Commodity Booms and Green

Growth in Indonesia

Budy P. Resosudarmo

Australian National University

Commodity boom: Coal and palm oil

2

Palm oil

Coal

Oil

Natural gas

0

50

100

150

200

250

300

350

400

450

2000 2011

Index o

f pro

duction

Export of CPO

3

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Indonesia Malaysia World minus I&M

Billion US$

Export of Major Mining Commodities

4

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Copper Nickle Bauxite Coal

Billion US$

Contribution to exports

Coal and palm oil

Oil and gas

0

5

10

15

20

25

2000 2011

% o

f goods e

xport

s

5

Indonesia the world’s largest exports of both

coal and palm oil

Coal and palm oil prices have fallen during

2012, but export values continue to increase

Workers in oil palm plantation

6

-200

200

600

1000

1400

1800

2007 2008 2009 2010

Permanent workers Employers Temporary workers Unpaid workers

Thousand workers

Workers in coal mining

7

0

50

100

150

200

250

300

2007 2008 2009 2010 2011

Permanent workers Employers Temporary workers Unpaid workers

Thousand workers

Average hourly wage of permanent workers

8

3,000

6,000

9,000

12,000

15,000

18,000

2007 2008 2009 2010

Oil Palm Plantation Food Crops Coal Mining

Mining excluding Coal All sectors

Substantial benefits from the booms

Palm oil

1.7 million jobs, 1.6% of total

Wages higher than for food crops

Large smallholder involvement (42% of oil palm plantation land)

Now world’s largest exporter

9

Pictures: http://www.greenprospectsasia.com/content/indonesian-small%C2%ADholders-get-help-produce-cspo, http://www.energyspectrumindo.com/2012/06/indonesian-coal-miner-toba-bara-cuts.html

Substantial benefits from the booms

Coal

260,000 jobs, 0.2% of total

Wages much higher than average

Growing contribution to government revenue

Now world’s largest exporter

Both provide sizeable benefits to local economies, principally off Java

10

Pictures: http://www.greenprospectsasia.com/content/indonesian-small%C2%ADholders-get-help-produce-cspo, http://www.energyspectrumindo.com/2012/06/indonesian-coal-miner-toba-bara-cuts.html

Green growth

President has made several

speeches calling for green growth

Pro-growth, pro-job, pro-poor, pro-

environment

Leading institutions support the

concept

11

Picture: http://blog.cifor.org/9657/indonesian-president-makes-speech-at-cifor-on-sustainable-growth-with-

equity/#.UFP_a5gY1RV

The economy has been growing rather well, and so, a good time to conduct

the policy

Idea is not to slow growth, but to address market failures to decouple growth

from environmental damage (i.e. price externalities, don’t subsidise pollution,

adequately govern open-access resources)

Greenhouse gas emissions Indonesia one of the largest emitters, mostly

from deforestation and peat management

Commitment: Reduce emissions by 26%

against business-as-usual (BAU) (or 41% with

support) by 2020, although BAU not formally

locked in

12

Picture: http://www.energyspectrumindo.com/2012/06/pt-kdl-power-plant-project-in-40.html

2011 National Action Plan: Most reductions from forests and peat, but also actions in

other sectors

Emissions from energy are increasingly quickly (4.4% per annum since 2000),

stoked by coal

Plan to expand geothermal: 48% of a second ‘crash program’ of 10,000 MW by 2018

Many challenges, including human capital; energy subsidy is still an issue

Forests

“I will dedicate the last

three years of my term as

President to deliver

enduring results that will

sustain and enhance the

environment and forests

of Indonesia”

President Yudhoyono

September 2011

13

Picture: http://blog.cifor.org/forests-indonesia-feature/#.UFUzeZgY1RX

Deforestation

14

Recent Deforestation

0.4

0.2

0.7

0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Brazil D.R. Congo Indonesia Sudan

% p

er

annum

15

2011 estimate: 0.5

(Ministry of Forestry)

REDD+ United Nations’ Reducing Emissions from Deforestation and

Degradation scheme

May 2010: Norway committed $1 billion. $30 million disbursed to date

President has given strong backing

Appointment of UKP4 (President’s Delivery

Unit for Development Monitoring and

Oversight) to manage initial implementation

REDD+ Agency proposed

>45 demonstration activities, half in

Kalimantan

16

Picture: http://blog.cifor.org

Pictures: http://www.foodtechnology.co.nz/export?page=1

Deforestation moratorium

Presidential decree in May 2011

Bans new permits to clear primary forests and peatlands

17

Implementation difficult:

e.g. Tripa case (Aceh)

Exemptions exist

(e.g. energy, sugar, rice projects)

Clearing of primary forest also

continues under existing permits Picture: http://news.mongabay.com/2012/0906-tripa-revoked.html

REDD+ challenges

International market for emissions credits

from avoided deforestation not in sight

REDD+ Agency may be weak

Land tenure, forest monitoring, emissions measurement, local conflicts

Might one day be important economic mechanism for sustainable forest

management

Next President’s support crucial

Economics of alternative land uses very attractive…

18

Picture: http://www.globalcarbonproject.org/news/TropicalPeatlands.html

Frictions with green growth

Oil palm a large contributor to

deforestation and emissions from

peatland

(Oil palm area: 9 million hectares.

Large permits for additional expansion

in forest areas already provided)

19 Pictures: http://www.foodtechnology.co.nz/export?page=1, http://equal-life.blogspot.com.au/2009/09/united-tractors-completing-due.html

Plantation areas

20

0

2

4

6

8

10

1996 1998 2000 2002 2004 2006 2008 2010

Rubber Coconut Oil Palm Coffee Cocoa

Million ha

Ann.ave. expansion of

appr. 400th ha

Frictions with green growth

Oil palm a large contributor to

deforestation and emissions from

peatland

(Oil palm area: 9 million hectares.

Large permits for additional expansion

in forest areas already provided)

One option: Focus expansion on

degraded land

21 Pictures: http://www.foodtechnology.co.nz/export?page=1, http://equal-life.blogspot.com.au/2009/09/united-tractors-completing-due.html

Frictions with green growth

Coal mining also land intensive, mostly

in previously forested areas.

Reclamation weak. Pollution

22 Pictures: http://www.foodtechnology.co.nz/export?page=1, http://equal-life.blogspot.com.au/2009/09/united-tractors-completing-due.html

23

Over exploitation?

PRODUCTION Proved RESERVED

000 000 tons 000 000 tons

2011

ann.gr. Since 2007 by 2011

China 3,829.5 8.7% 114,500

United States 1,094.3 -1.2% 237,295

India 637.1 4.6% 60,600

Australia 435.9 0.3% 76,400

Indonesia 437.4 11.1% 5,529

Russia 371.7 3.9% 157,010

South Africa 281.6 0.8% 30,156

Germany 208.8 -1.9% 40,699

Poland 152.6 -1.1% 5,709

Kazakhstan 127.6 4.3% 33,600

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Conclusion

Coal and palm oil have been booming in the last 10 years or so

These booms do provide large economic benefits: both at national and

local levels

Green growth: Important concept, and the momentum to do so is right

but much to be done in getting prices right and in sustainable management

of key natural assets

Serious tension the commodity booms and green growth

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Ref. papers

• Resosudarmo, B.P., Resosudarmo, I.A.P, Sarosa, W. and Subiman, N.L. (2009)

‘Socioeconomic conflicts in Indonesia’s mining industry’, in Exploiting Natural

Resources: Growth, Instability, and Conflict in the Middle East and Asia, eds R.

Cronin and A. Pandya, Henry L. Stimson Center, Washington DC: 33–48.

• Subiman, N.L., Resosudarmo, B.P. (2010), ‘Tambang untuk Kesejahteraan

Masyarakat: Konflik dan Usaha Penyelesaiannya’, in Pembangunan Berkelanjutan:

Peran dan Kontribusi Emil Salim, eds. I.J. Azis, L.M. Napitupulu, A.A. Patunru, and

B.P. Resosudarmo, Kepustakaan Populer Gramedia, Jakarta: 426-459.

• Resosudarmo, B.P., Nawir, A.A., Resosudarmo, I.A.P. and Subiman, N.L. (2012)

‘Forest land use dynamics in Indonesia’, in Land, Livelihood, the Economy and the

Environment in Indonesia, eds A. Booth, C. Manning and Thee K.W., Yayasan Obor,

Jakarta: 20–50.

• Burke, P., Resosudarmo, B.P. (2012) ‘Survey of Recent Developments’, Bulletin of

Indonesian Economic Studies, 48(3): 299-324.

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