Green or sustainable trade is the only possible way to make a clear progress in the climate agenda. Indonesia, as the world’s center of commodity production, has to take a step in the connectivity between commodity and green trade in the age of climate crisis. Economic and environmental factors are linked, and achieving success in one sector depends on proactive measures in other sectors. Moreover, Indonesia’s market commodity plays a vital role in the nation’s GDP.
New findings by Eve Warburton, research fellow at Australian National University, explain that there are three leading fundamental commodity sectors in the Indonesian contemporary era. In her book, “Resources Nationalism in Indonesia”, Warburton clarifies the demands for nationalization on land and natural resources, which concept that nationalist regulation triumphed in mining sector, failed in plantation sector, and endured ambiguous in oil & gas sector.
Among these sectors, palm oil plantation, well-known as agro-industry sector, has represented unique attention in promoting sustainable trade, not through their primary production but through their commodity on waste and byproduct. Despite failed in nationalist demands and enjoyed the influence for foreign investment, Indonesian palm oil industry has yielded nearly 60% of total global production. As a result, palm oil production has significantly increased to Indonesian economic development at all levels. In that sense, this industry has become crucial engines in powering foreign exchange and state revenue as well as promoting rural development & poverty alleviation.
One of the biggest issues concerning the expansion of palm oil plantation in Indonesia is deforestation and biodiversity loss. This situation has led to the essential reason for the European Union (EU) banning palm oil imports from Indonesia under the EU Deforestation-Free Regulation (EUDR). The EU’s restriction policy on Indonesian and Malaysian palm oil industry, which enforced in 2023, stems from the reality that the industry’s practices do not meet the EU’s sustainability criteria, particularly regarding social and environmental commitments. From Indonesia’s commitment to palm oil sustainability, however, the government has taken some important policies, including the development of sustainable oil-palm plantation business-certification system or Indonesian Sustainable Palm Oil (ISPO) and the establishment of the Palm Oil Plantation Fund Management Agency (BPDP-KS). In that matter, these efforts have represented Indonesian responsibility to palm oil plantation sustainability as well as exhibited the spirit of resources nationalism in agro-industry sector. This dispute has also drawn the attention of scholar with the conclusion that both the EU and Indonesia share a concern for sustainability and climate crisis, yet they maintain distinct perspectives and criteria for upholding environmental standards.
To more starkly show Indonesia’s commitment to palm oil plantation sustainability, Indonesia needs to step up and rethink its approach to green economic transition, starting with facilitating green trade practices in the palm oil plantation sector. The extent to which trade can synchronize with climate agenda is intimately related to not only international trade framework but also to the formulation of national policy. In this regard, domestic conditions for liberalizing trade of goods are essential to vital circular economy in practices
In contrast to the mining and oil & gas industries, the plantation sector shows greater potential for a regenerative economic model. Undeniably, industry decarbonization is a critical element in the effort to mitigate climate change, which is a part of central objective of the Paris Agreement in 2015. In this case, the ongoing energy transition from fossil-fuel to zero-carbon energy sources has made palm oil plantation waste a promising source of renewable energy. From plantation to production, palm oil generates substantial amounts of waste residues and by-products, including empty fruit bunches, palm oil mill effluent, palm kernel shells, and palm kernel expeller. Managing these materials can unlock their potential to contribute to green energy and circular economy.
Unfortunately, a year after Indonesia ratified the Paris Agreement in 2016, the Indonesian government saw the waste from palm oil plantation as an opportunity to boost public revenue, which legalized under the Indonesian Finance Ministry Regulation No. 13/PMK.010/2017. In reality, due to the high export and custom tariff from this regulation, it came with only advantages to well-established oil palm companies rather than smallholders and small and medium-sized enterprises (SMEs). Although the regulation has been amended several times since, it still gives the impression that the government is indifferent and injustices to green trade, especially in the plantation sector.
As the world’s leading palm oil production, Indonesia has to strategically align the intersection policy between green trade and green energy to applicate in the palm oil sector. Just Energy Transition is not only about renewable energy distribution but also more about the capacity to strengthen local economies. The implementation of Just Energy Transition will only meet obstacle if there’s still a space for injustices in the progress toward green economy. Moreover, the World Trade Organization’s analysts have also argued that reviewing and reforming trade policy related to green trade will bolster the competitiveness of Indonesian firms in green-goods markets and facilitate their access to the latest green technologies and products.
From a realistic economic outlook, energizing local communities to ensure their income distribution in the market of green or renewable commodity will maximize their attention and engagement in supporting policy priority in green transformation. So, under these circumstances, transformative reform is essential at the critical juncture of trade policy and renewable energy initiatives.
In other words, making possible for mapping Indonesia’s green growth and returning the spirit of nationalization with a green sense to domestic players, especially smallholders and small and medium-sized enterprises (SMEs), are the positive-sum solution in the age of climate crisis and resources nationalism.
[Photo by Achmad Rabin Taim, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Andi Mohammad Ilham has served as tax consultant and a postgraduate student at the School of Government and International Relations, Griffith University.
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