EFFECTIVENESS OF BIOFUEL DEVELOPMENT FOR INDONESIA Arie Rahmadi Submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy Department of Infrastructure Engineering School of Engineering The University of Melbourne November 2018 ii Abstract Despite offering new opportunities in promoting rural development, enhancing energy security and a way to improve environmental condition, developing biofuel has several issues. The research question in this thesis is whether Indonesia has made conscious policy regarding biofuel that set as figure of 5% of primary energy consumption in 2025. This thesis is therefore essentially an assessment of the appropriateness of the Indonesian biofuel policy. In other words, this is to answer the question whether the cost of such a programme would be justified financially and environmentally and to find out alternative solutions to improve sustainability of the policy. Several research objectives were defined to include identifying the type of fossil fuels that can be replaced by biofuels and to determine the amount of biofuel required to satisfy 5% of the total Indonesian energy mix up to 2025. The next objectives were to evaluate both local and global impacts of biofuels as well calculating the costs and benefits of this policy along the biofuels production chains. As a policy considered being appropriate for Indonesia would require more than metric measurements, an expert’s survey from various institutions to provide their opinions about the policy was also required. This discussion of these matter is covered in chapter 1, which intended to provide context of the research A research gap was found in measuring the appropriateness of such a biofuel policy, in which the use simultaneous available evaluation techniques of LCA, EIA, CBA were never been attempted. This thesis proposed utilising LCA to account the global impacts of this biofuel policy, while using EIA to provide its impact on the local level. CBA is furthermore utilised to provide quantitative values to indicate whether the benefit of this policy outweighs its cost. The methods were selected after carrying literature review in chapter 2 in which cover the overall situation of energy resources in Indonesia, the role of fossil fuels in the Indonesian economy and the emergence of plant oil and starch-based plantations, as well as a review how other countries (Thailand and Australia) evaluate similar biofuel development. The first objective was presented in chapter 3 by employing LEAP (Long Term Energy Alternative Planning) software. It was found that biofuel target of 5% from energy mix is possible based on constant energy demand growth of 6%. The target requires a total of biofuel about 8.0 to 26.6 GL in 2025. In energy terms, these are equivalent to 232 to 782 PJ or about iii 40 to 135 million barrels of crude oil. The policy was expected to create employments of 3.4 million people but requires significant land area of slightly less than 5.2 million ha. The result of evaluating local environmental impact in chapter 4 using 22 Environmental Impact Statements (EIS) of biofuel related projects in Indonesia have partially satisfied sustainability criteria particularly on the issues of social, economy and local environmental impacts. They were however often failed to address global impacts such as GHG emissions and carbon stock accounting as well as land use and land use change. On the objective of evaluating the biofuel global impacts on the environment, this was covered in chapter 5 using a Life Cycle Assessment (LCA) and it yielded mixed results. Biofuels in general emit less particulate matter, non-methane volatile organic compounds (NMVOC) and sulphur dioxide in tailpipe emissions but emit more pollutants during upstream stages. The CBA covered in chapter 6 additionally outlined the benefits of avoided liquid fossil fuels consumption, GHG emissions, reduction and air quality improvement due to less particulate and sulphur dioxide emissions, as well as additional benefit of increased energy security. It also covered the costs that include consumption of biofuel, ground ozone formation in major cities, biodiversity loss and additional costs involved in biofuel infrastructures. Other costs were in the form of increase cost of biofuel raw materials for food purposes, government expenditures due to engine adjustment, as well as compensation given due to displacing indigenous people during land clearing for plantation. The main finding was that the costs of meeting the target exceeds the benefits. It had a net cost of USD 24.40 billion and benefit to cost ratio (BCR) of 0.75 at the real discount rate of 6%. That amount yielded to an equivalent annual net cost of USD 2.92 billion. Additionally, the payments transfer to the people employed in the biofuel sector virtually stayed within the Indonesian economy instead of being spent for importing the fossil fuels. Further, the cost of biofuel and avoided fossil fuel benefits were significant, which showed that the prices of biofuel and liquid fossil fuels are determining factors, while other values such as energy security and environmental benefits were not significant. Experts’ survey from government, business, academic institutions and non- governmental organizations covered in chapter 7 found that majority considered this biofuel policy positive. They considered improved energy security is important and valuable. They put energy security as the main important issue above social and environment. However, significant objections were found among the experts that are active in the environmental iv issues. Although biofuel could provide the nation with more energy security, an appropriate biofuel policy should not be borne at the expense of social and environment. These objections were well founded given various social and environmental impacts did occur particularly during the land clearing and acquisition and overall practices in the biofuel raw material production. The conclusion and recommendation covered in chapter 8 have shown that despite performing poorly in term of actual implementation on environmental impact management and monitoring, to realize the biofuel policy of 5% in 2025 is not an impossible task. This is not to suggest that the task will be simple. Lack of credible monitoring of actual implementation of the EIS in post project activities exacerbated the already low compliance attitude. In addition, although biofuel generally scored better than its respective fossil fuels when it comes to the LCA on the end pipe emission, the trend of the experience in the oil palm plantation expansion has indicated that preventing land use change from the forest to mono culture type industrial crops is unavoidable. LCA analysis has shown that biofuels perform better compared to their fossil fuels substitute if biofuel expansion is aimed at land that has low carbon stock cover. The CBA additionally indicated that the cost of undertaking this biofuel plan outweighed its intended benefits. Although metric evaluations on the appropriateness of Indonesian biofuel program suggested it could have significant impact on the environment and people; and cannot be justified economically, the experts still viewed this program positively except those that work in the social and environmental activities. They suggested putting a stop of oil palm expansion for the reason of biofuel until sufficient regulatory and monitoring are effectively in place. However, decision was often made without considering those objections. The best that anyone can do is to provide all quantified values so that policy makers would act rationally. The Indonesian government could improve the appropriateness of its biofuel programme if they are more transparent in the EIA process and willing to reduce GHG emissions as well as implementing life cycle thinking in its decision-making. During the evaluating the CBA, there were gaps in valuing the energy security as well as recognising the inter-relationship between the price of biofuel and the price of fossil fuels. Understanding these gaps through further research would lead the government to make decision more rational and beneficial. v Declaration The research in this thesis constitute work carried out by the candidate unless otherwise stated. The thesis is less than 100,000 words in length, exclusive of tables, figures, bibliography and appendices, and complies with the stipulations set out for the degree of Doctor of Philosophy by the University of Melbourne. Arie Rahmadi November 2018 vi List of Abbreviations ADO Automotive Diesel Oil AMDAL Analisa Mengenai Dampak Lingkungan BOD Bio Oxygen Demand BCR Benefit Cost Ratio BPPT The Agency for Assessment and Application of Technology CBA Cost and Benefit Analysis CPO Crude Palm Oil EIA Environmental Impact Assessment EIS Environmental Impact Statement EFB Empty Fruit Bunch EOR Extraction Oil Rate FFB Fresh Fruit Bunch FFA Free Fatty Acid GHG Greenhouse Gas GOI The Government of Republic of Indonesia IMF International Monetary Fund IPCC Inter governmental Panel on Climate Change JAMALI Sistem Electricity grid of Jawa, Madura dan Bali kWh Kilo Watt Hours LCA Life Cycle Assessment MT Metric Ton MW Mega Watt OECD Organisation for Economic Co-operation and Development vii PKO Palm Kernel Oil Perpres Peraturan Presiden PLN State Owned Electricity Company (Perusahaan Listrik Negara) POME Palm Oil Mill Effluent FFB Fresh Fruit Bunch EFB Empty Fruit Bunch TS Total Solid UNEP United Nation Environment Programme WB World