Is Indonesia finally going in the right direction on palm oil?

Alternative fuels

For years we have wondered whether Indonesia would continue putting a priority on increasing use of palm-based biodiesel rather than on reducing greenhouse gas emissions and preserving forests and peatlands. Recent developments suggest the government is taking steps toward balancing the two goals, but there is work yet to be done.

When it began in 2006, Indonesia’s biofuels program seemed to offer an answer to many of the country’s problems. Increasing domestic palm oil consumption by making biodiesel was expected to reduce dependence on imported diesel fuel, stimulating the economy while reducing state spending. It would also increase use of renewable energy and decrease greenhouse gas emissions. And it would help stabilize palm oil prices. The policy would deliver a triple win for the country as well as its fast-rising palm industry. The biofuels mandate issued by the Ministry of Energy and Mineral Resources was ambitious: a 30% blending mix in 2025, up from 20% in 2016.

This ambition seemed to be reflected in forestry conservation also. In return for $1 billion from Norway, Indonesia’s president in 2011 signed a decree declaring a two-year forest moratorium, halting new permits for converting primary natural forest and peatlands to other uses, such as palm oil cultivation. Existing concessions were exempted, even when part of concession areas were still covered by forests. The moratorium did not produce the desired effect, however. In 2012, Indonesia became the country with the highest rate of deforestation in the world. Much of this was because of land-clearing for palm plantations – one of the effects of the biofuels mandate. A significant part of the deforestation occurred within the areas covered by the moratorium, which nonetheless was renewed twice, in 2013 and 2015.

The private sector also launched an initiative to contribute to reducing deforestation. A group of the country’s largest palm oil producers signed a no-deforestation commitment in 2014 and formed the Indonesia Palm Oil Pledge (IPOP). The international community, including environmental NGOs, lauded the action. But the Indonesian government disagreed. It suspected cartel practices to marginalize smallholder farmers, which account for 40% of the country’s palm oil production. IPOP was dissolved under pressure from the government, although the companies promised independently to keep their sustainability commitments.

The devastating effects of a 2015 forest fire – the largest in Indonesia since 1997 – finally triggered substantial actions from the government to reverse the damage from deforestation. Formation of the Indonesia Peat Restoration Agency was one of them. The specialized agency working under the president is to restore as much as 2 million hectares of peatland in the country. When peatlands are drained for cultivation of oil palm, exposure of the peat to air results in rapid decomposition and the release of massive amounts of CO2, one of the main greenhouse gases.

More recently, the Ministry of Environment and Forestry said it would freeze the processing of new permits for expansion of palm oil estates for five years, covering approximately 3.5 million hectares, starting with 950,000 hectares proposed by plantation companies for expansion. This “palm moratorium” is a step up from the ongoing forest moratorium, which covers only forest areas defined by a map called PIPPIB, which is revised every 6 months. The palm moratorium supposedly covers all forest areas, not limited to PIPPIB, including areas within existing concessions.

Enforcement is a big question mark, however. That is one of the problems with the existing forest moratorium. During the five-year palm moratorium, the government will try to restructure its permit-issuing procedure and double palm oil yield without expansion of oil palm cultivation. Assuming that the plan is to produce enough biofuel from existing plantations to meet the country’s biodiesel mandate, it seems like a tall order. So far, the targets haven’t yet been met, and no penalties have been imposed for noncompliance.

The adverse effect of expanding palm cultivation is one variable in the sustainability matrix. We have yet to see the Indonesian government’s efforts to ensure that not only can Indonesian biofuel production expand without deforestation, but the production and distribution processes can be sustainable as well. Although Indonesia has a sustainability certification scheme, Indonesian Sustainable Palm Oil (ISPO), plantations supplying palm oil for biofuels are exempt from ISPO. Consequently, it would be very difficult to ensure that Indonesian biofuels come from sustainable feedstock.

There is a legislative window in the near future, however. The People’s Representative Council (DPR) is considering a draft law on palm oil, expected to take effect in 2017. Many, including farmers unions and NGOs, are skeptical of the scope of the draft law and who will benefit from it. If the government is really concerned about reducing GHG emissions by increasing use of biofuels, there is still time to make sure it includes sustainability clauses, for the environment and the smallholders, and doesn’t just cater to palm oil investors.

One step back, two steps forward. In all, we think the government policies on biofuels has shown goodwill in balancing national energy independence with preservation of forests and peatland. But the damage has been done, and the road to rehabilitation is neither short nor easy. And it certainly does not stop here.