156
7 Bioeconomy in the Oil Palm Republic of Indonesia
palm oil producers while coming to have more precise criteria and a governance
structure to increase both its domestic uptake and foreign market acceptance.
For the future, it seems clear that Indonesia’s biodiesel strategy increasingly has a
domestic orientation. As key markets abroad limit palm-based biodiesel importation,
both the Indonesian government and the country’s Biodiesel Producers Association
have started eyeing B40 blends and beyond (Suwastoyo 2020). Table 7.2 shows
Indonesia’s key policies related to biofuel production since 2008.
7.1.4 Assessing Institutional Causality
Four reasons make Indonesian public policies the primary driver of biofuel production in the country. First, they have provided the private biofuel sector with essential
economic incentives, without which the sector essentially is not viable (see Dillon
et al. 2008; Schoneveld 2010; Caroko et al. 2011). Second, they have made Pertamina
procure, blend, and distribute biofuels. The only domestic buyer is essentially the
state itself, in a monopsony. Third, public policies have granted needed permissions
and necessary bureaucratic facilitation to private land-based investments, without
which such investments would arguably be much fewer. Fourth, the government has
directly engaged in garnering international support through agreements and technology exchange to improve biofuel production. Albeit less successfully, it has also
engaged in a form of “palm oil diplomacy” through ISPO on behalf of its palm oil
industry. As such, although biofuel policies have not created the feedstock production
systems in place, there is a broad consensus that they have boosted private investors’
interest in and government support to the expansion of plantations (Santosa 2008;
McCarthy and Cramb 2009; Caroko et al. 2011). Table 7.3 summarizes the key
rationales behind Indonesia’s biofuel policy-making.
As a significant exporter, Indonesia’s palm-based biodiesel industry seems more
strongly influenced by foreign drivers than those of India and Brazil. The US and
the EU are significant import markets and sources of much private investment (Pye
2010). Therefore, biofuel expansion—as the overall expansion of oil palm in the
country—owes both to foreign market demand and to Indonesia’s public policies,
even if the latter have been the only essential, sine qua non cause.
7.2 Allocation and Access: Analyzing Institutional
Performance
7.2.1 Allocation Patterns: Who Owns, Does, and Gets What
As in the rest of developing Asia, fast economic growth in Indonesia (at 5–6% a
year) has been accompanied by a sharp rise in inequality. Its Gini index increased
7 Bioeconomy in the Oil Palm Republic of Indonesia
palm oil producers while coming to have more precise criteria and a governance
structure to increase both its domestic uptake and foreign market acceptance.
For the future, it seems clear that Indonesia’s biodiesel strategy increasingly has a
domestic orientation. As key markets abroad limit palm-based biodiesel importation,
both the Indonesian government and the country’s Biodiesel Producers Association
have started eyeing B40 blends and beyond (Suwastoyo 2020). Table 7.2 shows
Indonesia’s key policies related to biofuel production since 2008.
7.1.4 Assessing Institutional Causality
Four reasons make Indonesian public policies the primary driver of biofuel production in the country. First, they have provided the private biofuel sector with essential
economic incentives, without which the sector essentially is not viable (see Dillon
et al. 2008; Schoneveld 2010; Caroko et al. 2011). Second, they have made Pertamina
procure, blend, and distribute biofuels. The only domestic buyer is essentially the
state itself, in a monopsony. Third, public policies have granted needed permissions
and necessary bureaucratic facilitation to private land-based investments, without
which such investments would arguably be much fewer. Fourth, the government has
directly engaged in garnering international support through agreements and technology exchange to improve biofuel production. Albeit less successfully, it has also
engaged in a form of “palm oil diplomacy” through ISPO on behalf of its palm oil
industry. As such, although biofuel policies have not created the feedstock production
systems in place, there is a broad consensus that they have boosted private investors’
interest in and government support to the expansion of plantations (Santosa 2008;
McCarthy and Cramb 2009; Caroko et al. 2011). Table 7.3 summarizes the key
rationales behind Indonesia’s biofuel policy-making.
As a significant exporter, Indonesia’s palm-based biodiesel industry seems more
strongly influenced by foreign drivers than those of India and Brazil. The US and
the EU are significant import markets and sources of much private investment (Pye
2010). Therefore, biofuel expansion—as the overall expansion of oil palm in the
country—owes both to foreign market demand and to Indonesia’s public policies,
even if the latter have been the only essential, sine qua non cause.
7.2 Allocation and Access: Analyzing Institutional
Performance
7.2.1 Allocation Patterns: Who Owns, Does, and Gets What
As in the rest of developing Asia, fast economic growth in Indonesia (at 5–6% a
year) has been accompanied by a sharp rise in inequality. Its Gini index increased