7.1 Biofuels in Indonesia: How and Why
155
incentives (Sasisitiya 2010). The government response was to provide further fiscal
incentives and double the direct subsidy paid to processors, from IDR 1,000/liter to
IDR 2,000/liter for the year 2010 (Caroko et al. 2011). Biodiesel production then
finally started to increase and gained scale.
A new National Energy Policy in 2014 consolidated public incentives for biofuels
(Government Regulation 79/2014). It also set Indonesia’s renewable energy targets
at 23% by 2025 and 31% by 2050, respectively, requiring the consumption of 13.9bl
and 52.3bl of biofuel in the country (Rahmanulloh 2019). The government introduced
progressive export taxes on both CPO and biodiesel that apply whenever their international market prices go beyond an established threshold, to prioritize domestic use.
As per the Ministry of Finance Regulation 23/2019, a USD 25/ton export tax applies
to CPO when its prices stand between USD 570–619/ton, and USD 50/ton when CPO
prices go above USD 619/ton. Levies are also collected from biodiesel exports when
its prices are within the same range, but these levies are lower (respectively USD
10/ton and USD 20/ton) to encourage domestic processing (Rahmanulloh 2019).
These taxes feed into an Estate Crop Fund for palm oil, also called the CPO Fund,
used to subsidize biodiesel manufacturing in times of low petroleum prices as well as
for broader investments in oil palm R&D, smallholder support, and crop replanting
(Nurfatriani et al. 2019).
Meanwhile, the government has continued to incentivize private investment in
oil palm plantations. In 2014, a new Law on Plantations dropped earlier limits on
foreign ownership. Oil palm plantations, in particular, are increasingly framed as
strategically contributing to both the nation’s food and energy needs. Since a 2009
policy on special economic zones (with facilitated conditions for investment), such
plantations have started to be regarded as “Food and Energy Estates” (Ginting and
Pye 2011). The flagship example of this policy has been the Merauke Integrated Food
and Energy Estate (MIFEE),
6 a program to set new plantations on up to 2 Mha in
Merauke district, Papua (see Ginting and Pye 2011; Ito et al. 2014, Obidzinski et al.
2014). Initially launched by President Susilo Bambang Yudhoyono in 2011, it was relaunched in 2015 by President Joko Widodo, who has linked MIFEE to Indonesia’s
increasing self-sufficiency aspirations on energy and food despite negative impacts
on local communities and natural forests (Suryiani 2016; Indrawan et al. 2017).
To dispel growing sustainability concerns from major importers, the government
created the Indonesian Sustainable Palm Oil (ISPO) certification. This initiative came
after industry complaints that certification from the Roundtable on Sustainable Palm
Oil (RSPO) is too demanding, costly, and not sufficiently rewarding in providing
either market penetration or premium price. This policy came in tandem with a similar
initiative in Malaysia, which announced its Malaysian Sustainable Palm Oil (MSPO)
certification. While some stakeholders argue that this is a greenwashing movement
from the government to “certify” the domestic industry under laxer requirements,
others contend that it is meant as a stepping-stone towards acquiring the stricter
RSPO certification. After years of limbo, in 2020, ISPO became mandatory to all
6 The project has been legally enshrined in the letter of the Governor of Papua Province No.
050/1879/SET, dated May 26, 2010, regarding MIFEE.
155
incentives (Sasisitiya 2010). The government response was to provide further fiscal
incentives and double the direct subsidy paid to processors, from IDR 1,000/liter to
IDR 2,000/liter for the year 2010 (Caroko et al. 2011). Biodiesel production then
finally started to increase and gained scale.
A new National Energy Policy in 2014 consolidated public incentives for biofuels
(Government Regulation 79/2014). It also set Indonesia’s renewable energy targets
at 23% by 2025 and 31% by 2050, respectively, requiring the consumption of 13.9bl
and 52.3bl of biofuel in the country (Rahmanulloh 2019). The government introduced
progressive export taxes on both CPO and biodiesel that apply whenever their international market prices go beyond an established threshold, to prioritize domestic use.
As per the Ministry of Finance Regulation 23/2019, a USD 25/ton export tax applies
to CPO when its prices stand between USD 570–619/ton, and USD 50/ton when CPO
prices go above USD 619/ton. Levies are also collected from biodiesel exports when
its prices are within the same range, but these levies are lower (respectively USD
10/ton and USD 20/ton) to encourage domestic processing (Rahmanulloh 2019).
These taxes feed into an Estate Crop Fund for palm oil, also called the CPO Fund,
used to subsidize biodiesel manufacturing in times of low petroleum prices as well as
for broader investments in oil palm R&D, smallholder support, and crop replanting
(Nurfatriani et al. 2019).
Meanwhile, the government has continued to incentivize private investment in
oil palm plantations. In 2014, a new Law on Plantations dropped earlier limits on
foreign ownership. Oil palm plantations, in particular, are increasingly framed as
strategically contributing to both the nation’s food and energy needs. Since a 2009
policy on special economic zones (with facilitated conditions for investment), such
plantations have started to be regarded as “Food and Energy Estates” (Ginting and
Pye 2011). The flagship example of this policy has been the Merauke Integrated Food
and Energy Estate (MIFEE),
6 a program to set new plantations on up to 2 Mha in
Merauke district, Papua (see Ginting and Pye 2011; Ito et al. 2014, Obidzinski et al.
2014). Initially launched by President Susilo Bambang Yudhoyono in 2011, it was relaunched in 2015 by President Joko Widodo, who has linked MIFEE to Indonesia’s
increasing self-sufficiency aspirations on energy and food despite negative impacts
on local communities and natural forests (Suryiani 2016; Indrawan et al. 2017).
To dispel growing sustainability concerns from major importers, the government
created the Indonesian Sustainable Palm Oil (ISPO) certification. This initiative came
after industry complaints that certification from the Roundtable on Sustainable Palm
Oil (RSPO) is too demanding, costly, and not sufficiently rewarding in providing
either market penetration or premium price. This policy came in tandem with a similar
initiative in Malaysia, which announced its Malaysian Sustainable Palm Oil (MSPO)
certification. While some stakeholders argue that this is a greenwashing movement
from the government to “certify” the domestic industry under laxer requirements,
others contend that it is meant as a stepping-stone towards acquiring the stricter
RSPO certification. After years of limbo, in 2020, ISPO became mandatory to all
6 The project has been legally enshrined in the letter of the Governor of Papua Province No.
050/1879/SET, dated May 26, 2010, regarding MIFEE.