An evaluation of biodiesel policies : The case of palm oil agro-industry in Indonesia

Abstract: 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.