T

he development of biodiesel in Indonesia is entering a new phase. After setting various ambitious targets for mixing biodiesel and diesel through Energy and Mineral Resources Ministerial Regulation No. 12/2015 — but with very minimal achievements — the government is now trying to accelerate the fulfillment of its targets by enacting Presidential Regulation No. 66/2018 and Energy and Mineral Resources Ministerial Regulation No. 41 /2018.

These regulations are believed to be able to provide a stronger funding mechanism for biodiesel production in Indonesia, and have been in effect since September.

The government claims that meeting the 20 percent biodiesel mixture target (B20) will increase the share of renewable energy in the nation’s energy consumption by 15 percent. In addition, this acceleration will reduce the current account deficit from diesel imports, which are estimated to total US$5.5 billion in 2018.

However, these claims cannot be accepted at face value, as palm oil based biodiesel development remains contentious for a range of reasons, including skepticism about its role in mitigating climate change and in improving national energy security.

First, improving the use of renewable energy is critical to climate change mitigation. However, what if production of a renewable energy source ends up releasing more greenhouse gas emissions? Could it really be considered a worthwhile effort at climate change mitigation?

As one of the top 10 countries that contribute the global emissions, more than 60 percent of Indonesia’s emissions come from land use change. The Environment and Forestry Ministry recorded that deforestation in Indonesia covered 479,000 hectares in 2017. This figure is equivalent to 435,000 times the size of a soccer field. The main driver of this deforestation is the growth of oil palm plantations.

A mapping activity by Auriga in 2018 found that 3.4 million ha of the total 16.8 million ha of oil palm plantations in Indonesia are in forest areas.

On the other hand, the acceleration of biodiesel development under the current arrangement, in which law enforcement is weak, will make the situation worse. Large-scale development of biodiesel has the potential to encourage the expansion of oil palm plantations.

While the government claims that the supply will come from existing plantations, no one can guarantee there will be no further plantation expansions to meet the increasing demand.

Accounting for the acceleration of the B20 program in 2018, consumers need a supply of 3.2 million kiloliters of fatty acid methyl ester (FAME), and that requires around 3 million tons of crude palm oil (CPO).

With the current productivity level of oil palm plantations of 2 tons per ha — often the land productivity data collected by the government, which is 2.8 to 3 tons of CPO per ha, does not match the facts in the field — 1.5 million ha of land will be needed to support the raw material demands of the biodiesel industry.

The above assumption is on the low end as there are still many non-public service obligation (non-PSO) users who submit delays for the use of B20 until their technology is feasible. If the B20 reaches all Solar users, PSO and non-PSO, FAME needs should increase to 6.4 million kl in 2018. This means 3 million ha of land will be needed. Likewise, if the government implements the B30 program in 2020, 4.5 million ha of land will be needed.

The use of biodiesel as a renewable energy option has also become a point of controversy in other countries. A study on the impact of the European Union’s 2020 Biofuel Mandate funded by the EU commission in 2015 concluded that rising demand for biofuel in the EU would threaten the existence of 2.1 million ha of forest and peatland in ASEAN, especially in Indonesia and Malaysia as the world’s leading producers of palm oil.

The study suggests that as the development of biodiesel still requires the clearing of forests and peatlands, its role as a renewable and clean energy source that could be used to mitigate climate change was paradoxical.

Second, as a net oil importer, the continued increase of global oil prices since the beginning of 2018 poses a threat to national energy security, with the use of biodiesel produced domestically an expected solution. However, considering biodiesel as part of a framework for energy security is not that simple.

Energy security can be viewed as having a sufficient energy supply, affordable prices and business continuity. While sufficient supply and affordable prices of biodiesel can be met through the current institutional arrangements, business continuity is still in question. The biodiesel subsidy scheme provided by the government pushes the retail price of biodiesel below its efficient price.

Instead of placing more tax on biodiesel, maintaining the retail price of subsidized biodiesel ignores environmental externalities. The environmental costs of the palm oil industry can exceed 40 percent of the total production costs. Therefore, the current arrangement of providing biodiesel to the market makes this business sector inefficient in the long run. This is because this business is vulnerable to collapse as a result of severe environmental damages.

All in all, the government should not only focus on economic reasons for the development of biodiesel. Joint consensus is needed to ensure that biodiesel development is able to mitigate climate change and maintain long-term energy security.

For this reason, accelerating the biodiesel targets must be accompanied by the effective implementation of policies to improve land and palm oil governance, such as the One Map Policy, a moratorium on oil palm plantation permits and the Indonesian Sustainable Palm Oil (ISPO) certification scheme.
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