Sustainability Standards in the Indonesian Palm Oil Sector – Challenges and Benefits for Smallholder

The objective of this project was to analyze the role of sustainability standards for the production of palm oil in Indonesia, the largest producer and exporter of this type of biomass worldwide.

Project Lead:
Clara Brandi

Project Team:
Michael Brüntrup

Participants of the 47th Postgraduate Training Course:
Tobias Cabani
Christoph Hosang
Sonja Schirmbeck
Lotte Westermann
Hannah Wiese

Time frame:
2011 - 2012 / completed

Project description

Hardly any type of biomass is the focus of more contentious debate than the oil palm and its use as biofuel. Over the past few years, the interest in biofuels has steadily increased – as contributor to energy security and the reduction of greenhouse gas emissions and as potential engine for rural development. However, critics maintain that the rising production of biofuels may lead to higher net-emissions due to land use changes, deforestation, reduced biodiversity, displacement of small farmers and higher food prices. The growing skeptical stance towards the sustainability of biofuels has generated numerous initiatives for the introduction of standards and certification schemes for their sustainable production, such as the „Roundtable on Sustainable Palm Oil“ (RSPO) und „Indonesian Sustainable Palm Oil“ (ISPO).

Indonesia has a strong interest in furthering its economic development and palm oil production offers a lucrative source of income and represents a promising motor for growth and job creation. On the other hand, Indonesia aims at reducing its greenhouse gas emissions and protecting its rain forest, the fourth largest in the world – and palm oil is the largest source of its destruction.

The demand for palm oil is booming and underlines the relevance of sustainability questions in that sector. The EU Renewable Energy Directive (RED) further increases demand for biofuels like palm oil. EU RED requires that, by 2020, 10 percent of street fuels in the EU are produced on the basis of sustainably certified biofuels. Countries with considerable production potential for biofuels are worried that the certification requirements give rise to discriminating trade barriers for biofuels on the basis of palm oil, especially since palm oil is the most important Indonesian export good. Palm oil companies are trying to circumvent costly standards, but increasingly adapt to the increased demand for certified palm oil.

Since sustainability standards raise production costs, there is also a concern that they generate special challenges for smallholder farmers in poor rural regions in producing countries, which confronts these farmers with major financial and organizational burdens. There is also a concern that sustainability standards are not strict enough and are not being sufficiently well implemented.

Against this background, the project analyzed the role of sustainability standards for the production of palm oil on the basis of interviews with experts, investors, smallholders and other stakeholders – both in Jakarta and in rural areas in Indonesia. There is still limited knowledge regarding the impact of sustainability standards for biofuels and their certification, above all in terms of their effects in the field. An analysis of the opportunities and challenges regarding the introduction of sustainability standards is not only interesting from a research point of view but also highly pertinent from a policy advice perspective, both for Indonesian partners and for German development cooperation.