BOGOR, Indonesia (9 September, 2011)_Indonesia is unlikely to meet its goal of supplying 5% of the country’s energy demand with biofuels by 2025, according to a recent report published by the Center for International Forestry Research (CIFOR).
In addition, weak legal protections for local communities and lax enforcement of environmental regulations threaten to undermine the green credentials of the country’s palm oil, leading them to call on Indonesian authorities to reconsider plans for the development of palm oil plantations.
In 2005, Indonesia’s growing oil consumption outstripped domestic production, making it vulnerable to fluctuations in the price of oil on the world market. Around 30% of the national budget is spent on imported petroleum.
In addition, the country’s own oil reserves are expected to be exhausted within 25 years. To reduce Indonesia’s reliance on imported petroleum, the government introduced a national energy policy with ambitious targets for the domestic production of biofuels. Indonesia is the world’s leading producer of crude palm oil, supplying around 50% of global demand.
The new policy aimed to see 2% of the national energy mix supplied by biofuels by 2010, rising to 5% by 2025. However, despite a raft of measures designed to stimulate the growth of a biofuel industry, Indonesia has failed to realise these goals, the authors write.
Indonesia’s biofuel plan required 5.25 million hectares of land to be converted to the cultivation of biofuel crops such as oil palm, sugarcane and jatropha by 2010, with a further 5 million hectares converted by 2015. However, while plantation expansion has proceeded apace only a fraction of it has been devoted to biofuels, as plantation developers prefer CPO production for domestic edible oil industry or for export.
Although efforts were made to prevent deforestation by primarily granting permits to establish oil palm plantations on degraded land, these may have backfired where undisturbed forest has been intentionally degraded under the pretext of logging to qualify it for palm oil cultivation. According to the authors, current land use policies in Indonesia “will undoubtedly lead to deforestation”.
The report’s authors note that in order to be successful, plans for large scale expansion of biofuel feedstock plantations must balance competing demands such as commitments to reducing emissions from deforestation and forest degradation (REDD+) and conservation efforts.
The development of oil palm plantations has negative effects on the environment, impacting on the quality of the air, soil and water, giving rise to “serious doubts” that biodiesel could be considered carbon neutral. This is not a purely environmental concern. The EU maintains strict sustainability criteria as part of its Renewable Energy Directive, making it difficult for Indonesia’s producers to export crude palm oil to this lucrative market.
There are also competing interests for the consumption of crude palm oil. High prices on the global market mean that the vast majority of crude palm oil is sold for export, generating significant tax revenues for the government. However, this has the effect of driving up the price of many staple foods for Indonesians, as well as making the production of biofuels uneconomic.
In 2007, these issues came to a head when a drop in petroleum prices combined with a spike in the value of crude palm oil caused a slump in the production of biodiesel, which became uneconomical to produce despite government subsidies. Maintaining a target of 5% biodiesel blending cost the government-owned Pertamina oil company US$70 million during this period, and the requirement was temporarily slashed to 2.5%.
In spite of these difficulties, Indonesia’s biodiesel industry has continued to grow, although not as quickly as officials had hoped. The report identifies heavy petroleum subsidies in Indonesia as a key factor in the slow adoption of biodiesel.
The report concludes that if Indonesia’s green energy dream is to be realised, biofuel development will require more effective collaboration across national, regional and local governments combined with stronger environmental and legal protections.