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An evaluation of biodiesel policies: The case of palm oil agro-industry in Indonesia
KTH, School of Industrial Engineering and Management (ITM), Energy Technology, Energy and Climate Studies, ECS.ORCID iD: 0000-0002-2916-4004
2018 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Oil palm has flourished as an economically vital crop in Indonesia given its use in both food and non-food products (including biodiesel) for domestic and export markets. However, the expansion of oil palm plantations in Indonesia is controversial. While the crop generates fiscal earnings for the country, and regular income streams for farmers and companies, oil palm plantation expansion is claimed to cause deforestation, environmental degradation and biodiversity losses. At the same time, there is a national target to reduce GHG emissions from land use change and the production of palm oil. Climate change mitigation goals also include ambitious targets to blend biodiesel with fossil diesel in various economic sectors.

This thesis looks at the palm oil agro-industry, from oil palm plantation to crude palm oil (CPO) production, and CPO based biodiesel production. It proposes a policy evaluation to verify policy implications in relation to the issue of land use allocation, and the poor profitability in palm oil biodiesel production. The overarching objective is to evaluate the effectiveness of prevailing policies used to promote the palm oil agro-industry for biodiesel production in Indonesia.

The thesis is framed by policy research and ex-post policy evaluation. The focus is on the process of policy formulation and implementation, rather than outcome evaluation. Two specific analytical frameworks are used to answer the research questions while addressing the criteria of effectiveness in policy evaluation: (i) policy coherence analysis and (ii) life cycle cost analysis. Qualitative indicators are used to measure the coherence of biofuel policy with other sectoral policies (agriculture, climate and forestry) in relation to land allocation. Quantitative economic indicators are used to compare the costs and benefits of conventional palm oil biodiesel production with a biorefinery conceptual plant.

There are valuable lessons to be learnt from this policy evaluation. The results indicate areas in which policy effectiveness can be improved. For land allocation, adjustments and improvements in policy formulation and implementation are crucial. Uncertainties when it comes to the allocation of land to meet multi sectoral policy goals are to be addressed by clarifying land use definitions and categories, which should be backed up by consistent land use definitions in various policy documents. The dual land classification presently applied should move towards a single land classification, linking actual landscape coverage and the legal status of the land. Policy information and guidance across sectoral policies should be compiled in a single database. Such a publicly available database would help enhance the efficiency of land allocation for multiple policy purposes. More importantly, the formulation of biodiesel policy has to engage various sectoral policies that compete for the same resources.

The biorefinery conceptual plant allows the reduction of government subsidies, while also providing a pathway to enhance the use of renewable energy and reduce GHG emissions. Policies have been designed to enhance plant profits through the improved utilisation of biomass residues in the palm oil mill for energy generation and composting. However, the low implementation rate of policies indicates the need to improve the effectiveness of policy implementation, and therefore the need for better monitoring processes, and possibly more stringent consequences for non-compliance.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2018. , p. 54
Series
TRITA-ITM-AVL ; 2018:2
Keywords [en]
palm oil; biodiesel; Indonesia; policy evaluation; policy coherence analysis; land allocation; sectoral policy goals; life cycle cost analysis; biodiesel cost competitiveness; biorefinery
National Category
Energy Systems
Research subject
Energy Technology
Identifiers
URN: urn:nbn:se:kth:diva-222618ISBN: 978-91-7729-681-2 (print)OAI: oai:DiVA.org:kth-222618DiVA, id: diva2:1182335
Presentation
2018-03-14, M311, Brinellvägen 68, Stockholm, 13:27 (English)
Opponent
Supervisors
Funder
Swedish Energy Agency, T6473
Note

QC 20180223

Available from: 2018-02-13 Created: 2018-02-13 Last updated: 2018-02-23Bibliographically approved
List of papers
1. Land allocation to meet sectoral goals in Indonesia – An analysis of policy coherence
Open this publication in new window or tab >>Land allocation to meet sectoral goals in Indonesia – An analysis of policy coherence
2017 (English)In: Land use policy, ISSN 0264-8377, E-ISSN 1873-5754, Vol. 61, p. 451-465Article in journal (Refereed) Published
Abstract [en]

Land is a scarce resource affecting the implementation of many sectoral policies. In Indonesia, the expansion of palm oil plantations has led to non-sustainable land use practices in past years, particularly deforestation. More recently, the government has set ambitious targets for the adoption of biodiesel which will require expansion of oil palm plantations, thus putting further pressure on land. Meanwhile, the need to guarantee food supply, forest conservation and climate change mitigation also imply challenges when it comes to land allocation and use. This paper examines the role that land plays in the implementation of sectoral policies in Indonesia, exploring the availability of land to satisfy the multiple goals defined in national policies. We explore land competition resulting from allocations made in official policy documents starting with biofuel policy. The analysis of policy goals and coherence when it comes to land allocation is made in relation to agriculture, climate and forestry policies. We conclude that adjustments need to be made in the policies to avoid overlappings and misinterpretations when it comes to land allocation. The area made available for meeting each sectoral policy goal when taking into account cross sectoral interactions is: 14.2 Mha for agriculture, 43 Mha for climate mitigation measures, 9.2 Mha for forestry, and 20.9 Mha for biofuels. A more uniform land classification and development of a common reference database will increase transparency on land allocation and use, and help to monitor land use change, ultimately supporting the achievement of multiple national goals.

Place, publisher, year, edition, pages
Elsevier, 2017
Keywords
Policy coherence, Land allocation, Biodiesel, Indonesia, Agriculture, Forestry, Climate
National Category
Energy Systems
Identifiers
urn:nbn:se:kth:diva-199595 (URN)10.1016/j.landusepol.2016.11.033 (DOI)2-s2.0-85004093202 (Scopus ID)
Projects
INSISTS Sustainable Bioenergy Development in Indonesia
Funder
Swedish Energy Agency, TG473
Note

QC 20170119

Available from: 2017-01-10 Created: 2017-01-10 Last updated: 2018-02-13Bibliographically approved
2. Cost competitiveness of palm oil biodiesel production in Indonesia
Open this publication in new window or tab >>Cost competitiveness of palm oil biodiesel production in Indonesia
(English)In: Energy, ISSN 0360-5442, E-ISSN 1873-6785Article in journal (Refereed) Submitted
Abstract [en]

This paper explores the cost competitiveness of the biodiesel industry in Indonesia. It compares costs and revenues of a standalone conventional crude palm oil (CPO) and biodiesel production with an improved system that includes conversion technologies for biomass residues and industrial integration. The economic evaluation considers net income, NPV, IRR, payback period and biodiesel breakeven price. A sensitivity analysis is carried out to verify how parameter changes affect net income and NPV. The results show that the upgraded CPO and biodiesel processing plant (Biorefinery), which simultaneously produces biodiesel, electricity, heat and biofertiliser can obtain 9 USD/tonne-FFB processed, or six-fold the values found in the Conventional System. Such a system helps to reduce biodiesel production dependency from the government subsidy, and lowers the industry vulnerability to fluctuation of fossil diesel prices. The shift to modern facilities with value chain integration provides pathways to enhance the share of renewable energy in Indonesia through increased biodiesel production and electricity generation from palm biomass residues. It also promotes resource efficiency and climate change mitigation through reduced emissions from untreated residues and fossil energy carriers. The analysis enhances understanding about potential gains and consequences of more stringent policy implementation in the country.

Keywords
biomass residues; palm oil; biodiesel; economic indicators; conventional system; biorefinery
National Category
Energy Systems
Research subject
Energy Technology
Identifiers
urn:nbn:se:kth:diva-222616 (URN)
Projects
Indonesian-Swedish Initiative for Sustainable Energy Solutions
Funder
Swedish Energy Agency, T6473
Note

QCR 20180213

Available from: 2018-02-12 Created: 2018-02-12 Last updated: 2018-02-13Bibliographically approved

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