Thu, 05 Feb 2009
Terry Lacey , Jakarta

Since 2005 the Indonesian Government has pursued a road map to promote biofuels. This stressed biodiesel rather than bioethanol, for power generation rather than vehicles.

Long term Asian prospects for biofuel may depend more on biofuels for vehicles rather than power, and on bioethanol rather than biodiesel, as in Brazil, especially once second generation biofuel technologies get under way. But this is not yet clear.

So far the Indonesian and Malaysian biofuel industries depends on crude palm oil (CPO) to produce biodiesel, reflecting that the two countries produce about 70% of the worlds CPO. Theoretically about 40 percent of production could go to biofuel.

Given the head start of the CPO industry its not surprising that Indonesia plans to produce 2.41 million kiloliters of biodiesel by 2010 , alongside 1.48 million kiloliters of bioethanol, as explained by Imelda Maidir, The Jakarta Post (Jan. 19).

Indonesia has signed investment agreements worth $12.4 billion with 59 foreign and local investors to boost CPO production of bio-diesel. But signals to investors remain somewhat mixed. Wild fluctuations in CPO prices have caused problems.

By January 2008 high CPO prices were making biodiesel too expensive. Biofuel Producers Association chairman Purnadi Djojosudirjo explained a crash in demand led to 17 biofuel companies postponing investments.

Pertamina deputy marketing director Hanung Budia said biodiesel needed the same subsidy as diesel fuel.

Later in 2008 the stock market and oil prices and CPO prices collapsed, with oil going so low that CPO biodiesel and bioethanol could not compete with it, whilst small CPO producers were knocked out of the market.

Initial dependence on CPO for biodiesel may prove to be the right move in Indonesian conditions or a false start. Other feed stocks may prove more sustainable.

Biofuels are attractive because they contribute to energy security , economic development and poverty reduction and are intended to help reduce greenhouse gas emissions (GHG) and air pollution. Developed countries can reduce GHG emissions and comply with the Kyoto Protocol. Developing countries can reduce oil imports.

However the rush to biofuels can be counterproductive if they are not sustainably produced (see Climate Change Policies in Asia IGES 2006).

This report concludes there are widespread concerns that biofuels might hurt food security (Graham-Harrison 2005), could induce water shortages (AFP 2007), worsen water pollution (Englehaupt 2007) or actually increase GHG emissions (Searchinger 2008) and negatively affect biodiversity (Pearce 2005). Biofuel production could also consume more energy than it produces (Lang 2005).

The wider problems concerning biofuel development in Indonesia since 2005 include inconsistencies in policy and regulatory frameworks (including the negative impact of the subsidies on fossil fuels), and uncertainties in pricing and markets especially since the recent global financial crisis and commodity price fluctuations.

Competition between domestic and export markets and related problems on pricing and domestic supply obligations, present similar issues to other energy sources where exports are in competition with new domestic markets (as with coal and gas).

Possible conflicts over land use and the use of food-crops to produce biofuel, potential aggravation of environmental problems and possible loss of forest cover, biodiversity loss and land degradation also arise and have to be answered.

Director General of Oil and Gas at the Ministry of Energy and Mineral Resources Evita Legowo explained that by late 2007 the Government hoped to create 3.5 million jobs from biofuel development by 2010, rising eventually to 40 million largely rural jobs. Biodiesel has already been sold to 200 biofuel gas stations in Jakarta. Up to 24 power stations were already using some biodiesel by 2007 but continual fuel supply has sometimes been problematic.

One step towards more coherent, renewed national effort to promote sustainable biofuels development would be to improve coordination of research-based biofuel development in cooperation between researchers, the private sector and government.

Asian sustainable biofuels development need to be articulated so that feed stocks, processing, production, and distribution to markets with realistic prices can be planned and promoted as one chain, addressing linkages as well as being informed on advantages and disadvantages.


The author is a development economist based in Jakarta.



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