Modeling the impacts of Indonesia’s REDD+ Initiatives to...
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Modeling the impacts of Indonesia’s REDD+ Initiatives to the Biodiesel Targets in the Green Economy Framework using System Dynamics 1 Modeling for an Inclusive Green Economy Workshop Akhmad Hidayatno [email protected] Systems Engineering, Modeling and Simulation Lab Universitas Indonesia systems.ie.ui.ac.id
Transcript of Modeling the impacts of Indonesia’s REDD+ Initiatives to...
Modeling the impacts of Indonesia’s REDD+ Initiatives to the Biodiesel Targets in the Green Economy Framework using System Dynamics
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Modeling for an Inclusive Green Economy Workshop
Akhmad Hidayatno [email protected] Systems Engineering, Modeling and Simulation Lab Universitas Indonesia systems.ie.ui.ac.id
Agenda
• National Development Priorities in Indonesia
• Challenges in Modeling the Palm Oil Biodiesel Industry within the REDD+ and Green Economy Framework
• Results and Policy Implications
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Indonesia’s economic growth has far surpassed the previous projections
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Source: Indonesia Forum Foundation (Yayasan Indonesia Forum), team analysis
Projected GDP per capita - Indonesia Vision 2030
Lower Middle
Income Country
Upper Middle
Income Country
High
Income Country
1992 2015 2023
Indonesia Vision
2030
Economic
Projection
2011 - 2045
3,005
5,300
9,000
14,900
22,500
1,660 2,359
3,923
7,231
12,449
18,000
0
5,000
10,000
15,000
20,000
25,000
1990 1995 2000 2006 2010 2015 2020 2025 2030
GDP per capita
reached US$3,005 in 2010
The increase of the productive population will fuel stable and rapid economic growth that in turn requires more energy and natural resources from forest lands
pag
e 4
Expected Population Pyramid (2000–2020)
15 12 9 6 3 0
05101520253035404550556065707580859095100
15 12 9 6 3 0
05101520253035404550556065707580859095100
0 3 6 9 12 15
05
101520253035404550556065707580859095
100
Male Indonesia–2000 Female
Population (in millions)
0 3 6 9 12 15
05
101520253035404550556065707580859095
100
Male Indonesia–2020 Female
Population (in millions)
Total (million) 205 254
Male (million) 102 127
Female (million) 102 127
Productive population
(20–55 years old) 99 (48%) 132 (52%)
Source: 2008 UNDP World Population Prospects. Indonesian National Economic Committee
As an archipelago country, different rate of economic growth zones exist and create a major development challenges such as multi-mode transportation infrastructure
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Source: Indonesia Ministry of Transportation 2006 and 2011
On average, Java takes about 60% of overall Indonesia FDI. In general, west of the country is
more developed than east of the country, investors and developers are looking towards east
now. However, primary investment are still concentrate in Jakarta area.
Indonesian National Priorities are embedded within MP3EI* 2011-2025 plans , with balanced focus on 3 main elements
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*Master Plan of Acceleration and Expansion of Indonesia Economic Development (MP3EI) 2011-2025
… 6 regions economic corridors development, connectivity and human resources
The economic growth must be sustained with sufficient and diverse mix of energy
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New
Renewable Energy Market
Mechanism (Price, Demand,
Structure)
Energy Supply
Reducing Emissions from Deforestation and Forest
Degradation (REDD+)
Economic &
Population Growth
Sustained Balanced Economic Growth
Revised Master Plan to include Green Economy
(2013) 3 Pros + Pro-Green
Oil Exporter to Net Importer Renewable Energy Potentials
1st Generation Technology Captured
Sustained Economic Growth
Master Plan of Acceleration and
Expansion of Indonesia Economic Development
(MP3EI) 2011-2025 Pro-Job, Pro-Poor, Pro-Growth
Green Economy
Government Energy Regulations
UU 30/2007, Inpres 1/2006,
Permen ESDM 32/2008
Sustained Energy Supply
Energy Demand
… in a sustainable way, since the government plan to revise the plan to include Green Economy
National Energy Policy pushes the use of Renewable Energy in the Primary Energy Mix to 17% in 2025
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Natural Gas, 28.57%
Coal, 15.34%
Oil 51.66%
Geothermal, 1.32%
Hydro Power, 3.11%
Coal , 33%
Gas, 30%
Oil,
20%
BIOFUELS, 5%
Geothermal, 5%
Biomass, Nuclear, Hydro
Solar Energy, Wind
Power, 5%
Coal Liquefaction
2%
RE,17%
CURRENT ENERGI MIX (1 million BOE) National (Primary) Energy Mix
National (Primary) Energy Mix of 2025
(BaU Scenario) (5 million BOE)
National Energy Mix 2025 (3 million BOE)
(Presidential Decree No. 5/2006)
Gas, 20.6%
Coal 34.6%
Oil,
41.7%
Geothermal,
1.1%
Mini/micro Hydro Power Plant, 0.1%
Power Plant, 1.9%
Target in 2025
1. Less than 1 for energy elasticity
2. Optimized primary energy mix
Why Palm-oil biodiesel? The industry offers a rich case study since its multidimensional positive and negative impacts
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• Exclusiveness Access to Land • Food vs Fuel
• Employment • Development of Rural Areas • 1st Technology has acquired
• Better Energy Mix • Renewable Energy Industry
• Better Fuel Emission • Improved Carbon Capture
• Increased CO2 due to reduction of forest • Threat to biodiversity
• Industrial Value Adding • No new infrastructure
comparing to Gas
• Multi-Actors along the production chain
• Market is unattractive for biodiesel investment Economy
Social
Environment
Energy
Land Ownership of Palm Plantation is dominated by private estate and small holders farmers in the Sumatra region due to better infrastructure
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- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000
Sumatera (ha)
Kalimantan (ha)
Sulawesi (ha)
Rest of Indonesia (ha)
Sumatera (ha) Kalimantan (ha) Sulawesi (ha) Rest of Indonesia (ha)
Smallholders 2,548,514 508,441 111,924 35,143
Government Estate 485,771 71,882 22,096 37,420
Private Estate 2,094,572 1,301,301 88,705 16,128
In the future the growth will still be dominated with the private sector
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Area (ha) Smallholder Area (ha) Government Estate Area (ha) Private Estate Area (ha) Total
Indonesia has Committed to Reduce CO2e Emission by Adopting REDD+ Mechanism
*Strategic Programs from Indonesian Draft Strategy of REDD+ (Reduction of Emission through Deforestation and Forest Degradation)
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sustainable land management
Reduction of CO2e 26% in 2020
(or 41% at best case scenario), with steady economic growth of
7% yearly.
economic system with sustainable utilization of natural-resources
conservation-rehabilitation of forest
Agenda
• National Development Priorities in Indonesia
• Challenges in Modeling the Palm Oil Biodiesel Industry within the REDD+ and Green Economy Framework
• Results and Policy Implications
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REDD+, Green Economy and Palm-Oil Biodiesel Industry offers interactive dynamics of trade-offs
• Can we have sustainable palm-oil biodiesel production that satisfy REDD+?
• Can the promise of green jobs and green investments from the renewable energy industry be delivered?
• Can we analyse the competition of Food vs Fuel vs Forest for land area?
• At What Cost?
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Very limited open documentation is available on implementing renewable energy in a large (national) scale
Unique local conditions will limit the use of generic model. For example in this model: - Indonesia as an Archipelago - multi social values, etc. - financial data not easily obtained
Renewable Energy Production has different characteristics that the energy production. Deep understanding of non-energy industry works is needed (forestry, agriculture, manufacturing etc.)
Renewable Energy Modeling has more challenges
Local Limitations 1 Large Scale
Documentation 2 Different Characteristics of Industry 3
*A. Ross and C. Rakos, The limits of modeling. Experiences with bioenergy in practice - could models have predicted this outcome.
Biomass and Bioenergy, 2000. 18: p. 331-340.
Model Conceptualization of the Model
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REDD+ and Energy Policy Alternatives
Land Use Change Module
Problem Owner:Government
Problem Owner Goals:
Fulfillment of the short-term and long-term of national bio-fuel (biodiesel) usage
within the REDD+ Initiatives and Green
Economy
Stakeholders (Biodisel Producers, PERTAMINA,
Palm Oil Industry, Consumers, NGOs, Donors, Carbon Market)
OUTPUTSustainability Output
Performance Expected
Agriculture
Forestry
Energy & Resources
Finance
Industry
Trade
Environment
State Enterprise
Local Governments
SME
Science and Technology
National Sustainability Model – Systems Dynamics Model based on T21
water
Facilitating Markets
Allocate Property Rights
Freeing Markets (Legalize)
TariffsMatching
GrantsTax CreditsSubsidies
Price Regulations
Quantity Regulations
Government Corporations
production
infrastructure
households
government
ROW
investment
technology
poverty
health
population
labor
education
energy
land
emissions
Biodiesel Industry Sub-Model
Palm Plantation
CPO Producer
Biodiesel Producer
Forest
Economic Growth
Poverty Level
CO2 Emission Reduction Targets CER/VER
INPUT
Basic External Economic
Factors (Inflation, Exchange
Rates, etc)
Potential Land Total
Area
Grants
Basic Social (Population
Growth Rate, etc)
Biodiesel Volume Target Achieved
Green Economy and Sustainability Module
Biodiesel Usage
As Input As Constraint and Facilitation As Feedbacks
National Sustainable Development Model based on T21 Millennium Group Model
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National Sustainable Development Model
Sustainability Impact
Environment Module Socio- Tech Module
Economic Module
Production
Agri Serv Ind
Government
Inco
me
Exp
end
Household GHG
Emission
Balan
ce
Relative
Prices
International
Trade Investment
Population
Employment
Income Distribution
Technology Life
Exp
ecta
ncy
Climate
Change Forest Water
Energy Module
Energy Demand
Residential Serv Ind Transp
ort
Oil
Prod Explora
tion
National
Price
Sustainable
Indicators
Social
Economy
Environ-
ment
Energy
Mix
Biodiesel
Volume
Palm Oil
Biodiesel
With 1 Modules Added (Energy + Biodiesel) and 1 Modules Expanded (Forest)
Integration to National
Development Sustainability
Model
Expanding the Biodiesel Production Chain Sub-models needs a Multi-Methods Approach
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Investment, Cost and Revenue Structure
Social Indicators
Financial Indicators
Life Cycle Analysis
Production Mapping Stage
Financial Modeling (cost mapping)
Sustainable Indicators
Environment Indicators
Biodiesel Production Chain Model Development
Employment and CSR
Biodiesel Production
Production Process Maps
… which includes financial modeling, Life Cycle Analysis and System Dynamics as
the final form
Biodiesel industry has 3 types of production chain ownership that must be include in the model for evaluation
Structure 1 Differentiation
Structure 2 Independent
Structure 3 Integrated
Conglomeration, total vertical integration.
All Chain are owned by single company
dedicated to Biodiesel Market
This is the most cost efficient structure
Plantation and CPO Factory are single
owner, however Biodiesel Factory is
independent. (Code 2)
This is the typical structure of the industry
Total Differentiation. No Single
Ownership of all Chains. (Code 1)
PALM PLANTATION
CPO FACTORY
BIODIESEL FACTORY
CPO MARKET
BIODIESEL MARKET
PALM PLANTATION
CPO FACTORY
BIODIESEL FACTORY
CPO MARKET
BIODIESEL MARKET
PALM PLANTATION
CPO FACTORY
BIODIESEL FACTORY
BIODIESEL MARKET
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Therefore the biodiesel structure model must accommodates this 3 types of ownerships
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These different ownership structure will create different behavior in the sustainability indicators shown in the model results
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0.00
0.50
1.00
1.50
2.00
2.50
3.00
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
EBITDA Biodiesel Biodiesel Production
Employment Net Emission CO2
-10
-5
0
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15
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2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
EBITDA Biodiesel Biodiesel Production
Employment Net Emission CO2
Independent Structure
Integrated Structure
Characteristics are similar to manufacturing companies which its sustainability impacts are related to production numbers
Has initial environmental burden by maintaining lain, however has more profits due to low cost on obtaining the CPO as incoming material
Including the cost structure of fragmented ownership, that concludes that the only feasible structure is the integrated structure or using domestic market obligations
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CPO
Feedstock Cost 62%
Other Material Cost
15%
Utility Cost 6%
Labor Cost 5%
Indirect Cost 12%
The integrated structure also allow a better control on where and how the company
use or expand its land, such as degraded land and not using slash-and-burn land
opening methods
There is also land productivity, that has its own cycle depending on the quality of the allocated land
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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
La
nd
Pro
du
ctiv
ity
(T
on
FF
B/h
a/y
ea
r)
Year
Class I
Class II
Class III
Class IV
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-10.00%
-5.00%
0.00%
5.00%
10.00%
Class1 Class 2 Class 3 Class 4
This cycle will create time unreasonable peaks in the number of biodiesel companies needed to supply the target
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die
sel P
rod
uce
r (A
cum
ula
ted
)
Bio
die
sel P
rod
uce
r (Y
ear
ly)
SOE (Accum.) DMO (Accum.) SOE (Yearly) DMO (Accum.)
The time-span target instead of yearly target would require a more consistent approach in developing the industry, instead of frantic decisions when nearing the target
2010
2.41 million kL
2015
4.52 million kL
2025
10.22 million kL
5% 15% 20%
In the long run, biodiesel would consume much of the CPO production, which could trigger food vs fuel debate
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Juta
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PO
Konsumsi CPO non Energi Kebutuhan CPO - BD
Kebutuhan CPO - BD Konsumsi CPO non Energi
Forest Module
The Land Use and Green Economy Modules must recognize different types of forest stated by Indonesia’s Ministry of Forestry and the basis for green economy calculation
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Peat Land Area
Production Forest
Limited Production
Forest
Conversion Forest
Conservation Forest
Protection Forest
Green Economy
Indicators
Green GDP
GDP
Carbon Value
Carbon Stock
Forest Area
Land Demand
Land Allocation Scenario
Land Allocation
Green Economy Framework for Analysis Indicators
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Low Carbon
Resource Efficiency
Socially Inclusive Gini Coefficient Poverty Level*
Green Jobs in Rural Areas* GHG Emissions CO2e Emission Biodiesel and Renewable Energy Mix
Green GDP Forest Land
Carbon Stock Value
Green Economy
Temporary Scenario for the model with 2 basic conditions: (1) revoke subsidies for Diesel fuel and (2) Domestic Market Obligation for CPO producer to biodiesel production
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Variable 1. Business As
Usual (BAU)
2. BAU with
Biodiesel
Industry
3. REDD+
Sustainable Palm
Oil
4. REDD+ No
Palm Oil
Expansion
Biodiesel Industry Not Developed Developed Developed Developed
Land Opening
Method
Slash And Burn Slash And Burn Slash and Mulch Not Allowed to
Expand
Land Productivity
Class
Mostly High Mostly High Lowest Class Due
to Degraded Land
Not Allowed to
Expand
Fresh Fruit Bunch-
CPO Extraction
Rate
23,5% 23,5% 25% 25%
Renewable Energy
Mix Achievement
Off Target Off Target On Target On Target
Reforestation Low Low Moderate High
Moratorium Not Applicable Not Applicable Effective Effective
Forest Fire and
Illegal Logging
High High Decreasing due to
Law Enforcement
Decreasing due to
Law Enforcement
Agenda
• National Development Priorities in Indonesia
• Challenges in Modeling the Palm Oil Biodiesel Industry within the REDD+ and Green Economy Framework
• Results and Policy Implications
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Green GDP and Brown GDP
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620 USD
630 USD
640 USD
650 USD
660 USD
670 USD
680 USD
690 USD
700 USD
710 USD
Business As Usual Business As Usual with Biodiesel
Industry
REDD+ Sustainable Palm Oil
REDD+ No Palm Oil Expansion
Bil
lio
ns
Green GDP
Brown GDP
Renewable energy pushes the Green GDP in proportional with the growth of Brown
GDP. However in REDD+ sustainable palm oil scenario, the Green GDP is higher
than BAU
Green Jobs
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0 Person/yr
500 Person/yr
1000 Person/yr
1500 Person/yr
2000 Person/yr
2500 Person/yr
Th
ou
san
ds
Business As Usual Business As Usual with Biodiesel Industry REDD+ Sustainable Palm Oil REDD+ No Palm Oil Expansion
Sustainable Palm Oil Practice requires more workforce to maintain degraded land,
therefore Green Jobs are better
Forest Land Covers
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1100 km²
1150 km²
1200 km²
1250 km²
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1400 km²
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Business As Usual Business As Usual with Biodiesel Industry
REDD+ Sustainable Palm Oil REDD+ No Palm Oil Expansion
REDD+ with Sustainable Palm oil could maintain the forest cover, however in the long
run the demand is too high comparing to re-forestation efforts
Emissions from Energy and Forest
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0 ton/yr
500 ton/yr
1000 ton/yr
1500 ton/yr
2000 ton/yr
2500 ton/yr
3000 ton/yr
3500 ton/yr
4000 ton/yr
Business As Usual Business As Usual with Biodiesel Industry
REDD+ Sustainable Palm Oil
REDD+ No Palm Oil Expansion
Mil
lio
ns
Emission from Other Sector
Emission from Energy Sector
Emission from Forestry Sector
REDD+ reduces emissions from forest in 2030 with no palm oil expansion, which
unlikely, so sustainable palm oil is better
Policy Implications based on the model
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REDD+ policy, including moratorium, if delivered consistently within long run, would force the use of sustainable palm production and better production technology (better extraction rate and land productivity FFB/ha)
Understanding the micro conditions of biodiesel production chain would shows that biodiesel from palm oil with private sector involvement will be difficult due to conflicting interest (profit vs sustainability). Certain macro conditions that must exist to boost the industry are politically hard: release the fuel subsidy, domestic market obligation, increasing export tax, etc.
Government policy to support increased investment in renewable energy needs to be carefully designed in an integrated manner and there is no one-size-fits-all approach (UNEP). Biodiesel from palm oil might be a temporary solutions for transportation energy, however in the long run it would spark the food vs fuel debate.
Policy Implications for Managing Green Economy ..which also makes modeling the green economy is much more easier
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Switching to green economy would require new data and new definitions with accepted measurements and indicators. New national regulations and initiatives to gather these data is needed
Recognizing the multi actors conditions, A new category of land-use: renewable energy production might be needed, with special considerations that are different than ordinary forest or agricultural land. A new category of industry: renewable industry with specific incentives could also be established
Part of these policy implications are presented in the 2nd International Workshop on Systems
Modeling and Simulation for Policy Development : Modeling the Green Economy, Jakarta,
Indonesia in front of the relevant government, NGOs, and other stakeholders.
Modeling the impacts of Indonesia’s REDD+ Initiatives to the Biodiesel Targets in the Green Economy Framework using System Dynamics
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Modeling for an Inclusive Green Economy Workshop
SEMS Lab Sustainable Development Modeler Team Akhmad Hidayatno
Aziiz Sutrisno
Rakhmat Satriawan
