulation No. 2 of 2023 on Organisation of Carbon Capture and Storage, as well as Carbon Capture, Utilisation and Storage in Upstream Oil and Gas Business Activities. The regulation contains requirements for initiation of CCS/CCUS from planning to the decommissioning phase, monetisation of CCS/CCUS, including covers carbon trading, reimbursement through joint facility operation, and/or services of injection and storage. 

For the forestry sector, the Minister of Environment and Forestry issued Regulation No. 7 of 2023 on Procedures for Carbon Trading in the Forestry Sector. There is more clarity now about forms of activities and trading within the forestry sector, understanding the associated requirements, fulfilling reporting and evaluation obligations, navigating carbon levies, and examining provisions related to international carbon trading.

Climate Change Mitigation Actions in the Transportation Sector

In order to achieve the NDC target in mitigating climate change, especially in the transportation sector the Minister of Transportation has recently issued Decree No. KM 8 of 2023 on Determination of Climate Change Mitigation Actions in the Transportation Sector to Achieve Nationally Determined Contribution Targets which categorises the transportation mitigation actions, among others, into (i) energy efficiency; and (ii) utilisation of new and renewable energy. 

Those include the improvement of public mass transportation, integration of public transportation systems with the urban planning and residential, schools, offices, and public areas; also the improvement of use of non-ICE vehicles, vehicles using renewable energy and no-engine based vehicles, such as bicycles.

Environmental Audit and Report as Preventive Actions

To prevent pollution to the environment, due diligence of activities prior to its implementation and audit during its implementation is essential.

Law No. 32 of 2009 on Environmental Protection and Management encourages business entities to conduct an environmental audit and oblige business entities with high-risk impact to conform to the new standards. An environmental audit is an evaluation which assesses the compliance of the personnel in charge of a business and/or activity to the legal requirements and policies stipulated by the government. 

Determination of high-risk businesses and activities that are mandatory to carry out the environmental audit mentioned above are provided under Minister of Environment Regulation No. 3 of 2013 on Environmental Audit, based on the following criteria: 

• If an accident and/or emergency occurs causing a large and widespread impact on human health and the environment.
• The results of environmental audits that are required periodically must be able to be used as a reference for improving environmental management for the person in charge of businesses and/or activities that are given orders for environmental audits that are required periodically.
• Periodically required environmental audits are excluded for infrastructure activities except for the construction of dams/reservoirs.

Compliance with environmental audit does not release the company from any legal sanction for environmental violations under the regulations.

Environmental Economic Instruments as Incentives and Disincentives

Law No. 32 of 2009 on Environmental Protection and Management requires that the central and regional governments must develop environmental economic instruments to preserve the environmental function, including planning of economic development and activities, environmental funding, and incentives and/or disincentives. 

Environmental economic instruments are sets of economic policies to motivate the central and regional governments and every person to conserve the health of the environment.

Government Regulation No. 46 of 2017 on Environmental Economic Instruments (GR 46/2017) provides the instruments for incentives and disincentives, as follows: 

• development of an eco-friendly label system;
• procurement of eco-friendly goods and services;
• implementation of environmental taxes, levies, and subsidies;
• development of an eco-friendly financial service institution system;
• development of emission and/or waste disposal permit trading system;
• development of environmental insurance;
• development of an environmental service payment system; and
• a system for performance appreciation in the sector of Environmental Protection and Management.

GR 46/ of 2017 provides that the instruments above may become incentives or disincentives for activities that have positive or negative impacts on natural resources and environmental functions. 

The form of incentives or disincentives are:

• relief or addition of obligations;
• facility for and/or ease, or addition and/or tightening, of activity implementation requirements;
• facilities and/or assistance as incentives;
• encouragement and guidance as incentives;
• acknowledgment and/or appreciations as incentives; and/or
• the notification of positive or negative performance to the public.

Hazardous Waste Management in Indonesia

Every person (including a legal entity) that produces toxic and hazardous waste (B3 waste) is obliged to conduct B3 waste management including reduction, storing, collection, transportation, utilisation, processing, and/or dumping of B3 waste. 

Every person that produces B3 waste shall carry out B3 waste storage. For instance, if a manufacturing company does produce B3 waste, such a company shall carry out B3 waste storage and provide the B3 waste storage facility. 

The Minister of Environment and Forestry Regulation No. 6 of 2021 on Procedures and Requirements for Management of Hazardous and Toxic Waste provides the B3 waste storage standard, which includes the following, among others:

• B3 waste that is stored and protected from rain;
• has a watertight floor;
• (equipped with B3 waste symbols and labels; and/or
• the B3 waste is packaged using packaging from metal or plastic materials. 

Environmental law facilitates that a company that cannot carry out its own B3 waste management may engage a third party that carries out B3 waste management. 

Government Regulation No. 22 of 2021 on Organisation of Environmental Protection and Management stipulates that every producer of B3 waste shall deliver its B3 waste to the B3 waste collector if (i) such a company is unable to fulfil the time period provisions for the B3 Waste storage; and/or (ii) the capacity of the B3 Waste storage has been exceeded. 

Meanwhile, B3 waste reduction is conducted by way of (i) materials substitution; (ii) process modification; and/or (iii) the use of environmentally friendly technology. 

Criminal Sanctions for Environmental Violation

Law No. 32 of 2009 on Environmental Protection and Management regulates administrative sanctions and criminal sanctions. For criminal sanctions, other than the national police, certain civil servants in the environmental sector may be granted authority to investigate criminal environmental violations. 

In addition to the types of evidence provided in the Code of Criminal Procedure, Environmental Law also provides the types of specific evidence to environmental criminal violation in the form of:

• witness statements;
• expert witness statements;
• a letter;
• hints;
• defendant’s statement; and/or
• other evidence as regulated under the prevailing laws and regulations. 

Law No. 32 of 2009 on Environmental Protection and Management also recognises corporate crime. If a criminal environmental violation is carried out by, for, or on behalf of a legal entity, the criminal sanctions will be imposed on a legal entity; and/or a person who gives an order to conduct such criminal environmental violation or a person who is acting as the leader in such environmental violation. 

If a criminal environmental violation is conducted by a person based on an employment relationship or other relationship acting within the scope of the legal entity, the criminal sanctions will be imposed to the order giver or the leader of such a criminal violation without considering if such criminal violation is conducted by a person or a group. 

Compensation for Environmental Violation

Every business actor which causes environmental violation that impacts other persons or the environment is liable to pay compensation. The implementation of the polluter pays principle is also instrumental in the maintenance of new targets. 

In addition to paying the compensation, the business actor as the polluter may also be subject to the following certain action: (i) installing or repairing waste processing facilities so that the waste meets the determined quality standards; (ii) restoring environmental functions; and/or (iii) eliminating or destroying the causes of pollution and/or destruction of environment. 

Government Regulation No. 22 of 2021 on Organisation of Environmental Protection and Management provides that the polluter may also be subject to government coercion (as part of the administrative sanctions), which requires the business actor to conduct, among others, the following: 

• the freezing of production activities;
• the closure of waste or emission channel;
• demolition; and
• partial or temporary closure. 

Environmental law also acknowledges the strict liability principle which does not require an element of error proven by the plaintiff as a basis for payment of compensation. 

This principle may only be imposed on the business actor that engaged in the B3 waste management activities and/or B3 waste producer if such business actors failed to comply with the environmental management obligations.

Environmental Insurance

To maintain and preserve the environment, Law No. 32 of 2009 on Environmental Protection and Management provides environmental financing instruments. The environmental financing instruments include:

• an environmental restoration guarantee fund (allocated funds by a business and/or activity to restore the quality of the damaged environment because of activities); 
• funds for pollution control and/or environmental damage and restoration (for overcoming pollution and/or environmental damage that arises as a result of a business and/or activities); and 
• trust/aid funds for conservation (derived from grant and donation for the purposes of environmental conservation). 

Environmental restoration guarantee fund is used for (i) prevention of environmental pollution and/or environmental damage; and/or (ii) restoration of environmental functions due to environmental pollution and/or environment damage that arises from business and/or activities. 

The environmental licence holder must provide an environmental restoration guarantee fund, whereby, for business actors, the fund shall be stored in the government bank that is appointed by the government.

The environmental restoration guarantee fund shall be provided by the business actors in the form of (i) time deposit; (ii) joint savings; (iii) bank guarantee; and/or (iv) other methods in accordance with the prevailing laws and regulations.

Health, Safety, and Environment

Specifically for industrial companies, the Minister of Health issued Regulation No. 70 of 2016 on Health Standard and Requirements for Industrial Environment, which regulates the standards and requirements for occupational health of industrial companies. 

All industrial companies must fulfil the standard and implement the occupational health requirements for industrial companies. 

Minister of Manpower and Transmigration Regulation No. 8 of 2010 on Personal Safety Equipment requires all business actors to provide personal safety equipment to all employees in the working place. 

Safety personal equipment must be used by the employees in the following working place conditions, among others: 

• construction work;
• mining related work;
• underground water work; and
• waste management work.