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workers may require labor-intensive, smaller-scale production methods with higher
wages. In contrast, biofuel producers will generally prefer large-scale production
methods to minimize costs and maximize profits, including labor-saving technology. Moreover, large-scale production, which is generally more cost-efficient and
profitable, may result in large-scale deforestation and significant negative effects on
ecosystem services. Third, impacts (both positive and negative) may be shifted to
other countries if biofuels and/or feedstocks need to be imported or if domestic
production of biofuels displaces other domestically produced goods and services.
Fourth, measurement of impacts is often difficult and hampered by a lack of data.
The rest of this chapter surveys the four country cases. Each case includes an
overview of each country’s main biofuel-related policies and market conditions,
discussion of the main socioeconomic impacts, and consideration of the perspectives of different stakeholders. The chapter concludes with a comparison, synthesis,
and a discussion of the policy implications.
8.2 Indonesia
8.2.1 Overview of Indonesia’s Main Policies
Indonesia’s energy policy has been focused on the goals of energy security and
promoting access to energy in the face of sharply rising energy consumption due to
rapid economic growth. It used to be an OPEC member with a significant oil surplus, but it became a net importer in 2004. Indonesia has subsidized fossil fuels for
transport and cooking heavily since 1967. By 2005, the burden of these subsidies
became very high as the government spent more than $8 billion to subsidize the
market price of petroleum fuels (IEA 2008). Facing declining oil reserves and
mounting subsidies, the government enacted Presidential Decree No.5/2006, the
so-called Mixed Energy Policy, to diversify Indonesia’s energy sources to include
renewable energy and biofuels. The transport sector uses at least 30% of liquid fuels
in Indonesia. Electricity access in rural areas is low with over 70 million Indonesians
estimated to be unconnected to power grids (Jayawardena 2005). The potential of
biofuels as a transport fuel substitute, source of fuel in rural areas, and low agricultural commodity prices at that time motivated the government to pursue biofuel
development. The export potential of biofuels also appeared to be highly lucrative
as Annex 1 countries sought cleaner fuel alternatives to meet their Kyoto Protocol
carbon emission reduction targets.
Presidential Instruction No.1/2006 aimed to accelerate biofuel utilization as
a fossil fuel substitute. Presidential Regulation No.5/2006 on National Energy
Policy expected the share of oil in national energy consumption to be reduced to
20% by 2025, while the share of biofuels should increase to at least 5% in the
national energy mix as shown in Fig. 8.1.
M. Elder et al.
workers may require labor-intensive, smaller-scale production methods with higher
wages. In contrast, biofuel producers will generally prefer large-scale production
methods to minimize costs and maximize profits, including labor-saving technology. Moreover, large-scale production, which is generally more cost-efficient and
profitable, may result in large-scale deforestation and significant negative effects on
ecosystem services. Third, impacts (both positive and negative) may be shifted to
other countries if biofuels and/or feedstocks need to be imported or if domestic
production of biofuels displaces other domestically produced goods and services.
Fourth, measurement of impacts is often difficult and hampered by a lack of data.
The rest of this chapter surveys the four country cases. Each case includes an
overview of each country’s main biofuel-related policies and market conditions,
discussion of the main socioeconomic impacts, and consideration of the perspectives of different stakeholders. The chapter concludes with a comparison, synthesis,
and a discussion of the policy implications.
8.2 Indonesia
8.2.1 Overview of Indonesia’s Main Policies
Indonesia’s energy policy has been focused on the goals of energy security and
promoting access to energy in the face of sharply rising energy consumption due to
rapid economic growth. It used to be an OPEC member with a significant oil surplus, but it became a net importer in 2004. Indonesia has subsidized fossil fuels for
transport and cooking heavily since 1967. By 2005, the burden of these subsidies
became very high as the government spent more than $8 billion to subsidize the
market price of petroleum fuels (IEA 2008). Facing declining oil reserves and
mounting subsidies, the government enacted Presidential Decree No.5/2006, the
so-called Mixed Energy Policy, to diversify Indonesia’s energy sources to include
renewable energy and biofuels. The transport sector uses at least 30% of liquid fuels
in Indonesia. Electricity access in rural areas is low with over 70 million Indonesians
estimated to be unconnected to power grids (Jayawardena 2005). The potential of
biofuels as a transport fuel substitute, source of fuel in rural areas, and low agricultural commodity prices at that time motivated the government to pursue biofuel
development. The export potential of biofuels also appeared to be highly lucrative
as Annex 1 countries sought cleaner fuel alternatives to meet their Kyoto Protocol
carbon emission reduction targets.
Presidential Instruction No.1/2006 aimed to accelerate biofuel utilization as
a fossil fuel substitute. Presidential Regulation No.5/2006 on National Energy
Policy expected the share of oil in national energy consumption to be reduced to
20% by 2025, while the share of biofuels should increase to at least 5% in the
national energy mix as shown in Fig. 8.1.
M. Elder et al.