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Indonesia doubles down on palm oil

by Nithin Coca

Earlier this month, Indonesia – the world’s biggest producer of palm oil – introduced a biofuel subsidy of 4000 Indonesian rupiah per litre (US$0.31), paid for by a US$50 per barrel levy on crude palm oil (CPO) exports.

Palm oil is Indonesia’s top commodity export but prices are down, and the country is seeking to increase domestic demand – and push for the energy independence – by promoting the use of biofuels.

“Indonesia overplanted [palm oil],” said Dave McLaughlin, vice president for agriculture at the World Wildlife Fund. “Supply is greatly outpacing demand, and thus you have prices at a six year low right now.”

Under this plan, the incentives for domestic consumption would increase substantially.

Indonesia’s promotion of biofuels may more than make up for the global drop in demand, putting more of the country’s endangered forests at risk, while only moving the country marginally towards its stated goal of energy independence.

Currently, palm oil demand is driven by biofuels in Europe, non-hydrogenated oils in the United States, and, increasingly, cooking oils in China and India. In the past decade, its growth has resulted in Indonesia’s tropical forests being cut down at the highest rate in the world.

Today, demand is dropping partly due to global campaigns to highlight the destructive impacts of palm oil on forests, orangutans, and biodiversity, forcing more and more companies to implement deforestation pledges.

“There is increasing pressure from environmental groups in sensitive markets, which is pressuring companies,” said Krystof Obidzinski, a palm oil expert with the Indonesia-based Center for International Forestry Research. “Some of these markers are becoming uncertain for CPO.”

In fact, the European Union will begin implementing carbon standards that require imported palm oil to fall under a certain threshold of carbon emissions in 2017.

Currently, the vast majority of Indonesian palm oil does not fall under this threshold due to its high carbon footprint. Moreover, only a small percentage of Indonesian CPO is certified as being deforestation-free.

“In Riau, the Ministry of Forestry said 50 per cent of the palm oil was illegal, that is two million hectares out of four million,” said McLaughlin, talking about the Sumatran province which produces the largest share of Indonesian CPO, and its deforestation challenges.

If Indonesia’s biofuels push goes as planned, global efforts to reduce deforestation and protect the country’s biodiversity might have been for nothing.

“There is a huge land bank that is undeveloped – another several million hectares already allocated to oil palm [trees],” said Obidzinski.

 

Unachievable goals

The Ministry of Energy’s plans for biofuels sounds ambitious: 3.5 million tonnes by next year, double the 1.7 million tonnes produced in 2014.

But Indonesia is a country of 240 million people and fast growing energy demands. It imported 690,000 barrels of crude oil per day last year, a number that is growing by 6.6 per cent per year.

That is why even though the stated reason for the subsidy is energy security, many experts believe that biofuels will do little in the short or medium term to affect Indonesia’s energy consumption.

“No single source of energy is going to solve the problem,” said Obidzinski, who does not see biofuels, even in the best-case scenario, making up a major percentage of Indonesia’s energy mix in the short or medium term.

Instead, the benefits will be mostly economic, aiding big business.

“The policy...aims to protect the industry, and reduce it from external decision making,” said Will McFarland with the London-based Overseas Development Institute, which recently released a report on palm oil subsidies. “By bringing more of the demand domestically, this gives Indonesia more control over volume and price.”

Aviva Imhof, of the Australian renewable energy NGO the Sunrise Project, argues that energy independence will only come with a move towards renewables which the archipelago, with its numerous sunny islands and volcanic peaks, also has in abundance.

“There is a lot that could be done. There is significant geothermal potential, which needs government support,” said Imhof. “Energy efficiency could be improved, especially in Java. Solar is untouched.”

More investment into these energies could prove incredibly beneficial to Indonesia’s forests and biodiversity.

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