Assessing the Environmental and Economic Sustainability of Sago for the Carbon Emissions Reduction of Indonesian Peatlands
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CARBON, PALMS AND PEAT: Assessing the environmental and economic sustainability of sago for the carbon emissions reduction of Indonesian peatlands Natalie Orentlicher MSc Thesis in Environmental Sciences: Environmental Systems Analysis and Environmental Economics and Natural Resources August, 2019 Supervised by: prof. dr. Lars Hein Course code: ESA–80436 Environmental Systems Analysis i | Orentlicher FIRST TRUE PAGE OF THESIS REPORT CARBON, PALMS AND PEAT: Assessing the environmental and economic sustainability of sago for the carbon emissions reduction of Indonesian peatlands Natalie Orentlicher MSc Thesis in Environmental Sciences: Environmental Systems Analysis (ESA) and Environmental Economics and Natural Resources (ENR) August, 2019 Supervisors: Examiners: 1) prof.dr. Lars Hein 1st: prof.dr. Lars Hein Environmental Systems Analysis 2nd: prof.dr. Rik Leemans 2) dr.ir. Rolf Groeneveld Head of Environmental Systems Analysi Environmental Economics and Natural Resources Disclaimer: This report is produced by a student of Wageningen University as part of his/her MSc- programme. It is not an official publication of Wageningen University and Research and the content herein does not represent any formal position or representation by Wageningen University and Research. Copyright © 2019 All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, without the prior consent of the Environmental Systems Analysis group of Wageningen University and Research. ii | Orentlicher PREFACE “To never simplify what is complicated or complicate what is simple.” – Arundhati Roy, The Cost of Living, pp. 1101 I finished the very tail end of my thesis at the same time as the UN Climate Action Summit 2019 wrapped up in New York City. The week of the Summit ended as the youth protest movement, Fridays for Future, mobilised 7.6 million people to strike and march in order to foster more attention for climate change2. Here in the Netherlands, we took to Den Haag. Next week, the climate activist group Extinction Rebellion will launch rebellion actions in 60 cities across the globe. Here in the Netherlands, we’ll station in Amsterdam. My thesis, as much of my thought this past year, centred on the issue of carbon going into the atmosphere. Though incredible and drastic measures must be taken – and now – in order to stave off the worst climatic impacts, there are many reasons to find hope in all of this. The potential embedded in landscape restoration and sustainable land-use represents one such reason. My thesis, as such, is but one hopeful glimmer in this rising sea. a I hold a lot of gratitude to many who have helped me along the way. First, I thank all of my in-field interviewees: the farmers, the entrepreneurs running home businesses, the government and village officials, and the sago industry workers. I also would like to thank my other interviewees, including Professor Bintoro, my unnamed contact for the FAO sago project, and other unnamed company project managers and sago researchers who I had the opportunity to ply with questions. My especial heartfelt thanks to our guide in the village, as well as our wonderful hosts. I would also like to thank those from Indonesia who directly helped me with my work, in particular, as translator, Resti; my ICRAF supervisor, dr. Meine van Noordwijk; and from UNEP Indonesia, Johan Kieft and Riska Efriyanti. I am further appreciative to all of those from ICRAF and UNEP who helped me and shared their time with me. Especial thanks goes to my primary supervisor, prof.dr. Lars Hein, for all of his attention, input, and feedback throughout the process. I would also like to thank dr. Aritta Suwarno for all of her time and support, and dr.ir. Rolf Groeneveld, my second supervisor, for his time and input. I also really valued the technical knowledge I gained during my defence with prof.dr. Rik Leemans and thank him for his time and review of my thesis. I hold a heartfelt appreciation for all of my family and friends who have supported me throughout this process. Wageningen is most special to me because of those who I met there, in particular Stephen, Jeremy, Regine, Marco, and Svenja (my thesis buddy). My old friends and phone chat buddies also always hold a place in my heart: Kelly, Eli, Nick, and Jared. Finally, my love to Monika and Michael, for being where I come from, and Amy and Justin and seven little nieces and nephews (Jessica, Jacob, Anthony, Leighla, Jayden, Jack, and Blake) as a reminder of what is now. 1 Roy, A. (1999). The cost of living. Modern Library Paperback Edition. New York, NY: Random House, Inc. 2 The Global Climate Strike. 350.org. “https://globalclimatestrike.net/” iii | Orentlicher TABLE OF CONTENTS PREFACE III SUMMARY VII LIST OF ABBREVIATIONS AND CHEMICAL FORMULAS VIII CHAPTER 1. INTRODUCTION 1 1.1 BACKGROUND 1 1.2 DESCRIPTION OF SAGO 3 1.3 PROBLEM STATEMENT 5 1.4 RESEARCH OBJECTIVE AND QUESTIONS 6 1.5 THESIS OUTLINE 7 CHAPTER 2. METHODOLOGY 8 2.1 CASE-STUDY AND COMPARISON 8 2.2 RESEARCH METHODS 10 2.2.1 PALUDICULTURE CONDITIONS 10 2.2.2 VALUE CHAIN ANALYSIS 10 2.2.3 COST-BENEFIT ANALYSIS 12 2.3 DATA COLLECTION METHODS 14 2.3.1 LITERATURE REVIEW 14 2.3.2 INTERVIEWS 15 2.3.3 FIELD OBSERVATIONS 16 2.4 DATA ANALYSIS 16 2.4.1 QUALITATIVE DATA AND LITERATURE ANALYSIS 16 2.4.2 QUANTITATIVE DATA AND CALCULATIONS 16 2.4.3 MAPPING DATA AND PROCESS 18 CHAPTER 3. ECOLOGICAL SUSTAINABILITY: SAGO AS A PALUDICULTURE. 20 3.1 PALUDICULTURE REQUIREMENT NUMBER ONE: WET CONDITIONS 20 3.1.1 PREFERRED WATER TABLE LEVEL: LITERATURE ANALYSIS 20 3.1.2 PREFERRED WATER TABLE LEVEL: CASE-STUDY RESULTS 21 3.2 PALUDICULTURE REQUIREMENT NUMBER TWO: SUFFICIENT BIOMASS, I.E. PRODUCTIVITY 21 3.2.1 STARCH YIELDS PER PALM TRUNK: LITERATURE ANALYSIS 21 3.2.2 STARCH YIELDS PER PALM TRUNK: CASE-STUDY RESULTS 22 3.2.3 SAGO MATURITY, PEAT DEPTH, AND FERTILIZER IMPLICATIONS: LITERATURE ANALYSIS 24 3.2.4 SAGO MATURITY, PEAT DEPTH, AND FERTILIZER IMPLICATIONS: CASE-STUDY RESULTS 25 CHAPTER 4. MARKET POTENTIAL: THE SAGO VALUE CHAIN. 26 4.1 VALUE CHAIN MAPPING 26 4.1.1 SAGO PLANTATION SMALLHOLDERS 27 4.1.2 SMALL-SCALE SAGO PROCESSERS AND TRADERS 28 4.1.3 SAGO PRODUCT HOME INDUSTRIES 30 4.1.4 INDUSTRIAL SAGO PLANTATION AND PROCESSING COMPANY 31 4.2 QUANTITATIVE FLOW 32 4.3 COMPARISON BETWEEN CASE-STUDY AND COMPARISON CASE 34 iv | Orentlicher CHAPTER 5. SAGO FINANCIAL RETURNS FROM THE CASE-STUDY AREA. 36 5.1 SMALLHOLDER PLANTATION AGRICULTURAL VARIABLES 36 5.2 SMALLHOLDER PLANTATION FINANCIAL VARIABLES 38 5.3 SMALLHOLDER PLANTATION PRIVATE RETURNS 39 5.4 SMALL-SCALE PROCESSING MILL FINANCIAL VARIABLES 40 5.5 SMALL-SCALE PROCESSING MILL PRIVATE RETURNS 41 5.6 MILL RENTAL OPTION: COMBINED PLANTATION AND PROCESSING RETURNS 42 5.7 INDUSTRIAL PRODUCTION AND PROCESSING VARIABLES AND PRIVATE RETURNS 42 CHAPTER 6. OIL PALM PRIVATE AND PUBLIC COMPARISON. 46 6.1 SMALLHOLDER OIL PALM PLANTATION PRIVATE RETURNS 46 6.2 OIL PALM MILL RENTAL PRIVATE RETURNS 47 6.3 INDUSTRIAL OIL PALM PLANTATION PRIVATE RETURNS 47 6.4 SOCIAL COST OF CARBON (SCC) INTEGRATION 48 6.5 PRIVATE AND PUBLIC RETURNS COMPARISON SUMMARY 49 6.6 PRIVATE RETURNS SENSITIVITY ANALYSIS: AGRICULTURAL AND FINANCIAL VARIABLES 51 6.7 PUBLIC RETURNS SENSITIVITY ANALYSIS, CARBON EMISSIONS AND SCC 53 CHAPTER 7. ECONOMIC UPSCALING: TRANSITIONAL SCENARIOS OF OIL PALM TO SAGO IN ONE REGION. 55 7.1 MAPPING AND DATING OF RIAU OIL PALM PLANTATION AREAS 55 7.2 MODELLING AN OIL PALM REPLACEMENT SCHEDULE 56 7.3 NEW COST ESTIMATIONS: RESTORATION PRICE AND SMALLHOLDER SUBSIDIES 57 7.4 PRIVATE RETURNS FROM SAGO TRANSITIONAL SCENARIOS 58 7.4.1 SMALLHOLDER PRIVATE RETURNS 58 7.4.2 INDUSTRIAL PRIVATE RETURNS 59 7.5 PUBLIC RETURNS FROM SAGO TRANSITIONAL SCENARIOS 60 7.5.1 SMALLHOLDER PUBLIC RETURNS 60 7.5.2 SMALLHOLDER PUBLIC AND PRIVATE SCC BREAK-EVEN PRICES 61 7.5.3 INDUSTRIAL PUBLIC RETURNS 62 7.5.4 INDUSTRIAL PUBLIC AND PRIVATE SCC BREAK-EVEN PRICES 63 CHAPTER 8. DISCUSSION 65 8.1 LIMITATIONS AND ASSUMPTIONS 65 8.2 COMPARISON AND VALIDITY 67 CHAPTER 9. CONCLUSIONS 70 9.1 SIGNIFICANCE OF RESULTS 70 9.2 RECOMMENDATIONS 72 REFERENCES 74 APPENDICES 80 APPENDIX A. INTERVIEWEE LIST 80 APPENDIX B. CBA SCENARIOS SCHEMATIC DIAGRAM 81 APPENDIX C. LITERATURE ANALYSIS ON SAGO’S OPTIMAL AGROECOLOGICAL CONDITIONS 82 APPENDIX D. SMALLHOLDER SAGO FARMER INTERVIEW SAMPLE QUESTIONNAIRE 93 APPENDIX E. NSP COMPANY AND FINANCIAL DATA 95 APPENDIX F. DETERMINATION OF CARBON EMISSIONS 100 APPENDIX G. CBA CASH FLOW TABLES 102 v | Orentlicher SUMMARY My study’s objective is to assess the potential of sago, Metroxylon sagu Rottb., which is a starch producing palm. Sago is a promising alternative land-use option for Indonesian peatland due to its ability to grow on peatland without drainage (thereby minimising carbon emissions from peat oxidation), its high productivity, and its commercial viability. One of sago’s most commercial production areas in Indonesia is Sungai Tohor village on the Meranti Islands in Riau province, Sumatra. This area is therefore used as my main case-study and is compared with a case from southeast Sulawesi. First, a literature review, supported by case-study interviews, was performed to determine whether sago can be cultivated under paludiculture conditions (i.e. with adequate productivity on wet peat). Though the literature was inconclusive as to sago’s preferred groundwater level, sago was described as capable of growing on peat under flooded conditions. This was also confirmed by the interviews. The interviewees described, conversely, that a low water table reduces sago productivity.