by Maxmillion Kenny
Palm oil is the darling of the Indonesian economy. Since first introduced by the Dutch during colonization, this industry has quickly boomed into the country’s largest non-fossil-based fuel sector with an annual export value reaching 18 billion US dollars – a number higher than the GDP of the seven smallest Pacific Island states combined. To support the growth of the palm oil industry, the Indonesian government has always been facilitating palm industry stakeholders with “enabling policies” — despite the cost of human rights violations, socio-political conflicts, and environmental degradation. Because of these controversies, palm oil has unsurprisingly earned its contentious reputation among more conscious consumers in the Global North, including in Europe.
But the narratives of palm oil have been gradually changing after the enforcement of the European Green Deal (EGD) — allegedly for the better. Under its Renewable Energy Directive (RED II) framework, the EU’s main goals of curbing deforestation and other biodiversity crises outside of the EU border are enforced through a set of voluntary and legally binding measures. This includes the ban of high Indirect Land Use Change (ILUC)-risk feedstock (which Indonesian palm oil is a part of) due to its significant impact on deforestation, biodiversity loss, and greenhouse gas production. Unless further sustainability standards from EGD are met, the import of Indonesian palm oil to the EU market as a part of the member states’ renewable energy share will therefore be capped at the 2019 level, gradually reduced from 2024, and phased out by 2030 .
Despite initially being perceived as a discriminatory tool, the palm oil stakeholders in Indonesia have slowly taken a more welcoming stance on the EGD. Until recently, the EGD has also been used as a momentum to rebrand the business-led and nationally-approved Indonesian Sustainable Palm Oil (ISPO) certification scheme, which categorised palm oil as a more transparent, environmentally responsible, and legally compliant product, despite its low acceptance in the European import market.
On a wider scale, the adoption of the EGD in the mandatory ISPO certification scheme has also helped ease two of the EU import market’s largest concerns in the palm oil sector, namely the conversion of High Carbon Stock (HCS) areas and the protection of biodiversity. While it is difficult to draw a direct causality between EGD and the conservation of HCS areas in Indonesia, studies have found that deforestation in HCS primary forests and peat soils linked to the expansion of palm oil in Indonesia has consistently decreased from 2012 to 2021. Such a trend can be partially traced back to the demands set in the newest ISPO’s Principles and Criteria (P&C) which requires plantation owners to obtain a Permit for Release of Forest Area from the Ministry of Environment and Forestry or Indonesian Investment Coordinating Board to be allowed to plant in areas not already cleared for agriculture before 2005. Yet, when compared with the Roundtable on Sustainable Palm Oil (RSPO) P&C standards more widely accepted in the EU market, ISPO’s commitment to the conservation of HCS areas is still slightly apathetic, especially when considering the total ban on new plantings in HCS primary forest and peat soils set by the former.
In terms of biodiversity conservation, Indonesia’s status as one of the most biodiverse countries in the world — second only to Brazil — has brought attention to the potential threat of palm oil expansion on its rich natural heritage, further leading to an early push for a ban on palm oil in the European market in the early 2000s. In the current ISPO P&C revised after the enforcement of the EGD, however, Indonesian authorities have seemed to ramp up biodiversity conservation efforts to gain more trust from the import market in the North. In this regard, the use of High Conservation Value (HCV) assessment toolkit and an active biodiversity management plan is now required in all plantation operations, regardless of the operational scale.
While the EGD has indeed triggered a more active reform in the Indonesian palm oil industry, some vulnerable smallholder groups have unfortunately fallen short in adhering to these standards due to their low compliance ability. The lack of knowledge to satisfy sustainability demands, on the one hand, means that help and guidance from external parties (i.e. NGOs or other non-state actors) are needed. On the other hand, financial constraints have also become a hurdle as investment costs needed to farm sustainably may be too high for most smallholders to bear.
All that said, the palm oil industry in Indonesia has indeed seen a trajectory towards developing in a more environmentally conscious manner as a result of compliance with the EGD. On top of that, study after study has found that the EGD has in fact improved smallholders’ welfare through the push for better agricultural practices — be it directly through an increased production output or indirectly through the enhancement of other social capitals.
In the context of sustainability, the inclusion of vulnerable stakeholders is as important as environmental protection. Flexibility in a top-down regulatory mechanism like the EGD that caters to the reality faced by smallholders is hence crucial in ensuring equal market participation in the global palm oil supply chain. Meanwhile, more stringent domestic public policies in Indonesia are still needed to ensure that the protection of HCV and HCS areas remains high in the vision to boost more sustainable agricultural production. Synergies between European regulators and Indonesian policymakers are the preferred way to progress in ensuring sustainable palm oil production in the country.
Max is a Master’s student majoring in Sustainable Development at KU Leuven, Belgium. His current research focuses on the compliance aspect and socio-environmental impact of the European Green Deal (EGD), Renewable Energy Directive II (Directive (EU) 2018/2001), EU Carbon Border Adjustment Mechanism (CBAM), and third-party voluntary certification (TPC) among agriculture and biofuel producers in the Global South. On top of that, Max also shares a great interest in the issues related to the carbon removal and trading system, climate justice, circular bioeconomy, and many more.