Biofuels - At what cost? - Government support for ethanol and biodiesel in Indonesia

Dec 2008

This report examines government support for biofuels in Indonesia, which began with the announcement of a new biofuels plan in 2006. Current policies supporting biofuels came bundled together with the Energy Security Act under which liquid biofuels are intended to provide at least five per cent of total domestic energy needs by 2025.
Although biofuels are relatively new within the domestic policy discourse, their feedstocks include crude palm oil (CPO) and sugarcane, both of which have historically enjoyed government support in Indonesia.
The government expects that the development of biofuel production could bring multiple benefits to Indonesia. In addition to reducing oil imports and subsidies for petroleum, the most attractive benefit of biofuels is job creation, particularly in the agricultural sector. The government expects that growth in the agricultural sector and the rural economy resulting from increasing biofuel production could substantially improve the livelihoods of the rural poor. In contrast with many other countries, improvement of air quality or reduction in greenhouse gases (GHGs) has been a lesser motivation.
The National Team for Biofuel Development (NTFBD) was established by presidential decree to develop a roadmap for the biofuels industry as a means to reduce poverty and unemployment. Biofuels were seen as a strong sector in which to invest because the plantation sector had remained robust, even after 1997 East Asian Financial Crisis. Indonesia’s Gross National Product dropped 13 per cent after the crisis, while the plantation sector registered two per cent growth in 1997, and higher growth every year since then. The government intended to continue the trend by creating new markets for existing commodities such as palm oil and cassava, and developing new crops.

By: H. S. Dillon, T. Laan, H. S. Dillon (GSI)

 
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