A System Dynamic Model for Indonesia Upstream Oil and Gas Industry Greenhouse Gas Emissions Reduction Effort

Abstract

Oil and gas industry is still expected to be the source of energy in Indonesia despite its contribution to greenhouse gas emissions. There are several factors that might affect oil and gas industry effort to reduce emissions. Literature review and interview with key stakeholders were conducted to find out the contributing factors and how these factors affect greenhouse gas emission reduction effort. The system dynamics model then was developed based on those factors to measure it impact to the effort and industry profitability. Carbon tax & carbon market mechanism, availability of incentives, availability of advance technology and the industry profitability were considered in the study as contributing factors. The system dynamic modeling result shows that the implementation of carbon tax mechanism will give significant impact to profitability, while the implementation of advance technology will reduce the profitability but will significantly reduce emission. The model shows that continuous development of fossil fuel based energy will lead to high emissions and high investment risk in relation with increasingly binding emissions reduction agreement. Government support in providing Paris agreement – aligned emissions requirement that will drive the effort to reduce emissions in upstream oil and gas industry will still be the turning point

Keyword: Causal loop diagram, Greenhouse gas emissions, Stock and flow diagram, System dynamics, Upstream oil and gas industry