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Questioning the Domination of Palm Oil in the Development of Biofuels

Biofuel development policies (BBN) in Indonesia are a response to dependence on fossil fuels and climate change mitigation strategies. Along the way, the biofuel policy which was originally multi-commodity became dominated by palm oil, because it was considered abundant. A study by the Sustainable Madani Foundation shows that biofuels still have governance challenges from ecological, economic and social aspects.

“If you look at the upstream to downstream life cycle, the emissions produced are quite large, especially because the functions of forest and peat have turned into monoculture plantations such as oil palm,” said Kukuh Ughie Sembodho, researcher at the Sustainable Madani Foundation in a discussion some time ago in Jakarta.

Kukuh said that the potential for conversion of forests and peatlands is getting bigger with the low productivity of oil palm plantations in Indonesia. The need for palm oil is getting higher apart from for energy, also food and exports.

In addition to increasing emissions, the conversion of forests and peatlands has reduced biodiversity and increased natural disasters such as floods and landslides.

From an economic perspective, he said, the dependence of biofuels on subsidized palm oil funds could burden the state budget when the palm oil funds are empty.

Even though the biofuel program has been proven to save the diesel import budget, it is considered that the biofuel policy has not had a significant impact on local government and farmer coffers.

For Madani, the thing that needs attention is that the price of biofuels is influenced by palm oil and diesel. In the context of palm oil as the main raw material for biofuels, there is no profit-sharing fund (DBH) scheme for palm oil export levies, making local governments’ income from palm oil commodities smaller.

“Farmers do not have access to the supply chain that is directly connected to the biofuel business entity. So, farmers are selling their garden produce to middlemen at lower prices again,” he said.

From the social aspect, this study also states that there is no policy that ensures the application of the principles of human rights (HAM). As a result, there is a crucial gap in supply chain traceability.

In fact, he said, this is very important in ensuring that biofuels actually apply the principles of sustainability.

Oil palm plantation operations have problems of human rights violations, such as bad working conditions, unfair work systems and gender discrimination. Also there are agrarian conflicts mainly between local people and companies.

The overlap between oil palm licenses and the land of local residents and customary territories makes the land acquisition process even more complicated. Moreover, they often ignore the principle of free prior informed consent (FPIC) so that local people do not know complete information about plans to develop a plantation.

For this reason, the Madani Foundation suggests that the government needs to re-formulate a roadmap for the implementation of the biofuel policy which has not been updated since it was first released in 2006.

“This is important to clarify the direction of biofuels in Indonesia, including as a strategic step in responding to challenges related to biofuels governance.”

Actually, said Kukuh, there were several good agendas in the previous roadmap, but the realization was still minimal. So, these agendas should be maintained in the latest roadmap, including the plan to diversify biofuel raw materials .

First, it is important to leave the dominance of only one raw material to minimize that potential.

Second , it is necessary to develop non-food biofuel raw materials such as used cooking oil, rice straw, corn stover, or bagasse which also have abundant potential.

“Or other plants such as nyamplung, malapari, kemiri sunan Kaliandra and gamal also have the potential to be developed on degraded land.”

Third , another agenda that needs to be maintained is the provision of special areas for biofuel raw materials. Indonesia, he said, has 2.27 million hectares of clean and clear land to be utilized. This land can be used to plant jatropha, sugarcane, sugar palm, areca nut, coconut, corn, sweet potato and cassava.

The potential of this land, he said, could be strengthened by the involvement of farmers directly in the management of biofuel raw material plantations.

Fourth , incentive schemes need to be provided not only for palm-based biofuels so that the development of non-oil biofuels is not left behind, especially for later generations of biofuels that do not use food crops.

“An agenda is needed to increase land productivity for biofuel raw material crops to reduce the potential for land clearing which has implications for deforestation and land degradation.”

Finally , the obligation to fulfill sustainability certification also needs to be included in the updated roadmap.

“This is important to ensure that the biofuel production chain from upstream to downstream has implemented the principle of sustainability. That way the traceability aspect of biofuels can be more secure, both from an ecological, economic and social perspective,” he said.

Anggalia Putri , Knowledge Manager of the Sustainable Madani Foundation reminded that the enhanced nationally determined contributions ( ENDC) document targets biofuels to contribute 46% of total transportation energy in 2050.

Indonesia, he said, would use 18 million kiloliters of fame for B40 until 2030. However, he said, a number of recent studies from various institutions have also highlighted that the biofuel policy which is dominated by palm oil has the potential to need additional land.

“These various studies call for this to be considered. Energy and land must talk together,” said Anggi again.

Anggi suggested that biofuel development should vary according to locality and there should be signs so that it does not compete with food.

Herbert Hasudungan, sub-coordinator of supervision of the bioenergy business at the Director General of EBTKE KESDM explained that the background for developing biofuel from palm oil or biodiesel is indeed due to the large potential of Indonesian palm oil.

In 2021, Indonesia’s palm oil production will reach 52.3 million tons, making Indonesia the largest CPO producer in the world. In addition, said Herbert, the biodiesel program, which has now reached B30 (a 30% mixture of palm oil and diesel), also increases national energy security so that it does not continue to rely on imports.

“The war between Russia and Ukraine also had an impact on fuel prices. The price of CPO (crude palm oil) is cheaper than the price of pure diesel. If there is no biodiesel, 10-13 million kilo liters will have to rely on imports, because the domestic capacity for fuel is not enough,” said Herbert.

In the general national energy plan (RUEN) the absorption volume of biodiesel exceeds the target.

In 2020 the target is 8 million KL, the realization is 8.4 million KL. In 2021, the target is 8.9 million KL, the realization is 9.3 million KL. Whereas in 2022, from the target of 10.6 million KL, 11.2 million KL will be reached. In 2023, the target is 11 million KL.

Seeing that absorption of biodiesel has always exceeded the target since 2020, said Herbert, the mandatory biodiesel policy will continue.

“There is no regulation that will reduce, for example, to B5,” he said.

This condition, he said, was also influenced by the size of the population, demand for production and supply of domestic needs. To ensure sustainable biodiesel, said Herbert, the government determines the volume that the feedstock must meet .

To diversify raw materials, he said, the government must ensure that feedstock is always fulfilled. For this reason, the government is working on the Indonesia Bioenergy Sustainable Indicators (IBSI) which allows for the diversity of biofuel raw materials such as used cooking oil, kemiri sunan, malapari or pongamia.

Julius Christian, researcher at the Institute for Essential Services Reform (IESR) said, last year’s IESR study showed that in 2030 the use of biofuels will stagnate because there are limitations in terms of the availability of raw materials and trends in the use of electric vehicles.

“How big do you need to build the infrastructure? The refinery was built for a long time of operation, 30 years. Don’t overdo the production capacity,” said Julius.

Other technological developments, such as hydrogen, are quite rapid and have the potential to enter land transportation.

“It is risky if we continue to develop fame-based biodiesel. It is different from green diesel which can be converted into bio-avtur,” said Julius.

For this reason, he said, the government needs to be observant in choosing the most appropriate technology for biofuels, in order to minimize losses in the future.

Meanwhile, for emission reductions, there has been no study that calculates reduced emissions using a comprehensive ( life cycle ) analysis.

Then, what economic instruments can be provided to support biofuel diversification?

Rafika Farah Maulia, a researcher at LPEM FEB at the University of Indonesia, said that instruments to have diverse sources of biofuel raw materials do not necessarily have to be direct subsidies. It could also, he said, with fuel taxes, tax credits, feedstock incentives , grants or financial assistance.

“The fuel tax is rather difficult because it will increase the price. This requires political considerations as well,” he said.

The tax credit can be in the form of a tax reduction for companies that produce biofuels. Feedstock incentives , for example corncob providers are given incentives for raw material producers.

Also funding grants for various activities related to the development of biofuels such as research and development as well as education and training.

In addition, he said, financial assistance could be by establishing a special financing scheme for biofuel producers such as low interest rate loans.

Currently, Indonesia is using the subsidy policy through BPDP KS with more incentives than this agency’s income. While the biodiesel levy is temporarily absent due to low prices.

“Rp 110 trillion or 76% of BPDP KS funds will flow to biodiesel. However, it does not have a significant impact on the welfare of farmers. This may need evaluation, “he said.

The biofuel subsidy, said Rafika, is quite effective in promoting alternative fuels, increasing competitiveness, and keeping prices affordable compared to petroleum.

Even so, he said, it could risk increasing the country’s fiscal burden, pushing up food prices and risking the environment due to land expansion.

“Policy instruments are needed not only to directly affect output prices but also to support the biofuel development process more broadly such as sustainability, raw material input , technological efficiency, infrastructure, human resources and access.”

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