Setting the seeds for a green growth -A Study of biofuel development in Indonesia’s transport sector

University essay from KTH/Skolan för industriell teknik och management (ITM); KTH/Skolan för industriell teknik och management (ITM)

Abstract: Climate change poses as one of the major environmental issues on a global scale today, with one of the largest contributor to the climate change being the greenhouse gas (GHG) emissions. GHG emissions in turn is known to a large extent originate in anthropogenic energy use, especially fossil fuel usage. This leads to almost a quarter of the global emissions today being emitted from the transport sector as the sector is primary fueled by fossil fuels. Biofuels have been promoted as a strong candidate for fossil fuel substitution as it has similar properties while being renewable. However, even as biofuels have been increasing annually since 2008 globally, there are still concerns associated with the usages that have hindered its replacement of fossil fuels. Indonesia, one of the most populated countries in Southeast Asia, is projected to be one of the world’s leading economies in 2050. In 2030, Indonesia in projected to have doubled its energy consumption since 2014, indicating that the decisions and actions taken today in Indonesia will have a significant impact on the future fuel consumption. This, in combination with being the largest producer of palm oil in the world, gives it a great potential to be in a leading position in the future production of biofuels, especially biodiesel from palm oil. Additionally, Indonesia has set mandatory targets for biofuel share in the transport sector which indicates that the country also seeks to promote the usages of biofuels. This thesis intends to investigate Indonesia’s potential for biofuel development in the transport sector and which factors that could hinder it. More specifically, this study answers the two questions: (i) Which factors are hampering the development of biofuels in the Indonesian transportation sector from a multi-level perspective? and (ii) What is the projection of the Indonesian transport sector by 2030 in terms of fuel consumption and global warming potential (GWP) and what role could biofuels play in reducing those? The data used were collected by interviews with stakeholders in Indonesia and a literature study, which afterwards was processed with the tools Multi-Level Perspective (MLP) and Long-range Energy Alternatives Planning (LEAP). MLP is a concept aiming to describe how system transitions happens with the help of an examination of the linkages in between technology and society, whereas LEAP is an energy modeling tool used in order to create energy projections in different policy scenario options. In this research, MLP were used to capture and analyze the factors that influence the future implementation of biofuels in Indonesia from a socio-technical perspective, putting forward key barriers for biofuel implementation in Indonesia. LEAP was used to construct a model of the Indonesian transport sector to project the future fuel consumption and GWP emissions. This was used to examine biofuels importance as a fuel through scenarios where different Indonesian policy actions were appraised. Together, these two methods will provide an enlightening and concluding remark on the future possibilities for biofuels in Indonesia's transport sector in this thesis. The major finding of the first research question were that biofuels in Indonesia were being introduced in Indonesia as the government saw economic benefits and a solution to the increased energy demand in Indonesia and an increased energy security in going towards a domestic produced energy source. The need for biofuels were also increased due to an increased global sustainability awareness, which also reached Indonesia. Today, biofuels in Indonesia is in a socio-technical transition pathway to go from a niche innovation to a technology in the regime level, but in order for a breakthrough, a number of barriers needs to be addressed. The most mentioned barriers were the institutional and regulatory barriers, which mainly lays in a lack of cooperation amongst the regulatory institutions and a low rate of success of biofuel laws and regulations. Other barriers were the market barriers, closely connected in a subsidization of fossil fuels in Indonesia and a need for further subsidization of biofuels for the market for biofuels to exist in Indonesia. Furthermore, a technical barrier with the vehicle engine were seen as the engine needs improvements in order for a higher blending of biofuels in the fuel. There was also a concern of the perceived sustainability of biofuels in general (e.g. water scarcity and pollution) which was identified as a hindrance. It was also clear a social change is needed in order to push the biofuel breakthrough and enable it to reach its full potential. Today, the interviewees mainly see a development for the biofuel biodiesel and not for the biofuel bioethanol in Indonesia, which they mainly concluded as there is currently none or very little production and demand for bioethanol in Indonesia, and as well a lack of governmental support for bioethanol development. For the second research question four scenarios were used; Business as Usual (a continuation of current trends), Improved Standards (an investigation of higher emissions standards and an increasing fuel efficiency), Biofuel Mandate (a mandatory biofuel share in fuels) and the Low Carbon scenario (a combination of the previous two as well as introduction of electric vehicles, changed car preferences and higher biofuel blending targets). Cars represents a tenth of the vehicle fleet and the share of diesel car amongst the cars are 5% while gasoline stands for 95%, the rest of the vehicles are gasoline driven motorcycles. The main findings were: the total vehicle fleet will have doubled by 2030. This rapid increase could cause stress on the domestic fuel supply, as the yearly fuel consumption is expected to grow from 770 million GJ in 2014 to 1850 million GJ in 2030, an increase by 140%. In the projection the fossil fuels are blended with biofuels, diesel is mixed with biodiesel while gasoline is blended with bioethanol. The annual diesel fuel consumption is projected to increase from 350 million liters to 1100 million in the Business as Usual scenario where the current trend was expected to continue. The implementation of biodiesel and bioethanol in the Biofuel Mandate scenario. Additionally, the Biofuel Mandate scenario resulted in a 12.6% reduction of GHG emissions during the projected period. The cumulative GHG emissions in the projection is estimated to be 1630 million tonnes of carbon dioxide equivalents in 2030 for the Business as Usual scenario. In the transport sector, gasoline is projected to increase from 23 billion liters to 54 billion liters over the period. In the Improved Standards scenario, where the emission standards are increased from Euro2 to Euro6 in 2030 for cars and Euro4 for motorcycles in 2025 as well as an annual fuel economy improvement of 2%, the total fuel consumption is reduced with 20% and GWP by 18%. It was found that the annual GWP could be reduced by almost 31% below the 2014 level, at 47 million metric tonnes of CO2Eq, if the actions of the Low Carbon scenario were achieved. The barriers associated with the Improved Standards scenario were technical, institutional and regulatory while the Biofuel Mandate scenario also had financial, market and distribution barriers. The Low Carbon scenario had barriers from all of the identified barrier categories. The institutional and regulatory barrier was the most prevailing barrier for all of the scenarios. The recommended actions based on the content of this thesis is to firstly promote collaboration between governmental institutes, stakeholders and authorities and include all stakeholders in the decision progress, this way, frameworks and regulations will have a chance to improve and increase the knowledge about biofuels in all levels. It is also important to implement a stronger biofuel R&D culture, promote a more sustainable biofuel development and increase the public awareness of biofuels. The implementation of biofuels will have a reducing effect on the total GWP and fossil fuel consumption. Gasoline is projected to remain the predominant fuel in the transport sector. Therefore will actions targeting the reduction or substitution of gasoline be more impactful than those towards diesel. However due to the availability and current production capacity of biodiesel there is still potential for higher share of biodiesel in fuels.

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