Written by Favian Pratama

Indonesia possesses approximately 23,690 MW of identified geothermal resources across 368 prospect areas, representing nearly 40% of global geothermal potential. Yet by 2023, only 2,653 MW or around 11% had been installed. The government targets 22.7 GW by 2060, with geothermal expected to contribute 178 TWh or 9.2% of the national energy mix (Dobson et al., 2025). At current deployment rates, this target remains unlikely.

The issue is not geological scarcity, investor absence, or lack of international financing. Indonesia already benefits from the $20 billion Just Energy Transition Partnership (JETP) and substantial foreign investment interest (UNDP, 2025). The central obstacle is regulatory fragmentation. Geothermal development still faces lengthy permitting procedures involving multiple ministries and overlapping approvals.

This essay proposes the Geothermal Governance and Carbon Compact (GGCC): a consolidated permitting institution financed through forward-sold carbon credits under Paris Agreement Article 6. The GGCC would streamline licensing, reduce exploration risk, and create a self-financing governance mechanism capable of accelerating Indonesia’s geothermal transition.

Indonesia’s geothermal bottleneck originated in Law No. 27/2003, which classified geothermal activities as mining. Since mining is prohibited in protected forests, and roughly 70% of geothermal reserves lie beneath those forests, many high-value prospects became inaccessible for private development (Pambudi & Ulfa, 2024).

Law No. 21/2014 corrected part of this issue by separating geothermal from mining and introducing the IPPKH borrow-and-use permit system for protected forests. However, conservation forests remained restricted, and the law failed to create an integrated institutional framework capable of implementing reform efficiently.

Today, geothermal projects still require sequential approvals from MEMR, MOEF, Bappenas, the Ministry of Finance, BKPM, the SOE Ministry, and local governments. This produces an average permitting timeline of 5–6 years, a figure largely unchanged for over a decade (Pambudi & Ulfa, 2024). Although MEMR launched the GENESIS digital platform in 2024, digitisation alone does not solve institutional fragmentation.

The consequences extend beyond domestic energy policy. Indonesia’s Enhanced NDC commits to reducing emissions by 31.89% unconditionally and 43.20% with international support by 2030, with geothermal serving as a key contributor (Arrafisena, 2025). JETP

financing similarly depends on geothermal replacing coal generation. Yet implementation still relies heavily on Presidential Regulation No. 112/2022, which analysts consider insufficient for reforms at the required scale.

The GGCC is a self-reinforcing institutional loop. Consolidated permitting unlocks more geothermal projects. More projects generate verified avoided emissions. Those emissions are forward-sold as carbon credits under Paris Agreement Article 6, generating revenue that funds the permitting authority itself and subsidises exploration risk. The loop accelerates with each iteration.

The first component is the formal reclassification of geothermal as a clean energy activity rather than an extractive industry — completing in substance what Law No. 21/2014 began in form, enacted through a new Government Regulation under the Omnibus Law framework (Law No. 6/2023). The second component is a statutory Geothermal Development Coordination Board (GDCB) empowered to issue a single integrated permit covering MEMR, MOEF, and environmental approvals concurrently within a legally mandated 120-day decision window. Kenya’s Geothermal Development Company and the EU’s Net-Zero Industry Act 2023 establish that consolidated permitting with mandated timelines is neither novel nor legally problematic.

This reform does not remove safeguards. Environmental and Social Impact Assessments are conducted within the 120-day window. Free, Prior and Informed Consent from affected communities remains mandatory under Indonesia’s obligations pursuant to ILO Convention No. 169. Utomo & Husnudin (2025) documented that some existing geothermal projects have employed less than 1% of the local workforce. The GDCB addresses this by requiring a binding community benefit-sharing plan as a condition of every permit approval.

Each gigawatt of geothermal capacity displacing coal avoids approximately 4 to 6 million tonnes of CO2 annually (Dobson et al., 2025). Under Paris Agreement Article 6, as a sovereign rights-holder rather than a private developer, Indonesia is among the few actors positioned to transact at scale even as the bilateral ITMO market continues to mature. These reductions can be forward-sold to institutional buyers before drilling begins. At a conservative

$10 per tonne, a single 1 GW project generates approximately $50 million per year in ITMO revenue against average exploration costs of $7.6 million per well (Purwanto, 2019). The GGCC is self-financing: no new government budget allocation is required, which removes the Ministry of Finance as a structural veto point in the reform process.

The investors are already in the room. A Chevron–PGE joint venture received a WKP permit for Way Ratai in 2024; a three-party consortium of PGE, Chevron, and Mubadala Energy is active at Kotamobagu (Chevron, 2024). ADB and the World Bank have financed Sarulla, Muara Laboh, and Rantau Dedap. KfW signed a €1.2 billion green finance MoU with PLN in 2024 (ADB, 2024). What governs whether these actors expand is regulatory predictability. The GGCC provides it.

The Climate Impact Innovations Challenge 2026 calls for inclusive, cost-effective transitions that materially reduce greenhouse gas emissions; the GGCC addresses all three dimensions simultaneously. The $20 billion committed under JETP Indonesia, the active FDI pipeline, and Indonesia's position as holder of 40% of global geothermal potential constitute a system that is ready - it lacks only the governance mechanism to deploy it. The GGCC is that mechanism.

Every major assessment of Indonesia’s geothermal sector over the past two decades has reached the same diagnosis. The barrier is regulatory maze. The GGCC converts that diagnosis into a specific, self-financing institutional proposal with a named authority, a defined process, an international precedent, and a financial mechanism that does not depend on the political will of any single ministry. The next step is not a new drill bit. It is a governance decision.

Favian Pratama is a runner-up of the Climate Impact Innovations Challenge 2026 Article Competition.