Biofuel development in Indonesia: progress and challenges

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Concerns over energy security, volatile fuel prices and rising greenhouse gas emissions encourage many countries to develop biofuels — Indonesia, the world’s largest crude palm oil producer, is one such country. In this presentation, CIFOR scientist Heru Komarudin gives an overview of biofuel development in Indonesia, highlighting some findings from the EC Bioenergy and CAPRi project (www.cifor.org/bioenergy/). He discusses some challenges facing Indonesia’s involvement in biofuels and ends with some recommendations relevant to policy makers and investors.

Heru gave this presentation as part of the ‘Global biofuel program in developing and developed countries’ session at the second Annual World Congress of Bioenergy: Renewable Energy for Sustainability, held in Xi’an, China on 25–28 April 2012.

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Biofuel development in Indonesia: progress and challenges

  1. 1. 2nd Annual World Congress of Bioenergy Xi’an, China, 27 April 2012Biofuel Development in Indonesia: Progress and Challenges Heru Komarudin, Krystof Obidzinski and Agus Andrianto Forests and Governance Programme Center for International Forestry Research (CIFOR)
  2. 2. Outline• Background• Research• Findings: Biofuel development progress• Challenges• Suggested points THINKING beyond the canopy
  3. 3. Background• Concerns over energy security, volatile fuel prices and rising greenhouse gas emissions encourage many countries to develop biofuels• Since 2005, biofuels have increasingly attracted the Indonesian government’s attention – National Energy Policy (2006) – Instruction on procurement and use of biofuels (2006) – National biofuels taskforce (2006)• Other motivations: employment generation and poverty reduction THINKING beyond the canopy
  4. 4. Primary energy mix: target by 2025 Presidential Regulation No. 5/2006 Oil, < 20% (47%) Gas,>30% (22%) Biofuel, 5% Renewable Geothermal, 5% energy, > 17% (4.8%) Other renewable energy, 5% Coal liquefaction, 2% Coal, > 33% (26.4%)Vision 25/25: Oil (23%), Renewable energy (25%), Gas (20%) and Coal (32%)
  5. 5. Indonesia’s Biofuel Development Roadmap 2005-2010 2011-2015 2016-2025 10% of diesel fuel 15% of diesel fuel 20% of diesel fuel consumption consumption consumptionBiodiesel 2.41 million kL 4.52 million kL 10.22 million kL 5% of gasoline 10% of gasoline 15% of gasolineBioetanol consumption consumption consumption 1.48 million kL 2.78 million kL 6.28 million kL Biokerosin utilization Biokerosin utilization Biokerosin utilization 1 million kL 1.8 million kL 4.07 million klBio-oil Pure plant. oil utilization Pure plant. oil utilization Pure plant. oil utilization 0.4 million kL 0.74 million kL 1.69 million kl Biofuel Biofuel BiofuelBiofuel 2% energi mix 3% energi mix 5% energi mix 5.29 million kL 9.84 million kL 22.26 million kL 5
  6. 6. • Different biofuel feedstocks: oil palm, jatropha (biodiesel) and corn, sugarcane, cassava (bioethanol) THINKING beyond the canopy
  7. 7. Why palm oil? Oil palm produces the highest yield of oil per hectare (3.68 tonnes/ha/year) compared to rapeseed (0.59), sunflower seed (0.42) and soybean (0.36) (Corley and Tinker, 2003) 4 Major Vegetable Oil Crops 4.00 2010 Yield comparison 3.50 Production 3.00 Land use 2.50 ton oil/ha/yr 2.00 1.50 1.00 0.50 0.00 Palm Rapeseed Soya Sunflower 170 Mio ha 120 Mio ton Oil palm Higher production with much less land (+immature ~ 10%) Indonesia=22.03 Mio ton •Effective for poverty alleviation Indonesia=5.73 Mio ha* Malaysia=17.88 Mio ton Malaysia= 4.07 Mio ha*Source: Oil World 2010/Sinar Mas Tbk •Minimize land use change * Harvested area/matured plant
  8. 8. • Why palm oil? – Indonesia’s: the largest producer of crude palm oil • Production: 22 million tons (43.6% of global market, 2010) • Oil palm plantation area covers 7.8 million ha – Multipurpose: edible oil, cosmetics, energy – Palm biofuel targets could have significant land use implications. THINKING beyond the canopy
  9. 9. Indonesia’s utilization of crude palm oil (million tons) 2009 2015 2020Production 19.1 30 40Export 9.6 11.3 12Domestic use 9.5 18.7 28 - cooking oil 8.7 11 12 - biodiesel 0.3 5.7 12 - oleochemicals 0.5 2.0 4.0 Min. of Industry (2011) Source: Basiron & Kheong, 2009; OECD, 2008; Legge, 2008 THINKING beyond the canopy
  10. 10. Biofuel development is targeted to create jobs, increase on-farm and off-farm workers’ income, GoI also plan to establish 1000 energy self-sufficiency villlages and 12 biofuel zonesHow these target have been achieved?
  11. 11. Research• Bioenergy, sustainability and trade-offs: can we avoid deforestation while promoting bioenergy? (2009-2011)• Analyze policy and institutional frameworks for biofuel development: o evaluate the performance of policies and how policies (sectoral and extra-sectoral) have been implemented o what are the likely consequences?
  12. 12. Findings: biofuel development progress• Govt made every efforts to develop biofuels (land procurement, subsidy, research, investment incentive, employment etc.) – By June 2008, the biofuel industry employed 1040 people in processing and distribution (Min of Energy and Mineral Resources, 2008) – During 2005-2009 annual new employment from the estate crop sector, primarily oil palm plantations, was about 430 000 (The Ministry of Agriculture, 2011) THINKING beyond the canopy
  13. 13. Biofuel industriesNo Company (Biodiesel) Installed No Nama Perusahaan Kapasitas capacity (Bioethanol)1 PT. Energi Alternatif 8,046 KL/yr 1 PT. Anugrah Kurnia Abadi 3,165 KL/yr2 PT. Indo Biofuels Energi 68,966 KL/yr 2 PT. Indolampung Distillery 63,291 KL/yr3 PT. Anugrah Inti Gemanusa 45,977 KL/yr 3 PT. EN3 Green Energy 180,000 KL/yr4 PT. Eterindo Nusa Graha 45,977 KL/yr Installed capacity of Bioethanol5 PT. Eternal Buana Chemical 45,977 KL/yr plants: 246,456 KL/yr Industries6 PT. Wilmar Bio Energi 1,206,897 KL/yr Indonesia7 PT. Sumi Asih Oleo-Chemical 114,943 KL/yr8 PT. Darmex Biofuels 172,414 KL/yr Installed capacity of Biodiesel9 PT. Pelita Agung Agrindustri 229,885 KL/yr plants: 3,163,571 KL/yr10 PT. Prima Nusa Palma Energi 24,000 KL/yr11 PT. Sintong Abadi 35,000 KL/yr12 PT. Musim Mas 482,759 KL/yr Source:The Ministry of Energy and Mineral13 PT. Multi Kimia Inti Pelangi 14,000 KL/yr Resources (2009)14 PT Cemerlang Energi Perkasa 459,770 KL/yr15 PT Petro Andalan Nusantara 150,000 KL/yr THINKING beyond the canopy16 PT. Bioenergi Pratama Jaya 75,429 KL/yr
  14. 14. • Despite the ambitious plan and the biofuel industry boom (2006- 2007), development of biofuel has been slow.• Indonesia has missed the 2010 target for fuel blending and predicted to continue to be behind on the 2015 and 2025 targets Mandatory use of biodiesel 2009 2010 2011 Target 775,941 1,076,051 1,297,000 Realization 119,348 223,041 358,812 Use percentage 15.38% 20.73% 27.66 % Source: Directorate of Bioenergy, Min. of Energy and Mineral Resources (2012) THINKING beyond the canopy
  15. 15. • One reason: failure to significantly reduce fossil fuel subsidies, which distort the energy market and make biofuels uncompetitive• High CPO price discourages biofuel production and lure producers to exportWe also found:• It is not clear how the planned area of feedstock plantation have been realized (incl. oil palm). No dedicated plantations for biofuels• Some concerns among biodiesel industries about limited raw materials and need for subsidy• Oil palm plantation expand considerably, but only a small fraction of it has gone into meeting the targets
  16. 16. Challenges• Price of biodiesel to make it competitive• Limited lands for biofuels: land allocation policies, property rights• Lack of coordination and concerted policies among ministries and heads of sub national governments• Competition from other commodities and programs (e.g. mining, infrastructure)• Fuel versus food (increased price of cooking oil, 5-12%, Susila & Munadi, 2008) THINKING beyond the canopy
  17. 17. Other challenges: Environmental concern– The expansion plans have become the subject of much political and environmental debate– Palm oil biodiesel- environmental friendly? That is not the case if they are established at the expense of forest and peatlands (deforestation) THINKING beyond the canopy
  18. 18. Site Start Concession Area Area Forest type % expansion date area developed deforested displacing (ha) (ha) (ha) forestWest 1994 13 605 5266 4949 Secondary 94%Kalimantan, (by 2009) (by 2009) peat swampIndonesia forestBoven Digoel, 1998 34 000 17 000 11 300 Humid  66%Papua, (by 2010) (by 2008) tropicalIndonesia Source: Obidzinski et al (2012) THINKING beyond the canopy
  19. 19. • Sustainability standard/schemes: THINKING beyond the canopy
  20. 20. RSPO – Quick facts,March 2012Indonesia:CSPO annualproduction: 2.3 mt(19 mt)Production area:460,000 ha (7.8 mha)Growers/mills: 17 +50 THINKING beyond the canopy
  21. 21. • Other sustainability standard/schemes: – ISPO: Indonesian Sustainable Palm Oil (mandatory, reputation) – EU-RED: to have a minimum life-cycle carbon emission savings of 35% compared to fossil fuels and not coming from lands of high biodiversity or carbon stocks – EPA-USA: Renewable fuel standard (EPA): the minimum 20% lifecycle GHG reduction THINKING beyond the canopy
  22. 22. Sustainable Palm Oil Industry- Sinar Mas Emission reduction No pollution to water body Zero waste Sustainable palm Maintaining land fertility oil industry Maintain the biodiversity and HCV With long life span, oil palm business Safety & health Environment must maintain Community Environment awareness Soci Stewardship Resource efficiency • Soil fertility to Disaster management o-e “planet” High Yield achievement ensure high nv y Waste utilization enc (fire & flood) iro nm ici f productivity en -ef tal Eco • Good relationship with surrounding Social Economic communities as Progress Growth Socio-economic source of labor, Poverty alleviation “people” “profit” Profit improvement Local, Regional and vendors and Community outreach Education development National economic business partners Higher standard of living development Supporting industry growth • Avoid emitting GHG to ensure favorable Job creation climate Land ownership Business partnership Regulation: Business demand: Crop’s Nature: (Supplyer driven) (customer driven) ISPO, Pres. Decree RSPO, ISCC Profit, community, climate– SMART Forest Conservation Policy (FCP) - Sustainable industry 23
  23. 23. Suggested points to consider• Provide appropriate subsidy and incentives for biofuel development. Need to reduce fossil fuel subsidy• Need to strengthen coordination and establish more effective collaboration across administrative structures• Need to be sensitive to greenhouse gas emissions and put appropriate policy safeguards in place to regulate land use changes• Target palm oil investments on degraded land and enforce environmental protection and land regulations THINKING beyond the canopy
  24. 24. Thank youProject website http://www.cifor.org/bioenergy/ THINKING beyond the canopy

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