Ecba 1 kipi maloy technical report by Green Growth Program

KIPI MALOY Moving Towards Green Growth TECHNICAL REPORT

Component 1B: Green Growth Assessment of Capital Projects Government of Indonesia - GGGI Green Growth Program

July 2014

Table of Contents EXECUTIVE SUMMARY ................................................................................................................................ 4 GLOSSARY .................................................................................................................................................... 12 1 INTRODUCTION............................................................................................................................. 13 2 THE MALOY DEVELOPMENT ........................................................................................................ 21 3 OPTIONS FOR DELIVERY............................................................................................................... 26 4 METHODOLOGY ............................................................................................................................ 28 5 SCOPE OF ANALYSIS ..................................................................................................................... 36 6 RESULTS ........................................................................................................................................ 44 7 POLICY IMPLICATIONS ................................................................................................................. 71 APPENDIX 1: TECHNICAL NOTES FROM STAKEHOLDER VALIDATION WORKSHOP .............................. 76 APPENDIX 2: DISCOUNTED COST BENEFIT ANALYSES ............................................................................ 78

GoI-GGGI Green Growth Program Our joint Government of Indonesia (GoI) and Global Green Growth Institute (GGGI) goal “To promote green growth in Indonesia that recognizes the value of natural capital, improves resilience, builds local economies and is inclusive and equitable”. To achieve this, GGGI provides technical support, research and capacity building that is in line with GoI’s vision and direction Our objectives The specific objectives of the GoI-GGGI Green Growth Program are: 1. To ensure the green growth vision matches or exceeds existing development targets; 2. To track the green growth priorities of Indonesia by providing relevant targets and indicators; 3. To evaluate the implications of the country’s current development path against green growth targets and indicators and assessing projects and potential policy and investment interventions against this baseline; 4. To identify the key sectors and high potential green growth projects and investment interventions that will help deliver green growth development; 5. To harness private sector engagement and investment in support of delivering green growth opportunities in Indonesia; 6. To undertake economic modeling to analyze each project showing their financial returns and identifying any gaps in the incremental spend required to secure green projects. How GoI and GGGI will meet these objectives The program has three complementary work components: “To mainstream green growth within Indonesia’s economic and development planning processes”

Greening the planning process

REDD+ for green growth

“To support the development of a funding mechanism that disburses REDD+ finance to catalyze green growth”

Regional engagement

“To support key provincial governments in prioritizing and implementing green growth.

“To increase the use of green technology and increase capital investment in green industry” (GIMS)

The combined work of these components will help to achieve the objectives and the overarching goal of GoI and GGGI.

Executive Summary The Government of Indonesia (GoI)-Global Green Growth Institute (GGGI) Green Growth Program for Indonesia aims to promote green growth in Indonesia that recognizes the value of natural capital, improves resilience, builds local economies and is inclusive and equitable. A fundamental part of this will be mainstreaming green growth within Indonesiaâ&#x20AC;&#x2122;s economic and development planning processes. To this end, GGGI with GoI are developing a framework and suite of tools that can be used by GoI to help embed green growth concepts into existing planning and investment appraisal instruments. Full details of the framework can be found in an accompanying report1, but the essence of the framework is to make Green Growth measurable along the five outcomes outlined in Figure 1 below. These outcomes are interrelated and a positive contribution to one can often simultaneously provide benefits to others. Only by making progress along all of these outcomes can Indonesia plan for inclusive and equitable growth that is sustainable over the course of generations. Figure 1: The 5 Outcomes of Green Growth developed with key stakeholders in Indonesia

Similarly, full details of the range of tools needed to embed green growth within planning processes can be found in accompanying reports2, but at the heart of the suite of tools lies a comprehensive and integrated assessment of the monetary Costs and Benefits of capital projects in Indonesia. This includes, but is not limited to, those projects contained in the Master Plan for the Acceleration of Economic Development (MP3EI). This green growth assessment must not only look at financial costs and benefits but economic, social and environmental costs and benefits as well: an Extended Cost Benefit Analysis (eCBA). An eCBA can be used by decision makers in government and the private sector to answer key questions such as:

GGGI (2015, forthcoming) Delivering Green Growth in Indonesia: A Roadmap for Policymakers.

GGGI (2015, forthcoming) Delivering Green Growth in Indonesia: A Roadmap for Policymakers .

   

What is the green growth performance of the project as it is currently designed? What is the value to the economy, society and the environment of this performance? How can one re-design a project to improve its green growth performance? What are the synergies and trade-offs among the different outcomes of green growth in doing this?  How much capital investment is required to achieve this improved performance?  What policy instruments are needed to drive investment and behavioral change? Thus, an eCBA can be viewed as an analytical tool that governments can use to identify the monetary values of public goods, environmental externalities and social returns associated with many projects. In this sense, results of an eCBA can be used as a base of evidence to determine the size of public and private investment flows needed to maximize these values over time. This report is the first in a series performing eCBA on selected capital projects across Indonesia. 3

For this analysis, we have selected the Special Economic Zone of Maloy. Maloy is located in the district of East Kutai, East Kalimantan, and aims to build up a competitive industry cluster generating increased value-added economic activities from natural resource-based industries. In particular, palm oil and coal-based activities (oleochemicals, biodiesel, export processing) will account for most of the zone’s output. As outlined in

Figure 2 below, the development of Maloy also includes the provision of new, and the upgrading of old, rail, road and shipping infrastructure connecting Maloy to its hinterland.

Throughout this document “we” refers to the GGGI project team

Figure 2: Overview of Maloy and surrounding infrastructure development (Source: Bappeda East Kalimantan)

Conducting an eCBA is a process that relies on the support and expertise of local and national stakeholders. The consultation process involved the following activities:     

Identifying the project baseline with the help of project representatives and stakeholders in East Kalimantan Identifying options to improve Green Growth performance with the help of local stakeholders and Green Growth experts Mapping out impact pathways, linking changes in investment to monetizable impacts on stakeholders Gathering primary, secondary and international data in order to conduct the eCBA Validating the assumptions and results with local stakeholders.

While the principles of the methodology are well-established, the application is experimental and only the first, pilot, analysis in a series of analyses to be refined with stakeholders. Despite the best efforts of the team to validate all assumptions and findings with stakeholders, inevitably the results are subject to a degree of uncertainty and many data gaps had to be filled with international proxies. Lastly, the analysis is not meant to be exhaustive, but rather touch on a number of high impact themes – it is highly likely that further environmental and social enhancement/protection measures could be put in place at Maloy.

The specific results of this analysis are therefore not, by themselves, suitable for investment decision making. While effort has been made to use local information wherever possible, data has not been universally available, and international proxies have been used in the analysis. Business implications are drawn without specific reference to the method of financing, tax/subsidy regimes, and construction timelines and capital cost escalati0n. Reference has been made to specific limitations at various points throughout this report. We also highlight that we have sought to improve the Green Growth performance of Maloy. This is in order to develop national and sub-national policy recommendations, and is not in any way an opinion on the overall Green Growth performance of Maloy. The Global Green Growth Institute, its partners and contractors, do not verify, validate or endorse the social, economic or environmental performance of individual investments or projects. That is to say, the Maloy Development may or may not be “green” overall, even with the proposed green growth interventions listed here, but it will certainly be “greener”. Notwithstanding these caveats, the results of the eCBA provide a rich and diverse set of insights. The policy summary matrix in Table 1 below summarizes the main results of the eCBA study of Maloy. We estimate the total net societal benefit from the nine green growth interventions outlined below amounts to $3.8bn in Net Present Value terms (discounted in real terms at 10%). In this context, this is equivalent to over 10% of East Kalimantan’s GDP in 2012, and represents an incremental benefit-cost ratio of 1.9. These results are the aggregation of more than thirty different categories of benefit, spread out over the five outcomes of green growth. Some benefit categories are particularly pronounced in the overall results; GHG emissions from the large energy and some deforestation savings (valued at $80/tonne), economic growth benefits from a range of economic diversification options and social development benefits of improved health from reduced air pollution. As the largest investment, coal gasification disproportionately affects these results, with an economic benefit of $1.7bn, a GHG benefit of $483m, and a Social Development benefit of $676m. There are a large number of benefits from forest, mangrove and coral ecosystem protection – such as the enabling of fishing and tourism revenues, as well as important ecosystem services including provisioning and regulatory services relevant to the soil-water interface, nutrient cycling, and waste treatment. These benefits are potentially under-estimated relative to socio-economic benefits in our report due to data paucity. We note that many of the GHG benefits could equally be categorized as ecosystem benefits, as they relate to the carbon sequestration function of standing forests

Table 1: Summary Matrix for Green Growth Policy Interventions and Expected Benefits for Special Economic Zone Maloy

Project

Planned Development under KEK Maloy

Power Generation

 

Coal

 

Palm Oil  Plantation  Road



Rail

 

Shipping

 

Total

Green Growth Intervention

Net Benefit Construction of 1.4GW coal plant powered by Bituminous and Sub-  Substitution of coal for biomass in $32m Bituminous coal from local sources power generation by using palm kernel shells PKS) Electricity generation for the industrial zone and other nearby activities Basic processing of coal in line with Indonesian export regulations.  Promote local processing of coal into $2,829 natural gas and fertilizer Construction of coal-to-liquid and ammonia /ammonium nitrate plant in nearby PT Batuta Chemical Industrial Park (BCIP) in Sangatta. Production of 2.9 Mt of CPO is expected to be used as inputs for  Implementation of Best Management $347m industries (basic oleo-chemicals, cooking oils/margarine, soap, and Practices (BMP) biodiesel). Around 1.9 Mt of CPO will pass through the Port of Maloy each year for international export Construction of 254 km Toll Road connecting Maloy, Sangatta,  Extension of the road to develop $209m Samarinda (later to Balikpapan) and intermediary ports tourist resort Construction of 135 km freight rail between Maloy, Sangatta and  Railway rerouted to follow existing $389m coal mines in East Kutai and other districts in East Kalimantan. road's route Expected transport of around 1 million tonnes of coal each year to  Railway converted to accommodate Maloy CPO freight $0.04m Construction of CPO storage and export terminal on the Western  Cold-ironing (on-shore power) side of Maloy to transport around 1.9 Mt of CPO each year to the  Removal of anti-fouling paint international market.  Ballast Water Treatment Program The port will accommodate two 100,000 Dead Weight Tonne (DWT) chemical tankers, with berths built at the end of a 1.5km platform, designed to overpass the mangrove ecosystem. 9 Green Growth Interventions $3,807m

BenefitCost Ratio 1.3

1.9

23.9

1.4 1.8

1.0

1.9

In turn these ecosystems can improve the resilience of Maloy to land-based and coastal erosion, and weather shocks. We have probably under-estimated the resilience benefits of mangrove protection in particular, since the capital value of the Maloy development being protected is significantly higher than the areas considered in previous Indonesian studies we draw on in this report. In addition, there are a number of benefits that it is not possible to capture within the framework of eCBA, such as employment and supply-chain development, due to principles of double-counting or the inability to monetize flows. We estimate that the construction of all these green growth interventions will lead to an on-site and supply-chain one-off impact of $1.8bn in Gross Value Added, creating some 245,000 temporary jobs across Indonesia. The permanent supply-chain impact of the nine interventions is expected to be $210m and 25,300 full-time equivalent jobs. Although not included in the 5-outcomes graphic below, this broader economic development will be crucial in attaining positive socio-economic outcomes for Indonesia. Figure 3: Impact of green growth interventions on 5 outcomes of Green Growth

Coal processing Rail Palm oil Road Power Shipping -500 Economic growth

500 GHG Emissions

1,500 Ecosystems

2,500

Social development

Million USD (2013)

Resilience

Note: The Green Growth Framework (5 outcomes) is an evolving document, and will be updated after the publication of this report. This is to allow feedback between the micro-level project analyses occurring over 2 years and the macro-level framework. This eCBA report on Maloy may be updated in future to reflect this changes. Dimension of Green Growth

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

Total

Net Benefit

$736m

$2,253m

$807mn

$7m

$4m

$3,807m

Although we have not conducted financial appraisals on these potential Green Growth interventions, it is possible to draw broad implications for how these interventions might, or might not, become “investable”. The policy matrix in Table 2 below shows the main barriers to make green growth interventions investable and potential policy remedies. To strengthen the business case a range of potential instruments might be needed, including:    

Green taxes and charges Green subsidies Electricity Feed-in Tariffs Financial guarantees and preferential financing

ď&#x201A;ˇ

Payments for Ecosystem Services

These will need to be supported by practical policy enablers too, such as education, streamlined permitting processes, inter-Ministerial cooperation and provision of high-quality data for decision making. In some cases (e.g. clean shipping) it might need to be acknowledged that the Green Growth intervention, while good for society, the economy and/or the environment, is fundamentally financially unviable. Here, it is important to bear in mind the option for the intervention to be directly and fully financed by the public sector, as crucial Green Growth infrastructure whose long-term benefit outweighs the costs. We believe that these results provide a valuable contribution to the evidence base for Green Growth policymaking in Indonesia, both at national and sub-national levels. We hope that the analysis provides a tangible example of how to quantify and monetize a broad range of impacts at the project-level, and provides inspiration for the practical embedding of green growth theory into practical planning processes. All feedback and comments are gratefully received by the project team.

Table 2: Matrix on Policy Barriers and Enablers of Green Growth Interventions

Activity Power

Intervention Coal to biomass

Barriers to Investability  PKS loss-making source of energy relative to coal  Farmers may get poor price for PKS due to high transport costs to Maloy

Coal processing

Coal gasification

  

Policy enabling measures  Feed-in Tariff (MEMR Regulation 4/2012 FiT for Biomass)  Carbon tax / trading scheme  Bilateral Offset Crediting Mechanism (supporting RAN-GRK)  Lower cost of capital (MoF regulation 117/2006 and 79/2007 Development Credits for Biofuels and Plantation Revitalization) Financial risk high given market price  Subsidized finance / guaranteed loans until case proven fluctuations and unproven technology  Lengthy repayment terms Significantly higher production costs if CCS  Seek subsidized inputs under fertilizer subsidy program included  Tax / carbon permit incentive of approximately $20/tonne4 Extremely high capital requirements for  Use of innovative financing arrangements at national level for East Kalimantan provincial deployment including PPP Limited working capital  Government loans (potentially under MoF Regulation 79/2007 above) Investors unwilling to finance hotels given  Government builds infrastructure first, potentially financing from risk of delays to public infrastructure later tax revenues from resort None identified None identified Insufficient reward for shipping operators  Subsidy per unit pollution reduced from ships in-port No financial return for port owners  Subsidized electricity rates for ships in-port

Palm

BMP



Road

Re-route and hotel construction CPO Re-route Cold Ironing



BWTS Underwater hull cleaning

 Insufficient financial return for investors (BWTS)

Rail Shipping

   

 Port-side infrastructure government funded  Payment for Ecosystem Services charged on local fishery and tourism industry  Compensation between industries to fund measures  Direct financing of measures by local fishery and tourism industry  ‘Resilience levy’: KIPI Maloy charged for coastal protection value of mangrove/coral

Glossary Acronym

Explanation

BMP

Best Management Practices

c.i.f

Cost insured freight

CO2

Carbon Dioxide

DED

Design Engineering Document

DWT

Dead Weight Tonne

eCBA

Extended Cost Benefit Analysis

f.o.b

Free-on-board

GGAP

Green Growth Assessment Process

GGF

Green Growth Framework

GGGI

Global Green Growth Institute

GHG

Green House Gas

GoI

Government of Indonesia

Hectare

KIPI

International Port Industrial Area

LCOE

Levelized Cost Of Electricity

LNG

Liquid Natural Gas

MCA

Multi Criteria Analysis

MMBtu

Million British Thermal Units

Megatonne (1 million tonnes)

NOx

Nitrous Oxides

NPV

Net Present Value

Particulate Matter

PwC

Pricewaterhouse Coopers

SCBA

Social Cost Benefit Analysis

SDR

Social Discount Rate

SOC

Social Opportunity Cost

SOx

Sulfur Oxides

TKEZ

Trans-Kalimantan Economic Zone

1 Introduction Indonesia Green Growth Program The Government of Indonesia and Global Green Growth Insittute (GGGI) have developed a program of activity that is aligned and wholly supportive of achieving Indonesia’s existing vision for economic development planning. The aim is to show, using real examples of Indonesia’s development and investment plans at national, provincial and district levels, how economic growth can be maintained while reducing poverty and social inequality, maximizing the value of ecosystem services, reducing GHG emissions, and making communities, economies, and the enviroment more resilient to economic and climate shocks. The over-arching goal of the Government of Indonesia (GoI)-Global Green Growth Institute (GGGI) Green Growth Program for Indonesia is to promote green growth in Indonesia that recognizes the value of natural capital, improves resilience, builds local economies and is inclusive and equitable. The program has a number of specific objectives (see page 4), and three complementary components: 1.

Greening the Planning process. Aim: “To mainstream green growth within Indonesia’s economic and development planning processes” and “To increase the use of green technology and increase capital investment in green industry”

2. REDD+ for green growth. Aim: “To support the development of a funding mechanism that disburses REDD+ finance to catalyze green growth” 3. Regional engagement. Aim: “To support key provincial governments in prioritizing and implementing green growth” This report supports Component 1 in mainstreaming green growth in planning processes. As part of this component, the GoI and GGGI are developing a framework and suite of tools that can be used by GoI to help embed green growth principles into existing planning and investment appraisal instruments and processes. Mainstreaming green growth in planning processes Currently there is no single, internationally accepted analytical framework or set of indicators to monitor green growth performance5. As a starting point, GoI and GGGI have initiated a discussion with key stakeholders on what represents an appropriate framework to define what green growth means to stakeholders in Indonesia. Green growth planning needs to be undertaken in an integrated manner and on a comprehensive basis. It is important to understand the interdependencies between the country’s economic competitiveness drivers and their implications for social development and environmental performance. A Green Growth Framework (GGF) is being developed which brings together a set of social, economic and environmental indicators across 5 outcomes of green growth. These are all quantifiable and measurable, and provide a relevant framework for Indonesia to think about what Green Growth means to the country and the desired outcomes to be achieved through Green Growth. These indicators serve 3 purposes for government:

Green Growth Knowledge Platform, 2013

Diagnostic indicators: designed to assess the overall sustainability of Indonesia and to identify key issues that should be considered in the mainstreaming of the green growth Planning process;

2. Planning indicators: designed in accordance with the Pressure-State-Response approach and so useful for assessing the cause-effect linkages between sustainability issues highlighted by diagnostic indicators and their pressures and impacts; 3. Monitoring and Evaluation indicators: designed to help track green growth progress and performance of Indonesia. Indicators can either measure stocks (capital, output or quantity of an asset, such as human or natural capital that a country has at a given point in time) or flows (measures how the stocks in a country are being used, such as GDP). Indicators can be applied at different levels too, including at the national, regional, sectoral and micro (project) levels (see Figure 4). All indicators within this report fall under the category of â&#x20AC;&#x153;project-levelâ&#x20AC;? indicators. In a number of cases, an activity may contribute positively to multiple outcomes of Green Growth (synergies), or improve one at the expense of another (trade-offs). For example, investment in expensive renewable technologies may be a drag on economic performance but reduce GHG emissions (trade-off). Similarly, preservation of natural capital boosts ecosystem service functions and may also contribute to inclusive growth for local communities (synergy). Figure 4 : The 5 Dimensions of Green Growth developed with key stakeholders in Indonesia

Macro indicators can draw data from micro, project level indicators

Macro, national / province level

Micro, project level

Greenhouse gas emission reduction Social, economic and environmental resilience

Inclusive and equitable growth

Green Growth

Sustained economic growth

Indicators

Healthy and productive ecosystems providing services

National, province and district level indicators for monitoring, evaluation and target setting

Project indicators improve awareness of breadth of project impacts and can be used for monitoring and evaluation

This Green Growth Framework can support decision making and prioritization of economic planning instruments, across national and sub-national government. A key part of decision making in this context is the selection and improvement of capital projects, such as those found in the Master Plan for the Acceleration of Economic Development (MP3EI). The GOI together with the GGGI is developing a tool to help operationalize the GGF within government and measure the green growth performance of investments. This tool is called the Green Growth Assessment Process (GGAP). GGAP is a 9-step process using indicators specific to projects, sectors, districts, provinces and Indonesia as a nation, as well as a range of other tools, and can be used by government:   

To allocate resources to the projects with the highest green growth potential; To re-design and optimize publicly-funded projects; and, To build a business case for projects with green growth benefits in order to attract private investment.

A full overview of the GGF and GGAP is available in an accompanying report6, but in brief the GGAP is fed with proposed capital projects from different government economic development strategies and sectoral development plans, and applies indicators under the GGF to prioritize those that contribute most to Green Growth. Different design options for this shortlist of prioritized investments undergo a Green Growth Assessment. For the purpose of capital project assessments we apply an Extended Cost Benefit Analysis (eCBA) methodology. The eCBA is intended to provide a holistic and comprehensive understanding of the impacts of investments through a focus on the measurement and valuation of their green growth implications in rigorous, economic terms. It is often used in the application of Multi Criteria Analysis (see page 14), providing the social, economic and environmental valuations needed to make decisions. Based on the results of the eCBA, and ongoing monitoring of Green Growth performance, aspects of these investments can potentially be re-designed. The identification of potential project re-designs can help inform policy developments and other enablers. This paper is the first in a series of papers conducting Green Growth Assessments on a range of individual capital projects. For this reason, it is subject to revision as the results of the series influence the macro framework for assessment. Green Growth Assessment Within the Green Growth Assessment of Capital Projects, eCBA is the key methodology used to value social, economic and environmental costs and benefits. Cost Benefit Analysis (CBA) is a toolkit used by economists and other decision makers to evaluate the desirability of a policy or project by systematically comparing costs and benefits. These costs and benefits are measured in terms of “social welfare”. Social welfare is a technical term used by economists to measure the ‘utility’ of a population, as opposed to “private welfare” which is just the utility of the individual. Social welfare includes all economic (material goods), social (community cohesion), and environmental (beautiful landscapes) benefits that an economy, society and nature provide. In practice, calculating social welfare entails focusing on measurable economic costs and benefits, and including social and environmental factors not accounted for in market prices. We use the term Extended CBA (eCBA) to emphasize that our methodology assesses these non-market, social and environmental externalities as much as is practical (in this context, eCBA is similar to Social Cost Benefit 6

GGGI, Green Growth Assessment Methodology Paper, January 2014

Analysis (SCBA), but extended to take account of redesign options for the project to improve its green growth performance). An eCBA provides evidence for decision makers to inform decisions on whether a project should go ahead. If the total benefits exceed the total costs, then the project can be considered to be justified in net social welfare terms although the decision to proceed will inevitably be subject to a wider range of considerations (such as affordability). But, private investors will usually only take forward projects where the private benefits exceed the private costs. Due to the presence of market imperfections and “missing” markets (e.g. ‘public goods’ such as clean air), private incentives are not always aligned with achieving optimal social outcomes. Therefore, a key objective of the eCBA is to cast light on the difference between these and suggest policies to help align them. Many OECD-nation governments (e.g., the US, UK7) as well as multi-lateral institutions (e.g., the EU, World Bank, European Investment Bank8) require a Cost Benefit Analysis to justify substantial public expenditure outlays and/or policy action. The practical process of conducting an eCBA requires 6 stages as outlined in Figure 5 below. The production of the eCBA contained in this report has involved all of these stages over a 4-month period, for the Maloy Development in East Kalimantan. Figure 5: Stages in conducting eCBA Stage 1

Stage 2

Identify Green Growth options

Identify project baseline

Stage 3

Map Impact Pathways

Stage 4

Stage 5

Collect data

Cost Benefit Analysis

Identify and consult project stakeholders

Consult project stakeholders

Identify outputs, outcomes and impacts

Collect data from project documentation

Value costs and benefits of green growth interventions

Review project documentation

Consult experts

Assess materiality

Collect local market data

Consider implications of results for policy

Literature review

Identify scope for eCBA

Collect international technology data

Consider implications for project re-design and investment

Establish project rationale and need

Stage 6

Validate Findings

Validate findings with stakeholders

The Maloy Development Maloy is located in the district of East Kutai, East Kalimantan, and aims to build up a competitive industry cluster generating increased value-added economic activities from natural resource-based industries (see Figure 6 overleaf). A detailed overview of the development is provided in Section 2, but the key planned project activities include: -

Oleochemical production

Biodiesel production

HM Treasury (2003) Green Book Guide to Appraisal and Evaluation in Central Government. Shapiro (2010) The Evolution of CostBenefit Analysis in U.S. Regulatory Decision making 8

European Investment Bank (2013) The Economic Appraisal of Investment Projects at the EIB. World Bank Operational Manual (1994) OP 10.04 - Economic Evaluation of Investment Operations. EU regional Policy (2008) Guide to Cost Benefit Analysis of Investment Projects [Projects applying for more than €10-50m (depending on project type) of financial assistance from the EU Cohesion Policy funds are subject to a mandatory CBA.]

Other industrial activities

Ports for the export of Crude Palm Oil and Coal

Power Generation

Provision of supporting rail and road infrastructure

The Maloy Development was selected for analysis for several reasons including: that it is an MP3EI project and a priority development for CMEA and Ministry of Industry9; a key primary industry hub representative of broader green growth challenges in Indonesia; and, as data quality and availability were better than for many alternative projects. Figure 6: Map of Borneo, highlighting Maloy Development in the province of East Kalimantan

Maloy

Understanding the Results In this report we calculate the costs and benefits of different green growth options for the Maloy Development. Our headline finding is that implementing nine green growth interventions across six of the key aspects in and around the Maloy Development would result in significant net societal benefits. The full quantitative results are presented in Section 6. The details of scope and methodology are presented in Sections 4 and 5, but it is important to provide context for interpretation of the headline results. The scope of analysis considers the incremental green growth benefits, relative to the existing baseline scenario for Maloy as set out in the Masterplan and Engineering documents. The baseline itself has not been subjected to an eCBA as it is largely committed (certain construction activities have already broken ground). Therefore, the headline number does not say anything about whether Maloy overall is positive or negative for Green Growth, only that Green Growth benefits can be improved through investment in a range of green growth interventions. While we provide recommendations on “greening” the project, it is ultimately a policy decision whether a project is “green enough”.

Source: http://infosawit.com/booklets/BOOKLET%20INDONESIAN%20PALM%20OIL%20DOWNSTREAM%20INDUSTRY.pdf

Figure 7: Scope of this report – incremental costs and benefits

Greening the project appraisal process with eCBA Cost Benefit Analysis is part of a broader project appraisal process. A stylized overview of a typical current project appraisal process in Indonesia is outlined in Figure 8 and explained underneath. Figure 8: Stylized overview of the project appraisal process in Indonesia

Stage 0

Pre-project policy planning

Stage 1

Stage 2

Feasibility and options analysis

• RPJMN/D

• Market appraisal

• Spatial Plan

• Technical appraisal

Financial analysis

• Appraisal of financial costs and benefits

• Economic Zones (KEK, KSN)

Stage 3

Environmental Assessment

• AMDAL

Decision to proceed

Firstly, before the project is conceived, there will be a high-level planning framework set by government. This includes planning priorities set in the RPJP(D)N/RPJM(D)N, the national spatial plan (RTRWN), and localized spatial plans for economic zones (KEK, KSN)10. These collectively provide guidance on the type of activities that should take place in each geography.

2. Secondly, private or government-led feasibility assessments take place to confirm that there is a market for produced goods and services (is there a sufficient level of demand and clear route to market?), and whether the project is technically feasible from an engineering and practical point

Details on the planning process are available in Technical Annex 3.2

of view (is the site suitable, and are local resources such as raw materials and employees present?)11. 3. Thirdly, following the detailed engineering design (not shown as a step below), a detailed financial appraisal is undertaken to understand if the project is profitable (or fiscally neutral), and how it can be financed. After this stage, the broad decision to proceed with the project is commonly taken and planning applications finalized. 4. Fourthly and lastly, before construction begins, an Environmental Impact Assessment12 takes place. In general, the AMDAL involves identifying impacts from the work plan, detailing the environmental aspects of impact, predicting and prioritizing impacts, and evaluating important impacts in order to compose the Working Plan and Monitoring Plan. Extended Cost Benefit Analysis can fit into this existing process. By conducting an eCBA before the decision to proceed with the project (alongside other assessments such as Strategic Environmental Assessment, and Multi-Criteria Analysis), it is possible to assess whether and by how much, a project is contributing to social, economic and environmental outcomes. This allows for key decisions to be made before implementation:   

Does it offer net positive benefits and should it proceed? Are there opportunities to re-design this project to enhance green growth performance? Are there policies that might drive better outcomes for this and other projects (see next chapter)?

These additional stages in the appraisal process are illustrated below. Figure 9: Stylized overview of a “greened” planning and project appraisal process in Indonesia Stage 0 Preproject policy planning

Stage 1

Feasibility and options analysis

• RPJMN/D

• Market appraisal

• Spatial Plan

• Technical appraisal

• Economic Zones (KEK, KSN) • List of investments • Strategic Environmental Assessment

Stage 2

Stage 3 Extended Cost Benefit Analysis

Financial analysis

• Appraisal of financial costs and benefits

• Appraisal of social costs and benefits

Stage 4

Multi Criteria Analysis

• Integrating wider qualitative and strategic impacts

Stage 5

Impact Assessme nt

• AMDAL • Socio-Economic Impact Assessment

• GGAP filtering of projects • Strategic Environmental Assessment

Decision to proceed

This is commonly followed by a high-level financial assessment and then a detailed engineering plan. These are omitted for the sake of brevity 12

AMDAL was mandated by Government Regulation 29/1986, and regulated again by Regulation 27/2012. It is supported by Law No 32/2009 as an instrument for prevention of environmental contamination and/or damage.

Note: The GGAP (Green Growth Assessment Process) tool is a tool designed by the Global Green Growth Institute to priorities major capital projects for further analysis such as eCBA. The prioritization is based on high-level economic, social and environmental data expected to be available at the project inception phase.

As can be seen, there is a â&#x20AC;&#x2DC;natural homeâ&#x20AC;&#x2122; for eCBA in Indonesia, to take place after the financial appraisal of a project and before the AMDAL. For maximum impact, the eCBA should be combined alongside other Green Growth tools such as Green Project Prioritization tools, Strategic Environmental Assessment and impact assessment techniques. The aim of the eCBA in this report is to test the tool in development on a real life project and to contribute to the evidence base for Green Growth policy in Indonesia, highlighting potential options for improving Green Growth performance but more importantly demonstrating that valuing the wider implications of decision making, and internalizing them into the project appraisal process, can lead to improved policy outcomes. The eCBA does not substitute for a full feasibility analysis and financial appraisal. The specific results of this analysis are therefore not, by themselves, suitable for investment decision making. While effort has been made to use local information wherever possible, data has not been universally available, and international proxies have been used in the analysis. Business implications are drawn without specific reference to the method of financing, tax/subsidy regimes, and construction timelines and capital cost escalati0n. Reference has been made to specific limitations at various points throughout this report. Investment in the suggested green growth interventions would require additional analysis to validate the financial viability of these interventions at a site-specific level, based on primary data, as well as the need to consider detailed social, economic and environmental implications of implementation at sitespecific level. Structure of this report The rest of this report is structured as follows:

Section 2 provides an overview of the Maloy Development Section 3 provides different options for delivery and introduces the Green Growth scenarios Section 4 provides details of the methodology and reporting framework used in this report Section 5 provides a detailed overview of the scope of analysis Section 6 presents the quantitative results of the Cost Benefit Analysis Section 7 outlines some policy implications of the results Appendix 1 provides technical feedback from a workshop with local stakeholders Appendix 2 provides detailed calculations from the eCBA model

2 The Maloy Development Background and strategic rationale The Maloy Development is located in the district of East Kutai, East Kalimantan, a little over 200km North East of the provincial capital of Samarinda. It lies within the Trans Kalimantan Economic Zone (TKEZ), and supports the development of East Kalimantan as an Oleochemical Industrial Cluster (Presidential Instruction 1/2010), and as a hub for agroindustry and energy (Local Regulation 4/2009). The Port itself was decreed a Centre for Production and Processing of Mining and the Nationâ&#x20AC;&#x2122;s Energy under Presidential Regulation 32/2011, and a port expansion13 estimated to cost 6,320 IDR billion (506 USD million14) included under the Masterplan for Accelerated Economic Development (MP3EI). The port expansion extends to five terminals in total, of which there are three particularly significant port developments: (1) Crude Palm Oil port (on the Western-facing side of the peninsula) (2) Cargo and Container port (on the Eastern-facing side of the peninsula) (3) Coal port (on the southern tip of the peninsula to connect with Miang Island coal-processing facility) Within the TKEZ are seven industrial areas (totaling 32,800 ha), working together to build up a competitive industry cluster generating increased value-added from natural resource-based industries. The industrial zone likely to be completed first, the International Port Industrial Area (KIPI) Maloy, covers 1,100 ha (labelled MALOY_1 in Figure 11 overleaf). It will contain the bulk of oleochemical production in the short-run and backs directly onto the CPO port. A second Oleochemical zone of around 4,300 ha will eventually be completed on the Eastern side of the zone (KIPI 2, the unlabeled blue are in Figure 11 overleaf). The oleochemical zones together are expected to attract around 7,200 IDR billion (576 USD million).

Although Maloy is largely a greenfield development, there is an existing small port present.

For background information an exchange rate of 12,500 IDR: 1 USD is used throughout this document.

Figure 10: Overview of Maloy and surrounding infrastructure development (Source: Bappeda East Kalimantan)

Figure 11: Trans Kalimantan Economic Zone Overview (Source: Bappeda East Kalimantan)

The project is underpinned by infrastructure development in the surrounding area: (1) A Freight railway is being developed to transport coal from inland coal mines to Maloy. (2) A Toll Road is under construction to provide greater connectivity to Samarinda and the stretch of ports along the East Coast of Kalimantan between Kota Bontang and Maloy. (3) The existing inland roads often used for Palm Oil transport will be widened and strengthened. TKEZ is a multi-annual development and in varying stages of development. Some of the infrastructure developments are already financed and have broken ground, whereas others remain in the conceptual or planning stage. For this report we have concentrated on the aspects of the project for which we are able to obtain information. These â&#x20AC;&#x153;coreâ&#x20AC;? aspects are outlined in the table overleaf.

Table 3: Key aspects of the Maloy Development considered for analysis

Project aspect

Description

Power Generation

A 1.4GW coal plant is planned, to be powered from locally-sourced Bituminous and Sub-Bituminous coal. This will provide electricity for the industrial zone and other nearby activities (including an aluminum smelter), although is not expected to be more widely distributed. The coal brought to Maloy is expected to undergo basic processing such as washing in line with Indonesian export regulations. In the nearby PT Batuta Chemical Industrial Park (BCIP) in Sangatta, a coal-toliquid and ammonia / ammonium nitrate plant is also planned. 961,000 hectares of land are currently planted with oil palm in East Kalimantan, of which 536,000 ha are in the 3 Kutai districts closest to Maloy. Collectively, these plantations produced 5.7 million tonnes (Mt), of which 3.1Mt originated from the Kutai districts.

Coal Processing

Palm Oil Plantation and Processing

There are a mix of large public plantations (270,000 tonnes), large private estates (4.3Mt), and smallholders (1.1Mt)15.

Road

Rail

Shipping

Around 2.9 Mt of CPO (70% of total) is expected to be used as the raw material input for industries including basic oleochemicals, cooking oils/margarine, soap, and biodiesel. Around 1.9 Mt of CPO (the remaining 30%) will pass through the Port of Maloy each year for international export.16 A 254 km Toll Road is being constructed between Maloy, Sangatta and Samarinda (and then onwards to Balikpapan). This will connect Maloy to these destinations as well as intermediary ports along the route including PT. Perkasa Inaka Kerta Port, PT. Kaltim Prima Coal Port, MEC Infra Port, PT. Bhaki Energy Persada Port, and PT. Batuta Port. The project broke ground in 2013. A 135 km freight rail is being developed to run between Maloy, Sangatta and coal mines in East Kutai and other districts in East Kalimantan. The project is financed by international investors and will transport around 1 million tonnes of coal each year to Maloy. A CPO storage and export terminal is being constructed on the Western side of Maloy. This is expected to transport around 1.9 Mt of CPO each year to the international market. The port will accommodate two 100,000 Dead Weight Tonne (DWT) chemical tankers, at a depth of 15-20 meters. The berths will be at the end of a 1.5km platform, designed to overpass the mangrove ecosystem.

Kalimantan Timur Dalam Angka (Statistics Annual) 2013

There is some discrepancy between reported total production and land-use, and the assumptions in the Maloy DED. This is due to the assumed yield in the DED, 4.2t/ha, deviating from the implied yield in the East Kalimantan Annual Statistics Annual of 5.9t/ha.

Figure 12: Overview of KIPI Maloy Industrial Zone and CPO Export Terminal (Source: Bappeda East Kalimantan)

3 Options for Delivery The overarching objective of the Maloy Development - to build up a competitive industry cluster generating increased value-added from natural resource-based industries - could be achieved in different ways. In this section we outline alternative options for delivering the Maloy Development, relative to the baseline scenario. Baseline Scenario Since the planning process for Maloy is relatively advanced and the basic siting and layout of the project has already been decided upon, we define the baseline as provided in the project Masterplan and Design Engineering Document (DED). This baseline (or “Business As Usual”) scenario can also be thought of as the “do minimum” scenario, in this context. Since all scenarios are relative to the baseline, it is not necessary for the purposes of this incremental analysis to quantify the costs and benefits of the baseline itself. Indeed, with the data available and with the project in the advanced planning stage, this would neither be possible nor useful. In technical terms, the scenarios that follow are based on an “incremental” costs framework, not the “total” costs framework. Therefore, we do not take a position on whether the baseline itself has positive or negative impacts on each of the five outcomes of Green Growth (see Section 3), but rather evaluate how Green Growth benefits can be maximized and costs minimized through investment in a range of green growth interventions. However, it is worth noting that it is obligatory to give at least basic consideration to social, environmental and wider economic development objectives under Indonesian law. Specifically, the activities being undertaken state that they are planned in accordance with the relevant environmental regulation including: -

Government Regulation 18/1999 on Waste Management of Hazardous and Toxic Substances

Government Regulation 27/1999 on Environmental Impact Assessment

Government Regulation 41/1999 on Control of Air Pollution

Government Regulation 82/2001 on Water Quality Management and Water Pollution Control

Green Growth Scenario The baseline scenario may not necessarily align with an optimal development path for Indonesia. Even with environmental regulations mentioned above, there can be a range of externalities and governance, policy and institutional factors that prevent the Maloy Development from attaining its optimum green growth performance. Following a study of the project documents including the Masterplan, the AMDAL, the DED, and, an initial stakeholder workshop held in Samarinda in October 2013, we have designed a “Green Growth scenario” focused around nine “green growth interventions”. These interventions aim to improve the net benefits of the baseline scenario, and are outlined in Table 4 below. Table 4: Green Growth Interventions in the Green Growth Scenario

Project aspect Power Generation Coal Processing Palm Oil Plantation Road Rail

Green Growth Intervention Replace coal for biomass in power generation Gasification of coal for power generation Implementation of Best Management Practices (BMP) Extension of the road to develop tourist resort Railway re-routed to follow existing road's route 26

Shipping

Railway converted to accommodate CPO freight Cold-ironing (on-shore power) Replacement of anti-fouling paint Ballast Water Treatment Program

These interventions are hypothesized to have a net positive effect on relevant stakeholders in the Maloy Development. Each of them has been included in a quantitative, monetized scenario within the eCBA. Details on which stakeholders are affected and what impacts are considered within the eCBA are included in Section 4. Green Growth Aspirational Scenario In addition to those interventions outlined in the Green Growth scenario, there are a number of further interventions that have been suggested by external stakeholders and the wider GGGI project team, and that have been identified during research. These are listed in Table 5 below. These were considered to have potential to significantly improve performance across one or more outcomes of Green Growth. In practice, these interventions may involve substantial economic/financial costs or may be operationally impractical. Others lack the data required for even an elementary analysis. For these reasons, as well as time and resource constraints, these interventions were not subject to the eCBA as in the case of the Green Growth Scenario. Since they may become economically viable, practical and/or “analyzable” at a later date or under different circumstances we have included all the interventions in Table 5 in the Impact Pathways outlined in Section 4. Table 5: Green Growth Interventions in the Green Growth Aspirational Scenario

Activity Power Generation Coal Processing

Road

Rail

Shipping Industry

Other

Intervention Full replacement of coal for biomass / natural gas in power generation Other renewable energy sources (e.g. Solar PV) Responsible Mining Practices – Enforcement of existing legislation Promote gasification of coal for power generation, with Carbon Capture and Storage Protecting migration routes Re-routing road to avoid Kutai National Park Offsetting hydrology disruption Converting railway to transport people/passengers as well as other freight (e.g.: forest products) Converting diesel-based railway to electric railway Minimize bunkering spillage through prohibition of fuelling at Maloy Utilization of energy efficient technologies Utilization of renewable energy technologies (e.g. Solar PV) Reduction of solid waste and wastewater run-off Optimization of CPO production streams17 including Biodiesel Vocational training to support local uptake of job vacancies created in tourism and advanced manufacturing.

The planned CPO production streams could be optimized to account for the different physical inputs needed for each. Crude Palm Oil and Palm Kernel Oil are produced in fixed proportions and using them appropriately could reduce wastage, waste, and land-use required for palm oil cultivation.

4 Methodology This section summarises the methodological approach used to evaluate the societal costs and benefits likely to be generated by each of our nine green growth interventions. Introduction to Green Growth Assessment Within the Green Growth Assessment of Capital Projects, eCBA is the key methodology used to value social, economic and environmental costs and benefits, and underpins the results in this report. These costs and benefits are not always taken into account in decision making as individuals maximize their own private welfare, not necessarily social welfare. Private costs and benefits and social costs and benefits diverge due to the presence of market imperfections. For example, an investor does not always pay for the health damage that industrial effluent from their factory generates to communities downstream so the factory over-produces relative to what would be ‘best for society’, or does not pay for pollution-control technology even though this is cheaper than the health damages inflicted. This concept can be equivalently thought of in terms of ‘stocks and flows’. Natural capital provides valuable ecosystem services to communities, for which there is rarely a market price. Therefore, private individuals deplete the stock too quickly, not accounting for the value of these ecosystem services, and/or not accounting for the rate of natural regeneration of the stock. Over time, these stocks can no longer provide the valuable flows and so become degraded or fully depleted. If these market imperfections were corrected, natural capital would be as stewarded as carefully as financial capital, and the socially optimal amount would be preserved. These market imperfections include: 

Externalities (e.g. water pollution to a downstream user)



Public goods or bads (e.g. Clean air, Green House Gas emissions)



Taxes and subsidies (e.g. fossil fuel subsidies, labor taxes, taxes on capital)



Knowledge spillovers (e.g. under-investment in human capital and training)



Asymmetric information and principal-agent problems (e.g. investor is not beneficiary of investment)

Principles of Cost Benefit Analysis It is necessary to consider a much wider range of prices than pure market prices to arrive at the social costs and benefits of a decision (the “social opportunity cost”). There are a number of principles to be followed when calculating social opportunity cost (SOC). We have outlined the logic behind each principle, along with a commentary on to what extent these are applicable to the analysis in this report18. We note that these principles are crucial in differentiating eCBA (similar to “social cost benefit analysis”) from “financial appraisal” or “financial cost-benefit analysis”, which only considers market costs and benefits from the perspective of a private investor. Social discounting: Discounting is used to compare costs and benefits that occur in different time periods. Society generally prefers one dollar now to one dollar next year. This is partly due to intrinsic impatience in human nature and partly due to the expectation that society will be wealthier in future. It

For further details relating to the principles and application of Cost Benefit Analysis the reader is referred to The World Bank “Handbook on Economic Analysis of Investment Operations”, The European Investment Bank “The Economic Appraisal of Investment Projects” and United Kingdom HM Treasury “The Green Book: Appraisal and Evaluation in Central Government”.

can also alternatively represent the fact that dollars invested now create new assets and income tomorrow, and therefore capital has an opportunity cost across time. The rate at which costs and benefits are compared across time (‘discounted’) is called the Social Discount Rate (SDR19). In general, the SDR will be significantly lower than a private sector discount rate used in financial appraisal since society can afford to take a longer term view of assets, risks are spread across entire populations not just one project, and there are no taxes to consider. We use a (real) SDR of 10% in our analysis, in line with the Asian Development Bank / World Bank range of 10-12% for developing economies20. We note that a corporate financial appraisal would be more likely to use a discount rate of 15% or higher in investment decision making. Since the costs and benefits of green growth interventions can stretch across many decades, discounted net benefits are often extremely sensitive to the choice of discount rate. See Stern (2006)21 for a full discussion. Taxes and subsidies: If there are significant taxes or subsidies present, then market prices will not represent the SOC of a resource (since taxes/subsidies are simply a transfer payment to/from government). In practice, it is not necessary to remove taxes and subsidies from all market prices in the analysis, but only where it makes a material difference to decision making. This is generally where markets are highly distorted. In the context of the Maloy Development, the most relevant distortions are in the fertilizer market and electricity markets: 

For ammonia-based fertilizers, industrial inputs are subsidized in order to achieve a target retail price for farmers22. Calculating a per-unit subsidy for 2013 is difficult given data lags, and so we have adopted the international spot price for ammonia as representative of the SOC, even though ammonia is not necessarily non-tradable.



Electricity purchased from the grid is also subsidized, heavily so for retail customers. This subsidy may amount to several US cents per kilowatt hour23, which is considered material. For this reason, we have used the Levelized Cost Of Electricity (LCOE) of sub-critical coal generation as the SOC of electricity consumption avoided (evaluated at 15% discount rate).

Labour is also a highly taxed item, and also one where market distortions such as unemployment (or in the Indonesian case, under-employment) mean that the opportunity cost is less than the market wage. We have not adjusted market wages in our analysis, however, due to the small impact market wages have on overall results, the difficulty of separating labor from other input costs, and the lack of available studies of the Kalimantan labor market. Trade-related taxes and import costs are covered under “tradable goods” below. Externalities: Where the social cost of the extraction or consumption of a resource differs from the private cost (or equivalently, the benefits), there is said to be an “externality”. Again the market price, determined solely by private costs and benefits, will not reflect the true SOC of the resource or activity. The presence of externalities is a major feature of the economy of East Kalimantan, with natural capital extraction generally considered unsustainable, and without sufficient regard for the knock-on loss of flow-benefits for other communities. 19

Or: Social Rate of Time Preference. In the Ramsey (1928) model, SDR is defined as the sum of: the Pure Rate of Time Preference; and the Marginal Elasticity of Utility with respect to Income, multiplied by expected Income Growth. 20

Zhuang et al (2007) “Theory and Practice in the Choice of Social Discount Rate for Cost Benefit Analysis”

Stern (2006) The Economics of Climate Change

World Bank (2011) “Who is benefiting from Fertilizer Subsidies in Indonesia”

PwC (2011) “Electricity in Indonesia: Investment and Taxation Guide”

In this analysis, we focus on the value of the many non-market provisioning and regulatory services attributable to Forest Ecosystems, Mangrove Ecosystems, Coral Ecosystems and the negative externalities associated with air pollution (Sulfur Oxides, Nitrous Oxides, and Particulate Matter). Depending on data availability, these are either expressed as a stock or a flow. Market power: Similarly, if a market is distorted due to oligopolistic or monopolistic market structures, then the market prices will fail to reflect the true opportunity cost of a resource. In our analysis we assume market structures are competitive, which implies all agents are price-takers. This appears reasonable in the context of Maloy in a Global, or at least pan-Asian, Palm Oil and coal market where plantation-owners and mine-owners have historically been forced to accept the prevailing market price for export. Although domestic coal prices may be distorted by monopoly arrangements such as the HBA index and Domestic Market Obligation policies, we take the export f.o.b. (free on board) price in our calculations. Tradable goods and Exchange Rates: Tradable goods must be valued as if there are no impediments to trade (i.e., no quantitative restrictions, no import/export tariffs or subsidies). In Indonesia, there are two particularly relevant distorted markets where exports are treated differently to domestic consumption: 

Coal exports are levied a Value Added Tax of 10%, whereas domestic purchases are VATexempt24.



Crude Palm Oil is subject to a complicated export duty regime. This changes frequently, but as of September 2013, the export duty rate was 9% based on a price of $800-850/tonne25.

In both cases we use f.o.b. prices to exclude the impact of these taxes. We assume that the official exchange rate represents the true opportunity cost of foreign exchange. Although there has been intervention in the forex market by Bank of Indonesia (for example in 2013) and trade is to some extent distorted by the presence of tariffs and other restrictions, our analysis is almost entirely conducted in US Dollars anyway. All dollar values are uplifted as needed to a 2013 base year using the United States GDP Deflator. We have not taken a view on whether the capital machinery required for certain interventions is available locally or would have to be imported. In these cases, the costs are quoted in their original dollar terms. Costs relating to finance: The payment of interest and repayment of principal is often a key part of a financial appraisal. This is excluded from eCBA since the project is being assessed on its social costs and benefits, and its impact on resource use. Debt service represents a transfer from payer to payee, and does not affect use of resources or output. Also, the eCBA discounting process takes account of the opportunity cost of the project’s capital and operational expenditure incurred. The same argument applies to interest capitalized during construction. In our analysis, where identifiable, all costs relating to the financing of an intervention have been excluded. For example, Total Overnight Costs were used instead of Total-As-Spent-Capital in the coal gasification example. Financing costs included in TOC were also explicitly removed.

PwC (2012) “Mining in Indonesia: Investment and Taxation Guide”

Bloomberg (2013) “Indonesia cuts Palm Oil Export-Tax to Boost Sales as Prices Drop”

Key data and assumptions for this project The eCBA relies on a wide range of physical and monetary data. It is not always clear cut as to which value to use in a particular calculation due to the constant evolution of markets, uncertainty about the future, missing or inaccessible data, unknown project operational details and so on. We have been fully transparent with the assumptions we have chosen. The full data set can be examined in the accompanying spreadsheet (available upon request), and we have included the key assumptions driving the overall results in the tables below. As a general rule, preference was given to data in the following order: 1) Project-specific data (e.g. from the DED, Masterplan, or local stakeholder engagement) 2) Province-specific data (e.g. coal prices from similar ports in East Kalimantan, other experience from local stakeholder engagement) 3) Indonesia-specific data (e.g. coral valuations from Lombok) 4) South East Asia-specific data (e.g. the price of Marine Diesel Oil in Singapore) 5) Other comparable international technology or market data Primary data of type (1) above was not always available, and expert judgment was used in deciding whether data types (2) – (5) were appropriate and whether any major adjustments or caveats were required. Where we feel there are particular issues for consideration, we have included them in the write-up of results in the following section. Table 6 below outlines the key “top-level” assumptions used across multiple areas of analysis. In addition to these quantitative assumptions, there were qualitative assumptions made across all areas of analysis. The first of these was that demand curves are inelastic. That is to say, none of the interventions assessed are expected to shift market prices, and so all prices were held constant in the baseline and Green Growth scenario. The second is that the relevant geographical scope of analysis is East Kalimantan only – costs and benefits to other provinces are excluded (although national impacts are considered in the “wider impacts” discussions). The only exception to this was in relation to climate change. As this is considered a global problem, the valuations were made on the basis of the global damages attributable to one tonne of carbon emitted in Indonesia, not just the Indonesia-specific damages. In terms of emissions accounting, the territorial principle was still followed: that emissions are only counted if resulting from activities in East Kalimantan (e.g. excluding the embodied carbon in coal exports). We note that a draft version of this report was presented to stakeholders for data and assumption validation. Their comments can be found in Appendix 1.

Table 6: Key assumptions applied across all aspects of analysis26

Parameter Social discount rate Social cost of carbon

Value 10% 80 USD/tCO2e

Forest ecosystem valuation (low value is secondary forest, high value is primary forest)

Emissions to air

GDP growth rate in Kaltim (from 2015 onwards)

SOx health impact

0.95 USD/kg

NOx health impact

0.82 USD/kg

PM health impact

7.75 USD/kg

Direct - Timber - Non-timber forest products - Firewood - Water supply regulation Indirect - Erosion control - Carbon sequestration - Flood protection - Water transport - Biodiversity Non-use - Intangible: option & bequest - Social cost: conflict & safety

820 - 932 USD/ha 592 - 736 USD/ha 2 USD/ha 6 USD/ha 613 – 635 USD/ha 15,600 USD/ha 375 – 394 USD/ha 89 USD/ha 71 – 158 USD/ha

Source ADB Tol (2009) assuming 0% Pure Rate of Time Preference Based on short-run Indonesia growth forecast of 5-6% by World Bank / IMF. PwC Environmental Valuation Guidelines (2011)

Guideline Economic Valuation Forest Ecosystem, KLH (2011) Note: Except, Carbon sequestration based on Social Cost of Carbon above and value for carbon stock in Table below.

45 - 52 USD/ha 71 - 95 USD/ha

Note: In this table and the following table, units are generally quoted in their source year currency units. In the actual CBA calculations, all values were automatically adjusted for inflation using the US GDP deflator as published by the World Bank World Development Indicators.

Table 7 outlines assumptions specific to individual green growth interventions. Table 7: Specific assumptions applied during the analysis of each green growth intervention

Activity Power Generatio n

Coal

Intervention  Replacement of coal with biomass in power generation

 Promote

gasification of coal for power generation

Parameter Coal price (f.o.b, 4,000 kcal/kg)

 Implementation of

Best Management Practices (BMP)

Coal plant capacity factor

85%

Target share of biomass in power plant fuel mix

Price of sulfur Price of anhydrous ammonia Coal price (f.o.b, 5,900 kcal/kg)

Initial BMP implementation and certification costs Ongoing BMP maintenance and certification costs CPO28 export price (f.o.b.) Supply of CPO to Maloy for domestic processing (East Kutai only) Proportion of CPO exported as crude Average boost in yield attributable to BMPs Average CPO yield East Kalimantan Proportion of plantations implementing BMP Proportion of yield boost feeding to reduced land use

Road

 Extension of the

road to develop 27

PKS refers to palm kernel shells

CPO refers to crude palm oil

45 USD/tonne 106 USD/tonne

PKS27 price

Skilled manufacturing unit labor cost, East Kalimantan Palm Oil Plantation

Value

Cost to build a 100-room hotel in Indonesia (Jakarta)

150 USD/tonne 700 USD/tonne 67 USD/tonne 6.61 USD/hr 36.98 USD/ha 14.87 USD/ha/yr 690 USD/tonne 2.5 m tonnes/yr

Source Coalspot.com 2013 average Estimate based on transport costs and pulverization costs IEA Assumption based on PKS availability in East Kutai National Iranian Gas Company CRU Group Coalspot.com East Kalimantan Statistics Annual 2013 WWF WWF Stakeholder consultation East Kalimantan Statistics Annual 2013

40%

DED

15%

Donough et al (2009)

5 tonnes/ha/yr

Stakeholder consultation

20%

Based on proportion of smallholder farmers

50%

Expert judgment

8.5 m USD

CBRE

tourist resort

Daily spend per tourist Improved tourism potential of East Kutai (expected % of visitors to Sabah) Weighted average GVA Multiplier for Tourism Industry in East Kalimantan Proportion of tourist spend in East Kutai that detracts from existing East Kalimantan tourist spend

Rail

 Railway re-routed

to follow existing road's route  Railway converted

to accommodate CPO freight

shore power)  Replacement

anti-fouling

East Kalimantan Input Output Tables 2009

20%

Expert judgment

50%

Mean cost of road freight transport in East Kalimantan

64% 200 tCO2e/ha

70%

Team analysis based on planned route

Cost of operating BWTS

15k USD/yr 600 USD/tonne

Price of Marine Gasoline Oil

950 USD/tonne

Assumed fuel sulfur content

High-sulfur fuel (2.7%)

Value of purchased

electricity

RSPO

0.46 USD/ tonne.km

600k USD

of paint Price of Marine Diesel Oil

Colliers International Indonesia Colliers International Indonesia Team analysis of major palm mills in East Kutai

Coordinating Ministry for Economic Affairs, Stakeholder Consultation [average]

Cost of purchasing BWTS

 Ballast Water

Treatment Program

1.31

Proportion of international vs. domestic tourists

Number of CPO handling terminals required  Cold-ironing (on-

Expert judgment

59%

Share of CPO transported to Maloy that would be able to use the railway Carbon stock in East Kalimantan forest

Colliers International Indonesia

Mean hotel occupancy rate

Proportion of railway route over which land clearance can be avoided

Shipping

407 USD

USD 0.08/kWh

Team analysis of major palm mills in East Kutai California State Lands Commission ~Singapore price (bunkerworld.c om) ~Singapore price (bunkerworld.c om) Expert judgment

Rozana et al (2011), Dapice and Cunningham (2011)

Coral ecosystem valuation

- Fishery function - Tourism function - Coastal protection

75k USD/km2 480k USD/km2 260k USD/km2

Cesar and Chong (1996)

5 Scope of Analysis This section outlines the activities, outcomes and stakeholders considered as part of the analysis. Impact pathways and indicators In order to determine the net benefit that each of our “green growth interventions” will generate, we must first establish how each intervention is likely to affect the environment, the economy and society as a whole. We use ‘impact pathways’ to describe the linkages between interventions (activities), the expected outputs from those activities, and the positive and negative outcomes that are generated in both the short and longer term. The structure of an impact pathway is outlined in Figure 13 below. Beneath Figure 13 there is an example for the Maloy Development actually used in the Extended Cost Benefit Analysis. By explicitly outlining this “theory of change”, we make sure that each outcome is clearly defined and that they are derived from tangible activities and outputs. Outcomes must be expressed in monetary terms to ensure that they are compatible with a monetary Cost Benefit Analysis. Figure 13: An impact pathway

Inputs  What resources have been committed?

Activities

Outputs

Impacts

Outcomes

 How are the

 What are the

 How are

 The net change

resources used?

direct results of those activities?

stakeholders affected as a result of the outputs?

to stakeholders as a result of outputs

Example for Maloy: Capital and operational expenditure on rail terminals and railway carriages

Constructing rail terminals for handling CPO.

Revised construction plants

Construct line along alternative route

Transporting CPO by rail.

Reduced transport costs

Increased profit for plantation owners

Reduced GHG emissions

Less climate change for global stakeholders

Reduced deforestation

Increased timber and NTFP yield for local communities Water supply and disturbance regulation for downstream communities and businesses Better erosion control, soil formation and nutrient cycling for downstream communities and businesses Biodiversity

and

n/a – outcomes relative to baseline of rail transport for CPO

intangible value to global stakeholders Social conflict avoided for local communities and businesses Better waste treatment for downstream communities and businesses Increased carbon sequestration benefit to global stakeholders

Table 8 overleaf sets out the impact pathways constructed for each of the nine Green Growth interventions. These impact pathways define the scope of our cost-benefit analysis and identify the key indicators and outcomes that we will seek to quantify in our approach, as well as to whom these accrue. It is worth noting that this is not an exhaustive list of impacts, but rather a selection of highimpact interventions as well as those explicitly suggested by project stakeholders. There is an additional column to identify which Green Growth Dimension we have classified for each impact. Those impacts that are included in the eCBA (marked with a “”) are defined very strictly with respect to impacts and stakeholders as these have to be absolutely clear for the valuation to be robust. Those quantitative impacts not included in the eCBA, or those activities that were considered as part of the qualitative Green Growth Aspirational scenario not the Green Growth Scenario, are defined more flexibly (and marked with a “” - see also the key below). Monetary, additive indicators are: 

Marked with a “” in Column 3 of Table 8



Included in the eCBA calculations



Discussed under the title “costs and benefits” in Section 5

Monetary, non-additive indicators, as well as non-monetary indicators are: 

Marked with a “” in Column 3 of Table 8 29



Excluded from the eCBA calculations



Discussed under the title “wider impacts”, in Section 5

The costs and benefits associated with each impact have been “allocated” to one of the five Green Growth dimensions for reporting purposes. This does not affect the valuation methodology but it determines how each cost or benefit is categorized in the respective outcomes. This process is subject to uncertainty since many of the costs and benefits are cross-cutting; i.e., they contribute to more than one outcome of green growth In particular, resilience is a cross-cutting outcome and interventions affecting resilience are likely to affect at least one of the other 4 outcomes as well. Open communication and stakeholder participation is the best way to achieve consistency in the allocation of costs and benefits to the different outcomes of Green Growth.

The symbol  also covers activities not analyzed quantitatively (i.e., those in the Green Growth Aspirational Scenario)

Key: Intervention X Intervention Y  

Included in Green Growth Scenario Included in Green Growth Aspirational Scenario Included in Green Growth Scenario, and included in Monetary Cost Benefit Analysis Not included in Monetary Cost Benefit Analysis

Table 8: Impact Pathways

ACTIVITY

POWER

GG INTERVENTION

Replacement of coal with biomass fuel

OUTPUT

IMPACTED STAKEHOLDE RS

POSITIVE OUTCOME / BENEFIT

DIMENSION OF GREEN GROWTH



Change in CO2 emissions

Global impact

Climate change mitigated

GHG Emissions



Change in other air pollutants (SOx, NOx, PM)

Downwind/Loc al Communities and Workers

Health and quality of life impacts avoided

Social developme nt



Change in financial performance of power plant

Power generating companies and/or companies working in the estate

(fuel costs may be lower depending on fuel prices)

Economic Growth



Establishment of renewables supply chain for PKS

Palm Oil Plantations, Power industry, Local and National Government

New green industries

Economic Growth



Increase in renewables production



Increased diversity of fuel supply

MONETISE D IN CBA?



Reduced GHG intensity for Kalimantan Increased coal available for export Change in other air pollutants (SOx, NOx, PM)

Change in financial performance of power plant

PLN and/or companies working in KIPI Maloy

NEGATIVE OUTCOME / COST

Cost of technological adaptation, change in fuel costs and other operating expenses

Potentially increased exposure to volatility of PKS prices

Local and National Government Local and National Government Downwind/Loc al Communities and Workers Power generating companies and/or companies working in the estate

Cost of technological adaptation, change in fuel costs and other operating expenses

Climate change mitigated Probably reduced exposure to fuel price changes as coal and PKS prices are not strongly correlated Climate change mitigated Improved Balance of Payments Health and quality of life impacts avoided

(fuel costs may be lower depending on fuel prices)

GHG Emissions

Resilience

GHG Emissions Economic Growth Social developme nt

Economic Growth

Other renewable technologies Solar PV



Utilization of energy efficient technologies



Reduced energy consumption

Companies operating in KIPI Maloy

Utilization of renewable energy technologies Solar PV



Increase in renewables production

Global impact



INDUSTRIAL PRODUCTIO N

Reduction of waste 

Optimization of CPO production streams (in line with production of CPO, KPS etc. upstream) including production of biodiesel





Implementation of Best Management Practices

Cost of technological adaptation and other operating expenses Cost of technological adaptation and other operating expenses

Reduced fuel costs

Economic Growth

Climate change mitigated

GHG Emissions

Reduced wastewater flowing into sea (acids, alkalies, toxic metals, oil, grease, BOD, COD) Reduced solid waste being disposed of locally Change in financial performance of oleochemicals production

Ecosystems

Oleochemical companies operating in KIPI Maloy

Net effect on profitability depending on market prices for outputs and inputs

Economic Growth





PALM OIL PLANTATIO N

See IGCC above



Increased/reduc ed pressure on land-use

Improved soil, fertiliser and harvesting practices lead to improvements in CPO yield Reduced deforestation* increased timber and NonTimber Forest Product yield Reduced deforestation* improved water supply and disturbance regulation, soil formation, and nutrient cycling Reduced deforestation* biodiversity and aesthetic properties Reduced deforestation* social conflict avoided

Local communities

Palm Oil Plantations

Depending on balance of biodiesel demand versus efficiency gain, changes in deforestation and ecosystem degradation (see * below for detailed impact pathways for deforestation) Operation costs of BMP and Certification

Ecosystems

Increased revenues

Economic Growth

Local communities

Increased timber revenues

Ecosystems

Downstream communities, farmers and other businesses

Increased agricultural productivity, avoided costs of water purchase

Ecosystems / Resilience

Global impact

Intrinsic value (existence value)

Social developme nt

Local communities and businesses.

Avoided business disruption and law

Social developme nt

Local government

enforcement costs



Reduced deforestation* improved waste treatment

Downstream communities, farmers and other businesses

Increased agricultural productivity, avoided costs of waste treatment

Ecosystems



Reduced deforestation* increased carbon sequestration

Global impact

Climate change mitigated

GHG Emissions



Impacts of BMP on reduced soil degradation & erosion

Downstream communities and farmers, Downstream Palm Oil Plantations

Agricultural productivity

Ecosystems



Impacts of BMP increased availability of surface and ground water

Downstream communities and farmers, Downstream Palm Oil Plantations

Improved health, agricultural productivity, avoided costs of water purchase

Ecosystems



Impacts of BMP on avoided endangered health from chemicals used

Downstream communities and farmers, Downstream Palm Oil Plantations

Improved health, agricultural productivity

Ecosystems



Change in CO2 emissions

Global impact



Change in other air pollutants (SOx, NOx, PM)



COAL

Promote gasification of coal for power generation



Change in financial performance of power plant More productive agricultural and palm oil activity from increased fertiliser availability Use of waste heat in oleochemical industry – change in financial performance Use of waste heat in oleochemical industry – reduced GHG emissions

Downwind/Loc al Communities and Workers Power generating companies and/or companies working in the estate

Climate change mitigated Health and quality of life impacts avoided Cost of technological adaptation, fuel costs and other operating expenses

GHG Emissions Social developme nt

Value of electricity generated

Economic Growth

Local communities, Palm Oil Plantations

More resilient economy. More manufacturi ng jobs and GVA.

Economic Growth

Investors

Increased profits

Economic growth

Global impact

Climate change mitigated

GHG Emissions

Addition of Carbon Capture and Storage onto coal gasification plant

Implementation of Responsible Mining Practices



More diversified industrial base and shift towards higher value-add activity



Change in financial performance of coal gasification plant

Investors



Change in CO2 emissions

Global impact



Reduced deforestation



Reduced soil erosion



Reduced waste generation



Reduced water pollution and toxic run-off



Extension of the road to develop tourist resort

Additional tourist visits to East Kalimantan

Offsetting hydrology disruption

Local communities, Palm Oil Plantations and other farmers

Investors

Cost of environmental mitigation measures

Cost of building and maintaining hotel and extending road



Local Ecosystem Local Communities and Global Stakeholders

Cost of building and maintaining fences and animal bridges



Number and type of species protected

Investors

Cost of rerouting road

Local Ecosystem Local Communities and Global Stakeholders



Maintained water supply to downstream users

Local Communities

Economic Growth

Cost of technological investment and other operating expenses (e.g. parasitic power)

Number and type of species protected

ROAD

Re-routed to avoid Kutai National Park

Local and National Government

Other businesses



Protecting migration routes

More resilient economy. More manufacturi ng jobs and GVA.

Cost of building underpasses and other hydrological mitigation

Climate change mitigated Climate change mitigated Increased agricultural and Palm Oil productivity Avoided health impacts of dumped waste Increased agricultural productivity, avoided costs of water treatment, improved health

GHG Emissions GHG Emissions

Ecosystems

Social developme nt

Ecosystems / Social Developme nt

Revenues from tourism (spent on hotels)

Economic Growth

Revenues from tourism (spent on other businesses)

Economic Growth

Value of species saved

Ecosystems

Economic Growth

Value of species saved

Ecosystems

Value of clean water supply to downstream users

Ecosystems

measures with road

Railway re-routed to follow existing road's route

Railway converted to accommodate CPO freight



Reduced deforestation



Reduced deforestation see * above for detailed impact pathways



CPO transported by rail rather than road





RAIL

Converting railway to transport community products and passengers

Avoided land clearance costs

Investors

Freight companies / Palm Oil Plantations

Cost of installing CPO terminals and operating CPO carriages

Global impact

Change in financial performance of railway

Investors

Cost of installing additional freight / passenger terminals and operating new carriages

 Local communities



Change in financial performance of railway

Investors



Change in CO2 emissions

Global impact



Change in other air pollutants (SOx, NOx, PM)



Ballast Water Treatment Programme (No Invasive Species) SHIPPING



Change in financial performance of shipping operations Coral preservation** Increase in fish habitat Coral preservation** Increase in tourism Coral preservation** Increase in coastal protection Mangrove preservation** Increase in timber yield

Shipping operators

Cost of installing electrical infrastructure

Economic Growth

GHG Emissions

Economic Growth

Access to health / education / employment opportunitie s Revenues from local products



Converti ng dieselbased railway to electric railway

Reduced vehicular operating costs (from trucks) Climate change mitigated

Economic Growth

Potential fuel savings Climate change mitigated Health and quality of life impacts avoided

Cost of investment and operation of BWTS

Social developme nt

Economic Growth Economic Growth GHG Emissions Social developme nt

Economic Growth

Local fishing communities

Increased fishing revenues

Economic Growth

Local communities and businesses

Increased tourism revenues

Economic Growth

KIPI Maloy investors

Avoided damage from weather events

Resilience

Local communities

Increased timber revenues

Ecosystems



Cold-ironing (onshore power)

Mangrove preservation** Increase in habitat for fish Mangrove preservation** Increase in breakwater and abrasion control Mangrove preservation** Increase in tourism Mangrove preservation** Increase in biodiversity and aesthetic properties Change in financial performance of shipping operations

Increased fishing revenues

Economic Growth

KIPI Maloy investors

Avoided damage from weather events

Resilience

Local communities and businesses

Increased tourism revenues

Economic Growth

Global impact

Intrinsic value (existence value)

Social developme nt

Port of Maloy / Shipping operators



Change in CO2 emissions

Global impact



Change in other air pollutants (SOx, NOx, PM)

Downwind/Loc al Communities and Workers

No leachate of biocide paints

Local Ecosystem Local Communities and Global Stakeholders



Replacing antifouling paint

Shipping operators





Bunkering prohibited at Maloy

Local fishing communities

Zero fuel spillage

Shipping operators Local Ecosystem Local Communities and Global Stakeholders



Cost of investment and operation of infrastructure Climate change increased

Economic Growth

GHG Emissions Health and quality of life impacts avoided Total value of coral and mangrove ecosystem preservation - see ** above

Cost of more environmentall y-sensitive paint Cost of carrying extra fuel

Social developme nt

Ecosystems

Economic Growth Economic Growth Total value of coral and mangrove ecosystem preservation - see ** above

Ecosystems

6 Results This section provides the Cost Benefit Analysis of each of the nine green growth interventions, as well as analysis of their Wider Impact. Aggregate costs and benefits Based on the methodological steps and assumptions outlined in the above section, we estimate that the aggregate net benefit generated across the nine identified green growth interventions is $3.8bn in Net Present Value terms. In context, this is equivalent to more than 10% of East Kalimantanâ&#x20AC;&#x2122;s GDP in 2012, and represents a benefit-cost ratio of over 1.9. Figure 14: Impact of green growth interventions on 5 outcomes of Green Growth

Coal processing Rail Palm oil Road Power Shipping -500 Economic growth

500

1,500

GHG Emissions

Ecosystems

2,500 Social development

Million USD (2013) Resilience

Benefit: Cost Ratio

Economic Rate of Return

Net benefits

GHG Emissions

Economic Growth

1.91

n/a

$3,807m

$736m

$2,253m

Power

Coal

Palm Oil

Road

Rail

Shipping

$32m

$2,829

$347m

$209m

$390m

$0.04m

Net benefits $3,668m

Ecosystem s

Resilience

$7m

$4m

The largest return in absolute terms comes from coal gasification, which generates $1.7bn in economic benefits, $483m in GHG benefits and $676bn in social benefits in terms of avoided health damage from air pollution. This result strongly influences the overall cross-portfolio results too, where the largest benefit categories are economic, GHG and social. However, larger returns in relative terms are seen among the smaller interventions, which also have more evenly distributed benefits across the five outcomes of green growth. Railway-based 44

interventions have an Economic Rate of Return (ERR) of 22%, Road-based interventions 29% and the replacement of coal with biomass 54%. This compares to 31% for coal gasification. Ecosystems and resilience benefits are more modest than the other three outcomes, partly on account of the small land areas being considered for each intervention. Where more substantial areas were being considered, such as Palm Oil, the ecosystem and resilience benefits took off significantly (Palm Oil accounts for 80-90% of both outcomes’ benefits). Palm Oil BMPs also claim the highest benefit-cost ratio, of 23.9, on account of its very low investment and operational costs.

As discussed in Section 4, the strict framework of e-CBA ensures that all costs and benefits on the following pages represent net additional impacts on social welfare and can be compared against each other. Other information that can be useful for policy making, such as employment estimates, has been provided30 along with further commentary on unquantified impacts under the title “Wider Impacts” in this section. Figure 15: Economic Rates of Return and Benefit Cost Ratios for the six areas of green growth intervention

60%

50%

40%

30%

20%

10%

0 Power

Palm Oil

Road

Shipping

Economic Rate of Return (LHS)

Rail

Coal

Benefit Cost Ratio (RHS)

Note: Zero ERR values are indeterminate due to timing of cost and benefit flows.

All quantitative results under the title “Wider Impacts” in this section are from an environmentally-extended input-output model built on data from the World Input Output Database (www.wiod.org), and cover the entire Indonesian supply-chain

It is also worth noting that the impact of the discount rate is significant (see Figure 18) , and implies that the subjective decision about how to measure future costs and benefits relative to the present will have a major impact on green growth decision making.

Net Green Growth Benefits (million USD)

Figure 16: Impact of the Social Discount Rate on the total net benefits of nine Green Growth Interventions

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 5%

10%

15%

20%

Real Social Discount Rate

Net benefits @ 5%

Net benefits @ 10%

Net benefits @ 15%

$6,729m

$3,808m

$2,185m

Net benefits @ 20% $1,206m

Power generation Costs and Benefits Benefit: Cost Ratio 1.3

Economic Rate of Return 54%

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$32m

$124m

-$109m

$16m

Figure 17: Impact of coal-for-biomass replacement on 5 dimensions of Green Growth

GHG Emissions Economic Growth Social Development Ecosystems Resilience $-200

$-100

$100

$200 Millions

Millions

Figure 18: Profile of costs and benefits over time

$20 $15 $10 $5 $0 1

-$5 -$10 -$15 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

Indonesia’s energy sector is heavily reliant on coal power, with coal-fired electricity generation accounting for nearly 45% of all power generated in Indonesia in 2011 (see Figure 18). Increasing dependency entails reduced economic resilience as the economy becomes more vulnerable to export price volatility, and eventually, resource exhaustion. This is particularly true for commodity-dependent provinces such as Kalimantan. Furthermore, the combustion of coal generates large externalities – such as GHG emissions, and those related to air pollution and the resulting negative impact on human health.

Figure 19: Fuel share in power generation, Indonesia, 1990-2010 100% 90% 80% 70%

Renewables

60%

Oil

50% 40%

Natural Gas

30%

Hydro

20%

Coal

10% 2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Source: World Bank World Development Indicators

As an alternative green growth intervention, we propose replacing 2% of the coal combusted at the planned 1.4GW coal plant in the TKEZ with cleaner Palm Kernel Shells (PKS) – an abundant byproduct of the local palm oil industry. This would be achieved through a retrofit31 of the coal plant to allow direct co-firing of coal with biomass. We estimate that this intervention would generate $32m in net societal benefits. This net figure is composed of strong positive GHG emissions and social development benefits (improved human health from air pollution reductions), offset by economic costs. This is reflected in Figure 17. The gross benefits are driven by reduced coal consumption of 115,000 tonnes/year. This leads in turn to lower emissions of CO2e by 183,000 tonnes/year, SO2 by 900 tonnes/year, NOx by 300 tonnes/year and PM by 35 tonnes/year. Biomass is assumed to have a zero-carbon footprint but a small air emissions footprint (on the grounds that PKS is a waste product and not a driver of deforestation at this scale). Reduced carbon emissions are valued using the Social Cost of Carbon ($80/tCO2), an estimate of the future global economic damage from climate change attributable to each tonne emitted today. Air emissions are valued using the cost of increased mortality, morbidity and reduced visibility for a semidensely populated area in Indonesia. We assume that PKS is a pure waste product and thus there is no incremental impact of land-use and ecosystems. The gross costs are entirely economic, with an up-front capital requirement of $9m to retrofit the coal plant, and increased fuel bills of $11.5m/year as coal is replaced by more expensive PKS (PKS is expensive due to transport and pulverization costs; at the farm-gate it is a waste product). These costs are based on data from the IEA and IRENA, and local market prices.

Strictly speaking this is not a “retrofit” as the coal power plant has yet to be constructed. However, the co-firing technology in both cases is similar, incremental to a standard coal plant and can be fitted either at the time of construction or later. We are making the conservative assumption of a post-build retrofit, so the true costs may be slightly lower.

From a business perspective, this intervention would almost certainly lead to a reduction in profits. By way of illustration32, using a corporate discount rate of 15%, the investor benefits would only exceed investor costs if coal prices were to double to $90/tonne, and PKS half from $106 to $50/tonne. In operational terms, this intervention has a similar precedent in the United Kingdom if not Indonesia, where the Drax Power Plant in Yorkshire has been successfully and increasingly converted to running on woody biomass, albeit with public funding support. Wider Impacts The use of biomass for the generation of electricity has a number of strategic development benefits for East Kalimantan. The development of a supply-chain for renewable energy may foster broader spin-offs in other green technologies. At the same time it will bring diversity to the fuel mix, increasing local resilience against coal price shocks and/or generating extra exports and foreign exchange from increased coal exports. Local plantations will benefit from a small extra source of income where PKS was previously largely discarded, increase resilience to the CPO price. Recycling resources in this way can encourage the evolution of a “closed economy” where the resource intensity of further growth is minimized (and since PKS is a by-product of CPO, it is unlikely that extra demand for biomass at $106/tonne will drive further land clearance). The construction stimulus will also provide a useful boost to social and economic outcomes. On average, a capital injection of $9m is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $7m, of which $3m is wages to Indonesians. 979 jobs would be created during the construction period of one year, including in construction (289), agriculture (179), trade (183) and wood products (103). This economic activity will generate an associated environmental footprint (see Table 9) including increased air emissions, water and land use, and solid waste generation. On an ongoing basis, the biomass plant’s operation has a supply-chain impact of around $11m (this GVA is additional to the wages and profits generated directly on-site). Since the change in fuel source encourages a shift away from capital-intensive mining to labor-intensive agriculture, wages increase by $7 and there is a substantial net increase in permanent jobs (6,651). These are predominantly in agriculture, but also in trade and electricity maintenance. These figures and the associated environmental footprint are outlined in Table 10. Table 9: Change in key green growth indicators during construction period (Year Zero) Indicator

Value

Indicator

Value

Spend

$9m

NOx

GVA

$7m

SO x

Builtup area

Jobs

979

NMVOC

Arable

181

Wages

$3m

NH3

Pastures

PM10

Forest

184

PM2.5

Air emissions (tonne) CO2

4,314

CH4

N2O

Water use ('000 m3) Water use

212

Indicator

Land Use (ha)

Solid waste (tonnes) Waste

Table 10: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator Value Indicator Value Indicator

Value

1,000

Value

The following example cannot be considered a financial appraisal suitable for decision making and does not consider, inter alia, the role of taxes and subsidies on input and output prices, the mode of financing, construction timeframes and capital escalation costs.

Spend

$12m

NOx

142

GVA

$11m

SO x

261

Built up area

-1

Jobs

6,651

NMVOC

-36

Arable

6,568

Wages

$7m

NH3

134

Pastures

1,696

PM10

Forest

6,676

PM2.5

Air emissions (tonne) CO2

3,499

CH4

591

N2O

Water use ('000 m3) Water use

7,018

Land Use (ha)

Solid waste (tonnes) Waste

24,831

Coal processing Costs and Benefits Benefit: Cost Ratio 1.9

Economic Rate of Return 31%

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$2,829

$483m

$1,671

$676m

Figure 20: Impact of coal gasification on 5 outcomes of Green Growth

GHG Emissions Economic Growth Social Development Ecosystems Resilience

$1,000

$2,000

$3,000 Millions

Millions

Figure 21: Profile of costs and benefits over time

$1,000

$500

$0 1

-$500

-$1,000

-$1,500

-$2,000 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

The economy of East Kalimantan is highly dependent on primary industries, with mining accounting for 48% of GDP in 2012. Coal in turn accounts for a large share of extractive activity; and almost all coal is exported having undergone only basic processing, such as washing. In order to further diversify the economy of Kalimantan, we propose to convert coal to gas and subsequently electricity in a combined process known as Integrated Gasification Combined Cycle (IGCC). This modern technology would displace around half of the capacity of the sub-critical coalbased generation expected in the baseline scenario.

3.2

250

3.0

200

2.8

150

2.6

100

2.4

2.2

Million tonnes coal

Million tonnes (urea)

Figure 22: Coal and Urea production East Kalimantan (2008-2012)

Urea production (LHS) Coal production (RHS)

2008

2009

2010

2011

2012

At the same time it would produce ammonia and sulfur as by-products. Ammonia is used as a feedstock in fertilized manufacture (e.g. urea). The ammonia fertilizer would provide an additional revenue stream for the TKEZ, as well as promoting increased agricultural activity. Fertilizer use in East Kalimantan is substantial, with 3 million tonnes of urea distributed in 2012, manufactured in turn from 2 million tonnes of ammonia produced in East Kalimantan33. Sulfur is a useful product in the chemical industry, too. We estimate that this intervention would generate $2.8bn in net societal benefits. This net figure is composed of large economic benefit, GHG emission benefits and social development benefits (improved human health from air pollution reductions). This is reflected in Figure 20. The gross benefits are primarily economic, relating the sale of power and the by-products discussed. The valuation of power is a complex theoretical issue. We have taken the opportunity cost of the baseline generation as the relevant valuation coefficient. We used a Levelized Cost of 8c/kWh, in line with typical estimates for coal-based generation costs in Indonesia. This value captures the benefits of not having to incur capex, opex and fuel costs to generate the same quantity of electricity in the next most-likely manner. Due to major market distortions and the role of the state operator, PLN, the charged market price is likely to differ from this in practice. Sulfur is valued using the a quote for Indian spot price in 2014 ($150/tonne) and ammonia at the international spot price range as traded in South East Asia in mid-2013 ($630/tonne plus shipping = $700/tonne). The gross benefits also contain a major GHG element as IGCC is a significantly more efficient process than sub-critical coal power generation, reducing overall CO2 emissions by around 20%. We note that some commentators have alleged that IGCC may have a higher GHG footprint than conventional coal generation34. However, this is not consistent with our interpretation of the latest design specifications from a recent US Department of Energy-commissioned study35, which uses actual technology vendor data to assess performance. These allegations have also been made in the Chinese context, where environmental standards may differ from the US.

East Kalimantan Statistics Annual 2013

See for example http://people.duke.edu/~cy42/SNG.pdf

National Energy Technology Laboratory â&#x20AC;&#x153;Cost and Performance Baselines for Fossil Energy Plantsâ&#x20AC;? Volumes 1 and 2

Given we have adopted the technology specifications of a modern US-based design for IGCC, the environmental performance is relatively high for key air emissions too, with over 99% of pollutants such as SOx and NOx removed as part of the process36. In absolute terms, this results in the avoided release, of 700,000 tonnes of CO2, 19,000 tonnes each of SOx and NOx, and 2,900 of Particulate Matter. These non-GHG pollutants are all valued in terms of their human health impact as in the previous section. The gross costs include up-front capital requirement of $1.6bn, and the operating costs of running the plant (around $170m/year including fuel costs). Capital and operational costs and production data are drawn from the aforementioned US study examining new coal gasification technologies. From a business perspective, this has the potential to be an attractive proposition if risks are mitigated, and/or policy support is provided. By way of illustration37, using a corporate discount rate of 15%, the investor benefits will likely exceed investor costs if all by-products are successfully marketed at the relevant spot prices, and reliable grid access is provided at 8c/kWh. In addition, the government subsidy on the inputs to ammonia production may further boost the financial case, as discussed earlier in this report. However, the reliance on goodwill from government in the power and ammonia market makes this a risky proposition, especially for a technology unproven at market scale without government support. In operational terms, the likely need to import capital equipment as well as skilled labor (i.e., engineers) may well result in cost inflation. Furthermore, the US study was based on Illinois No. 6 coal, which while not dissimilar in calorific value to typical East Kalimantan coal, may have different moisture, ash, sulfur and nitrogen content. This can affect the operational performance of the plant. Finally, the production of ammonia is not explicitly considered in the IGCC baseline report used for this analysis. These figures were taken from another (comparable) volume in the same series on the assumption that ammonia stripping is still feasible under IGCC. In practice, although possible from an engineering perspective, this may affect the financial or environmental performance of the plant. Wider Impacts The gasification of coal has a number of strategic development benefits for East Kalimantan. Fundamentally, the process marks an improvement in modernization and efficiency compared with typical coal generation. This will increase the standard of living for local people, or equivalently reduce the rate of resource depletion required to achieve the same standards of living. The generation of domestic and export sales from the sale of ammonia and sulfur may be a useful source of foreign exchange and materially impact the balance of payments of East Kalimantan. Moreover, the fertilizer produced downstream from the plant can be used to support agricultural development in the province, and the implementation of Best Management Practices in particular in the palm oil industry. This is fully in line with East Kalimantanâ&#x20AC;&#x2122;s five-year development plan (RPJMD) to boost the share of agriculture in GDP. There may be longer-term benefits from the sophisticated technology and high value-add manufacturing used for coal gasification, such as knowledge spillovers and the development of a strong industrial cluster at Maloy. This can be combined with strong investment in education and advanced skills for locals so that the benefits do not solely accrue to migrants from other provinces and countries. This is likely to bring substantial long-run productivity and resilience benefits and underpin a more broad-based diversification of the economy.

There is likely to be an increase in the release of mercury, not valued here.

However, we do note that the environmental impacts of upstream mining activity can be negative and significant. We would encourage that any move to increase value-added from coal is accompanied by a shift to Responsible Mining Practices in the extractive industry, otherwise Green Growth may be elusive. The construction stimulus will also provide a useful boost to social and economic outcomes. On average, a capital injection of $1.6bn is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $1.4bn, of which $560m is wages to Indonesians. 185,000 jobs would be created during the construction period, including in construction itself (54,809), agriculture (33,941), trade (34,726) and wood products (19,573). This economic activity will generate an associated environmental footprint (see Table 11) including increased air emissions, water and land use, and solid waste generation. Table 11: Change in key green growth indicators during construction period (Year Zero) Indicator Value Indicator Value Indicator Spend

$1664m

GVA

$1380m

Jobs 185,572 Wages $558m Air emissions (tonne) CO2

818,119

CH4 N2O

8,531 286

NOx

3,537

Value

Land Use (ha)

SO x

3,398

Builtup area

1,449

NMVOC NH3 PM10

9,387 738 499

Arable Pastures Forest

34,256 8,845 34,822

PM2.5

250

Water use ('000 m3) Water use 40,226

Solid waste (tonnes) Waste

189,647

On an ongoing basis, the coal gasification operation has a supply-chain impact of around $150m in GVA (this GVA is additional to the wages and profits generated directly on-site) and 4,276 jobs. The supplychain includes mainly coal mining and processing, and chemical/manufacturing suppliers to the plant itself. This would result in a gross footprint of 1,283 jobs in coal extraction and handling, although it is not clear that the net impact will be this large if coal is simply diverted from export (and this facility would require export-quality coal), especially in the current context of some mining operations shutting down. A further 645 jobs in chemicals, 322 jobs in trade and 912 jobs in agriculture would be created. These figures and the associated environmental footprint are outlined in Table 12. Table 12: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator Value Indicator Value Indicator

Value

Spend

$172m

NOx

165

GVA

$150m

SO x

215

Built up area

132

Jobs

4,276

NMVOC

2,444

Arable

921

Wages

$44m

NH3

Pastures

238

PM10

Forest

936

PM2.5

Air emissions (tonne) CO2

89,751

CH4

1,356

N2O

Water use ('000 m3) Water use

1,447

Land Use (ha)

Solid waste (tonnes) Waste

6,466

Palm oil Costs and Benefits Benefit: Cost Ratio 25.8

Economic Rate of Return n/a

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$347m

$117m

$214m

$7m

$3m

Figure 23: Impact of Best Management Practices in Palm Oil on 5 outcomes of Green Growth

GHG Emssions Economic Growth Social Development Ecosystems Resilience

$100

$200

$300

$400 Millions

Millions

Figure 24: Profile of costs and benefits over time $160

Avoided ecosystem destruction measured as a natural capital stock value

$140 $120 $100 $80 $60 $40 $20 $0 1

-$20 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

Palm oil is a key driver of economic growth and source of foreign exchange for Indonesia. However, the sector has large land-use implications. The area under plantation in East Kalimantan rose 24% every year from 2008 to 2012 (409,000 to 961,000 ha), in line with the Governor’s target to plant “a million hectares of palm oil”. Furthermore, the sector as a whole remains relatively inefficient, with yields per hectare sitting within a wide range and well below technical potential (up to 10t/ha).

1,200

1,000

800

600

400

Thousand hectares

Million tonnes

Figure 25: Palm Oil Production and Land Area planted, East Kalimantan (2008-2012)

200

1 -

2008

2009 Production (LHS)

2010

2011

2012

Area under Plantation (RHS)

Numerous studies have drawn attention to these inefficiencies and the potential benefits of better practice. Donough et al (2009)38 conducted a six-year study based on thirty commercial blocks across Kalimantan and Sumatra. They found that the use of Best Management Practices (BMPs) can boost yields in a typical plantation by around 15%, through improving soil, fertilizer and harvesting practice. We propose using Maloy as leverage to effect similar upstream improvement across East Kalimantan, generating increases in average crop yields and reducing pressure for land use expansion (see Figure 25). We define our target group as 20% of plantations in East Kalimantan, which corresponds to the proportion of smallholder farmers (by output, this is higher by land planted), who tend to have the lowest yields and therefore the greatest room for improvement on management practices. We do not consider the ecosystem impacts of BMP on the plantations themselves as reliable data are not available to consider this. However, we do consider the Total Economic Value of the uncultivated land that is not expanded into as a result of yield improvements. We estimate that this green growth intervention would generate $347m in net societal benefits. This figure is dominated by the sheer scale of the economic gains possible through yield enhancement, though substantial social, ecosystem and resilience benefits are realized from reduced land use. This is reflected in Figure 23. The gross benefits are primarily economic in nature, since a 15% yield boost on (an assumed) 20% of the 2.5 million tonnes of CPO flowing from East Kutai from Maloy each year implies an additional 75,000 tonnes of annual production, valued at $628/tonne netback. This would generate just under $50m of additional revenue and export earnings each year. We did not include revenue benefits deriving from a price premium on certified palm oil as the premium was considered to be immaterial for buyers in India and China. However, the avoided land-use implications are significant. If yield increases can substitute for land expansion in meeting revenue growth needs for the year, then around 116,000 hectares of land 38

Donough et al (2009) “Yield Intensification in Oil Palm Plantations through Best Management Practice” Better Crops 93:1

expansion into primary forest would be avoided. The Total Economic Value of the forest ecosystem consists of three parts: ď&#x201A;ˇ ď&#x201A;ˇ ď&#x201A;ˇ

Direct Benefits ($1,676/ha): Timber and non-timber products (at sustainable yields), firewood and water supply regulation. Indirect Benefits ($19,741/ha): Erosion control, soil formation, water transport, biodiversity and carbon sequestration. Carbon sequestration accounts for 93% of the value. Non-use value ($146/ha): The option and bequest value to stakeholders as well as improved conflict and safety outcomes.

Of these, the GHG benefits are comparable to the economic benefits ($138m versus $209m), and the sustainable timber value of this land adds a further $6m to the economic benefits (bringing the total to $215m). The remaining social, ecosystem and resilience benefits total $17m. The gross costs are low in comparison, and relate to the cost of implementing the BMPs as we have used certification costs as a proxy for the general enforcement cost. We have conservatively assumed a high-end capital cost of $23.65/ha for training staff, $3.62 for initial certification cost, $11.25/ha for corrective actions, and an ongoing certification and maintenance cost of $13.34/ha/yr. These costs are based on a 2012 WWF study on costs and benefits of certification and are in line with the field experience of Donough et al. From a business perspective, this intervention is in principle highly attractive to plantation-owners. By way of illustration39, using a corporate discount rate of 15%, the investor costs would only exceed the investor benefits if the CPO price were to fall from current levels of $700-800/tonne to $300/tonne, and the yield improvement was less than 4%. The financial and social attractiveness of this intervention is not unexpected and has been reported on in the past by many organizations. However, there are operational issues in implementation. The industry has been alleged to have a short-term mindset in the past. Although it would require a discount rate of over 50% to generate a negative NPV, the payback period can still be lengthy. Oil palm takes time to grow and harvest (we have assumed a conservative 5-year lag for this in our analysis), and when the industry is highly profitable already, incentives to invest are limited for many non-corporate outfits, some of which have limited working capital. Awareness is also critical as a large proportion of output is dispersed across smallholder farmers, who do not have access to knowledge on BMPs. Negative perceptions of certification (both fair and unfair) may spread by rumor, as promised revenue premiums have failed to materialize in the past. Lastly, and probably most importantly, is the issue of uncertain land tenure. Land tenure is not necessarily secure in Indonesia, even when plantations are operating legally. Even compliance-striving operators can be wrong-footed by overlapping regulations and competing concession maps. Given this high degree of uncertainty, again incentives to invest can be limited. Wider Impacts The implementation of BMPs in Palm Oil has a number of strategic development benefits for East Kalimantan. In addition to the socio-economic benefits monetized in the previous section (around yield, avoided deforestation), BMPs provide further ecosystem benefits that fundamentally protect the surrounding natural assets of East Kalimantan; including, the protection of soil stability and water regulation. In combination with other measures, they can also reduce downstream damage such as 39

urban flooding40. Lastly, they can also directly contribute towards certification (e.g. ISPO, RSPO), positioning Kalimantan as a provider of responsible Palm Oil with enhanced access to buyers who may offer better payment terms. The one-off stimulus from up-front certification and BMP implementation will be modest, but a useful boost to social and economic outcomes. On average, a spend of $4m is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $3.4m, of which $2.8m is wages to Indonesians. 392 jobs would be created during the first year. These are mostly in the business services around consulting (165 jobs) but also a knock-on impact to hotels, agriculture and trade is likely. On an ongoing basis, maintenance and certification has a small supply-chain impact of around $1.2m (this GVA is additional to the wages and profits generated directly on-site). Again the impact is concentrated in the business service sector ($0.8m GVA, 57 jobs), which has knock-on impacts on hospitality sectors ($0.05m, 18 jobs). These figures and the associated environmental footprint are outlined in Table 14. Table 13: Change in key green growth indicators during construction period (Year Zero) Indicator Value Indicator Value Indicator

Value

Spend

$4m

NOx

GVA

$3m

SO x

Built up area

Jobs

392

NMVOC

Arable

Wages

$3m

NH3

Pastures

PM10

Forest

PM2.7

Air emissions (tonne) CO2

1,031

CH4

N2O

Water use ('000 m3) Water use

Land Use (ha)

Solid waste (tonnes) Waste

215

Table 14: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator

Value

Indicator

Value

Spend

$1m

NOx

GVA

$1m

SO x

Built up area

Jobs

136

NMVOC

Arable

Wages

$1m

NH3

Pastures

PM10

Forest

PM2.5

Air emissions (tonne)

CO2

357

CH4

N2O

Water use ('000 m3) Water use

Though this phenomenon is more often linked to peat land clearance

Indicator

Value

Land Use (ha)

Solid waste (tonnes) Waste

Road Costs and Benefits Benefit: Cost Ratio 1.4

Economic Rate of Return 29%

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$209m

$103m

$106m

Figure 26: Impact of road extension and hotel construction on 5 outcomes of Green Growth

GHG Emissions Economic Growth Social Development Ecosystems Resilience

$50

$100

$150

$200

$250 Millions

Millions

Figure 27: Profile of costs and benefits over time $80 $60 $40 $20 $0 -$20

-$40 -$60 -$80 -$100 -$120 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

In addition to the new railway, a new 254 km Toll Road is also being constructed to connect Maloy to ports in Sangatta, Samarinda and other intermediary locations along the route. Although some of the 59

locations are industrial and port areas, others are attractive coastal locations with beaches and coral. Indeed, The Government of Indonesia has designated a sizable stretch of the coastline between Bontang and Maloy41 a Marine Protected Area, for this reason. Until now, these intermediary locations were inaccessible to all but the most adventurous tourists. Therefore, as part of the green growth strategy, we propose extending the new road in order to facilitate the development of a tourism resort in the East Kutai region, by reducing journey times to the resort from Balikpapan and Samarinda. We estimate that this green growth intervention could generate $209m in net societal benefits. These all relate to the impact of tourism spending in the resort and local communities. This is reflected in Figure 26. The gross benefits consist of ‘economic’ benefits of tourist expenditure in the hotel resort (on accommodation and food/beverage) and local transport, and the ‘social’ benefits of spending on sightseeing and other local activities. Visitor number predictions will always be indicative in the absence of a large tourism industry in Kalimantan at present, but we have adopted the assumption that Sabah, over the border in Malaysian Borneo, provides a good basis for understanding the potential market size within a reasonable flight range. We have taken a modest 5% of the total annual numbers of visitors to Sabah as our central estimate therefore (which works out at 105,00). The level of expenditure per capita (and the proportion of international to domestic tourists, 50:50) is based on Colliers International Indonesia data on the 5-star market in Jakarta, although the pattern of expenditure was based again on Sabah data. On average tourists spend $400/day under these assumptions, of which 47% feeds through to the hotel resort. These figures rise at 5% per annum. Although the ‘spillover’ benefits of spending outside the resort are included, knock-on multiplier effects through the tourist supply-chain are not included in the eCBA and are discussed under ‘Wider Impacts’ below. The gross costs relate mainly to the capital costs of building a 1,000-room resort ($100m) and also adding an extension to the toll road to provide access to the resort ($6.5m). This $100m estimate includes the cost of building the core hotel plus a 20% mark-up for tangential infrastructure such as sewerage, electricity, landscaping etc. (based on a conservative rounding of the figure from the 1970s Nusa Dua project in Bali, 13%). Operational costs are limited to road maintenance and O&M for the resort based on tourist expenditure. We also treat 20% of the tourist expenditure as ‘displaced’ from elsewhere in East Kalimantan. Given the currently limited number of 5-star alternatives which could be displaced (around 260 rooms42), this can be considered a conservative assumption. Cost estimates are based on the World Bank ROCKS database for road construction costs, and on CBRE estimates of the cost of building a high-end hotel in Jakarta. From a business perspective, the project appears somewhat risky and the business case depends on capital cost control, accurate market sizing and risks relating to the provision of infrastructure to allow tourist access. By way of illustration43, using a corporate discount rate of 15%, the investor costs would exceed investor benefits unless construction costs were reduced by 25%, or by 5% and the road extension is publicly funded, or by 5% and the number of visitors increases by 40% (i.e., two percentage

Coral Atlas Reef Database

Source: Calculation based on East Kalimantan Statistics Annual 2013

points on the 5% base of Sabah). This is not unattainable as construction costs differ in Kalimantan relative to Jakarta, and also we have taken a top-of-the-range estimate for construction costs. Wider Impacts The opening up of East Kutai to tourism and eco-tourism has a number of strategic development benefits for East Kalimantan. As long as sufficient environmental protection measures are in place, the earning of significant revenue from the provinceâ&#x20AC;&#x2122;s natural beauty provides a fundamental incentive for communities and businesses to preserve, rather than extract natural capital. At the same time the influx of income can fund well-paying jobs (much higher than the current average wage), providing opportunities for local people and can fund investment in education for the next generation. The construction stimulus will also provide a useful boost to social and economic outcomes. On average, a capital injection of $106m is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $88m, of which $36m is wages to Indonesians. 11,859 jobs would be created during the construction period of one year, including in construction (3,503), agriculture (2,169), trade (2,219) and wood products (1,251). This economic activity generates an associated environmental footprint (see Table 15) including increased air emissions, water and land use, and solid waste generation. On an ongoing basis, the hotel operations have a direct and supply-chain impact of around $27m, creating some 8,527 permanent jobs. These are largely in the hotels themselves, as well as affiliated tourist-catering businesses such as restaurants (6,065). These figures and the associated environmental footprint are outlined in Table 16.

Table 15: Change in key green growth indicators during construction period (Year Zero) Indicator

Value

Indicator

Value

Spend

$106m

NOx

226

GVA

$88m

SO x

217

Jobs 11,859 Wages $36m Air emissions (tonne) CO2 52,282 CH4 545 N2O 18

NMVOC 600 NH3 47 PM10 32 PM2.8 16 Water use ('000 m3) Water use 2,571

Indicator

Value

Land Use (ha) Built up area

Arable Pastures Forest

2,189 565 2,225

Solid waste (tonnes) Waste 12,119

Table 16: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator

Value

Spend

$29m

NOx

GVA

$27m

SO x

100

Jobs 8,527 Wages $16m Air emissions (tonne) CO2 10,075 CH4 197 N2O 13

Indicator

Value

NMVOC 71 NH3 35 PM10 16 PM2.5 8 Water use ('000 m3) Water use 1,970

Indicator

Value

Land Use (ha) Built up area

Arable Pastures Forest

1,719 444 1,747

Solid waste (tonnes) Waste 7,317

Rail Costs and Benefits Benefit: Cost Ratio 1.8

Economic Rate of Return 22%

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$390m

$13m

$376m

$330,000

$370,000

$180,000

Figure 28: Impact of route and freight changes to planned railway on 5 outcomes of Green Growth

GHG Emissions Economic Growth Social Development Ecosystems Resilience

$100

$200

$300

$400

$500 Millions

Millions

Figure 29: Profile of costs and benefits over time $200 $100 $0 1

-$100 -$200 -$300 -$400 -$500 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

A key aspect of the coal and palm oil industries in Indonesia is the infrastructure required to transport raw products from mines and plantations to domestic ports for shipment. There are two relevant aspects to this process for Green Growth. Firstly, infrastructure is often un-coordinated and disruption can be ameliorated through integrated planning. Secondly, transport costs are a key part of international competitiveness, and are particularly high in Indonesia. Stakeholders in the Maloy Development have already expressed concern at the current costs of transporting goods by truck in East Kalimantan. On the first issue, there is a 135 km freight railway being developed to transport coal from coal mines in East Kutai and other districts to the Port of Maloy. However, the planned route runs through a series of forested areas (see Figure 30). Across East Kalimantan there is 15 million hectares of forest (a mix of protected, commercial and other forest types), with limited and permanent production forest accounting for around 10m ha. We propose to re-route a c.90-100km portion of the track that runs alongside an existing road network (more substantial re-routes are unfeasible given that the railway is already financed by international investors). On the second issue, stakeholder consultations have suggested developing the railway in such a way that it was also suitable for the transport of crude palm oil from inland plantations to the Port of Maloy. Figure 30: GIS Image of planned rail and existing road routes.

Maloy

Rail / road corridor

Source: Bappeda East Kalimantan Key: Black/yellow thick lines are railways. Red lines are existing road. Dark green areas are protected forests and light green and yellow areas commercial and other forest. Purple-outlined areas are palm oil plantations. The light purple area is Kutai National Park.

Figure 31: Map of palm oil concessions in East Kutai

Source: Government of East Kalimantan, Plantation Division We estimate that this Green Growth intervention would generate $390m in net societal benefits. This figure is composed primarily of economic benefits from reduced transport costs, and small social, ecosystem and resilience benefits from avoided land clearance. There are also GHG benefits from both the modal shift and avoided land clearance. This is reflected in Figure 28. The gross benefits are primarily economic, as vehicular operating costs of around $0.46/tonne-km are avoided on some 215 million tonne-km of CPO transported each year (this represents 64% of the total CPO transiting to Maloy based on the map above). The modal switch from road to rail also avoids modest emissions of 8,600 tCO2 pa. We have not included the benefits of increased efficiency of supply, though it is likely that avoiding flooded roads in wet season would further enhance these benefits. In running the rail line alongside existing infrastructure, a small commercial saving of $80,000 is made (from avoided land clearance), as well as economic, social, ecosystem, GHG and resilience benefits of protecting around 470 hectares of forest (valued at $18,284/ha as the data indicate this is likely to be mostly secondary forest).

The gross costs mainly relate to the construction of six rail terminals capable of handling 1.2 million tonnes of CPO each year, each costing $60m per 100-car train, plus the purchase of a 110-car train, each car capable of transporting 33,000 gallons of liquid fuel at an appropriate temperature. The cost data is based on an APEC study on the costs of transporting biofuel (with a similar consistency to CPO) in the United States, scaled-up for the volume and distances required for Maloy. From a business perspective, the railway may be commercially viable, but is sensitive to the exact operational requirements and the market size. By way of illustration, at a corporate discount rate of 15%, the investor benefits are likely to exceed the investor costs under the current assumptions. But, this would reverse if there was a need for another CPO loading terminal en route, and only 50% of the Maloy-bound CPO used the railway. There is a key balance between the location of palm oil mills, willingness to pay for rail transport, the number of CPO rail terminals required, and hence the market price and profitability. We estimated the distribution of mills based on a sample of private mills matched to the map above, but ideally additional data on the distribution of CPO Mills would be used to refine the estimate, and make firmer judgments on financial viability. In operational terms, in addition to the above questions, it would need to be established whether 110carriage cars can be run alongside existing planned coal operations. Currently, it is expected that 61 trips a year would be required along the 135km stretch, which appears undemanding. But, depending on speed, scheduling, and required coal freight usage this could disrupt operations and reduce investor profitability. This would need to be carefully assessed and internalized in the eCBA before implementation. Wider Impacts The use of rail to transport CPO freight, along with more considerate routing of the track, has a number of strategic development benefits for East Kalimantan. It fundamentally supports the strategic case for Maloy - to create a competitive cluster for Palm Oil â&#x20AC;&#x201C; through lowering transport costs and increasing the competitiveness of CPO. It also provides a mechanism to transport PKS distributed around East Kutai to the coal power plant at Maloy â&#x20AC;&#x201C; supporting the coal-to-biomass intervention. It spurs greater connectivity for the district and province, which can enhance productivity and open up new business opportunities. For example, local people may in future be able to use the railway as a route to market for forest and other natural produce. This in turns provides incentives for ecosystem preservation and maintenance. The construction stimulus will also provide a useful boost to social and economic outcomes. On average, a capital injection of $129m is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $107m, of which $43m is wages to Indonesians. 14,404 jobs would be created during the construction period of one year, including in construction (4,254) agriculture (2,634) trade (2,695) and wood products (1,519). This economic activity generates an associated environmental footprint (see Table 17) including increased air emissions, water and land use, and solid waste generation. On an ongoing basis, the operation of CPO handling and carriages on the railway has a supply-chain impact of around $9m (this GVA is additional to the wages and profits generated directly on-site), creating some 1,991 permanent jobs. These are mostly (1,365) in the transport sector, relating to the loading and unloading of CPO. These figures and the associated environmental footprint are outlined in Table 18.

Table 17: Change in key green growth indicators during construction period (Year Zero) Indicator Value Indicator Value Indicator Spend

$129m

GVA

$107m

Jobs 14,404 Wages $43m Air emissions (tonne) CO2 63,503 CH4 662 N2O 22

NOx

275

SO x

264

NMVOC 729 NH3 57 PM10 39 PM2.8 19 Water use ('000 m3) Water use 3,122

Value Land Use (ha)

Built up area

113

Arable Pastures Forest

2,659 687 2,703

Solid waste (tonnes) Waste 14,720

Table 18: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator Value Indicator Value Indicator Spend

$11m

NOx

GVA

$9m

SO x

Jobs 1,991 Wages $5m Air emissions (tonne) CO2 7,815 CH4 114 N2O 1

NMVOC 54 NH3 2 PM10 2 PM2.5 1 Water use ('000 m3) Water use 110

Value

Land Use (ha) Built up area

Arable Pastures Forest

75 19 76

Solid waste (tonnes) Waste 531

Shipping Costs and Benefits Benefit: Cost Ratio 1.01

Economic Rate of Return n/a

Net benefits

GHG Emissions

Economic Growth

Social Development

Ecosystems

Resilience

$40,000

-$730,000

$740,000

$150,000

$600,000

Figure 32: Impact of clean shipping on 5 outcomes of Green Growth

GHG Emissions Economic Growth Social Development Ecosystems Resilience

$-2

$-1

$2 Millions

Millions

Figure 33: Profile of costs and benefits over time $5

Avoided ecosystem destruction measured as a natural capital stock value

$4 $3 $2 $1 $0 1

-$1 -$2 -$3 -$4 Private cost

Total Cost

Private benefit

Total Benefit

Discounted Annual Net Benefit (Private)

Discounted Annual Net Benefit (Total)

The construction and operation of the port facilities and shipping operations at Maloy is likely to lead to significant environmental impacts on the surrounding marine and coastal wetland ecosystems. These include 350ha of mangrove (naturally 480, but around 100ha will be destroyed during the baseline construction of shipping terminal), approximately 1km2 of coral44, and endemic species of dolphin45. Ballast water from ships’ hulls contains invasive species, and biocidal paint that protects ships from fouling is particularly harmful. Furthermore, ships operating in-port can generate significant air pollution externalities on local populations. We propose to implement ‘clean shipping’ measures to avoid these impacts, including: 

The installation of a Ballast Water Treatment System (BWTS) to avoid introduction of alien species46



Substitution of DDT-based anti-fouling paint for more environmentally-sensitive alternatives



Use of on-shore power for auxiliary ship engines (‘cold ironing’)

We also propose a number of supporting policies that we assume to be cost-less, such as ensuring sewage disposal occurs sufficiently far out to sea (international regulations specify more than 12 nautical miles from land for untreated sewage47), speed limits near port to reduce wave swell, and that bunkering (the taking on-board of marine fuel) is not permitted at Maloy. In practice, the latter would raise the weight of the ship and/or require extra distance for bunkering, which may raise costs marginally. We estimate that this intervention could generate $40,000 in net societal benefits. These relate to the economic value of ecosystems and avoided fuel consumption in-port, but also the social, ecosystem and resilience benefits of the ecosystems. Since the electricity consumed on-shore is largely generated from sub-critical coal, GHG emissions are actually higher than in the absence of cold ironing. The gross benefits consist of the economic benefits of the reduced auxiliary power generation of some 1,300 MWh/year, thereby reducing Marine Diesel Oil (MDO) by some 271 tonnes/year (valued at $600/tonne). Since MDO is high in sulfur and other emissions-generating substances, there are social benefits from avoided air pollution48. Ecosystems are valued in terms of their: 

Direct value: The market value of the timber and fish harvested. Fishing in particular is an important source of income for local communities; Marine Fisheries and Open Water fishing accounted for $272m of income in 201249.



Indirect value: The ecosystems are a potential pull for tourists, and also provide key resilience benefits from coastal protection and avoided erosion. Since Indonesia-level coefficients were used to value coastal protection (not accounting for the significant capital at risk in Maloy) it is likely that this last benefit has been under-stated in our analysis.

The precise amount of coral was not available from data sources or from stakeholders. An assumption of 1km 2 has been made from low resolution maps of the area but has not been validated. 45

Source: WWF

This is mandatory in many jurisdictions, but Indonesia is not signatory to the international BWT Protocol.

http://www.imo.org/OurWork/Environment/PollutionPrevention/Sewage/Pages/Default.aspx

High-sulfur fuel is the working assumption in this analysis, although the IMO is overseeing a mandatory reduction in international ships’ fuel sulphur content over the next decade. 49

East Kalimantan Statistics Annual 2013

ď&#x201A;ˇ

Non-use value: For mangroves only, intrinsic biodiversity and existence value to global stakeholders. Due to the presence of unique dolphin species it is possible that the biodiversity valuation is an under-estimate of the true value.

The gross costs are economic and primarily relate to the installation and operation of on-board BWTS equipment, as well as power equipment on the Port and on board ships. BWTS costs ($600,000) are at the high-end of the international industryâ&#x20AC;&#x2122;s estimate. Power equipment is expected to cost around $1.3m for the port operator(s) and $900,000 for the ship owners. This is based on the assumption that 2 vessels are time-charted by the relevant industry (CPO transport) and dedicated to Maloy. The cost of electricity is based on the levelized cost of generation in a sub-critical plant (0.08 USD/kWh) 50. There is also a cost relating to the replacement of DDT-based paint ($7/m2/yr) with more environmentally-sensitive alternatives ($10/m2/yr). The costs for paints were drawn from a detailed UNDP program in China looking to phase out these paints precisely due to their damage to the marine environment. Environmentally-sensitive paints come in a variety of forms, including other biocides (zinc, TCPM), pepper repellant (capsaicine-based) and the cost can range between $5 and $11/kg; our figure relates to the lower end of this range. We note that Indonesia is not currently a signatory to the IMO International Convention on the Control of Anti-Fouling Systems on Ships. From a business perspective, the overall project is unprofitable under reasonable assumptions. The private costs exceed the private benefits under a 10% social discount rate, and significantly exceed them (by over $4m) at 15%. Breaking down the intervention into its two components (i.e., cold ironing, and collectively, the ecosystem-protection measures) is not likely to change this. The ecosystem protection measures will always be unprofitable as there are no private returns to the port/shipping operators. Cold ironing could in principle be profitable, although by way of illustration51, the cost of electricity would have to fall below 8c/kWh and/or the price of MDO to reach $1,100/tonne. And, a revenue-sharing agreement would need to be reached between port and ship operators, as the latter receive 100% of the return, but this is contingent on investment by the former. In operational terms, there are several issues to consider. Cold ironing is very rare, one of the reasons being that safety issues arise from the turning-off of auxiliary engines in port. A way to reassure ship owners and operators that their vessels are not at fire or other risk in port would need to be found. There is also the operational impact of the baseline for KIPI 1 and future operations in Maloy KIPI 2, on the Eastern side of the Port. KIPI 1 involves the destruction of around 100ha of mangrove ecosystem, and it is not clear that the remaining 350ha of mangrove can survive as a viable ecosystem. This may undermine the case for green growth interventions and requires a more detailed environmental impact assessment to confirm or reject. On KIPI 2, though the coal processing and export activities are not expected to be completed for some time after Maloy KIPI 1 (and we have only counted the value of mangrove to west of the port in our analysis), they may have an impact on coral and mangrove ecosystems depending on the level of pollution produced, mitigation measures taken and marine conditions. In the worst case, these could render the green growth interventions proposed in this report ineffective, and again would benefit from further environmental impact assessments.

This estimate lies comfortably in the range of external estimates. For example, depending on generation technology and coal quality, the levelized cost can range from 5c/kWh to 10c/kWh (Rozana et al (2011), Assessment of CO2 Reduction Potentials through Clean Coal Technologies for Future Power Plants in Indonesia, Dapice and Cunningham (2011), Squaring the Circle: Politics and Energy in Indonesia). 51

Wider Impacts The implementation of clean shipping measures at Maloy has a number of strategic development benefits for East Kalimantan. They permit economic diversification and growth while preserving as much as is possible of the natural stock, which provide a range of ecosystem services supporting local livelihoods. Since coral is an interdependent habitat, the preservation of coral and mangroves in the Maloy area, even if degraded to an extent, may help ensure the ecological viability of marine ecosystems up the coast. These in turn support key planned tourist activities. The construction stimulus will also provide a small boost to social and economic outcomes. On average, a capital injection of $3.4m is expected to result in an on-site and supply-chain impact on Gross Value Added (GVA) of some $2.5m, of which $1.1m is wages to Indonesians. 329 jobs would be created during the construction period of one year, including in construction (71), agriculture (54), trade (84) and wood products (26). This economic activity generates an associated environmental footprint (see Table 19) including increased air emissions, water and land use, and solid waste generation. On an ongoing basis, the clean shipping operations will have a very small impact on the supply-chain (see Table 20). This is partly because the avoided expenditure on harmful anti-fouling paint offsets to an extent the new expenditure on environmentally-sensitive paint. The GVA gains are of the order of $0.2m, around half of which would be paid in wages to Indonesians. A small number of permanent jobs (35) would be created, mainly in the shipping/port sector (20). Table 19: Change in key green growth indicators during construction period (Year Zero) Indicator Value Indicator Value Indicator Spend

$3m

NOx

GVA

$3m

SO x

Jobs 329 Wages $1m Air emissions (tonne) CO2 1,378 CH4 14 N2O 0

NMVOC 14 NH3 1 PM10 1 PM2.12 0 Water use ('000 m3) Water use 67

Land Use (ha) Built up area

Arable Pastures Forest

55 14 56

Solid waste (tonnes) Waste

307

Table 20: Annual recurring impact on green growth indicators in supply-chain (Year One onwards) Indicator Value Indicator Value Indicator Spend

$0.3m

NOx

GVA

$0.2m

SO x

Jobs 35 Wages $0.1m Air emissions (tonne) CO2 1,014 CH4 1 N2O 0

NMVOC 1 NH3 0 PM10 1 PM2.5 0 Water use ('000 m3) Water use 23

Value

Land Use (ha) Built up area

Arable Pastures Forest

2 0 2

Solid waste (tonnes) Waste 14

7 Policy implications In this section we consider the implications of the CBA results for policymakers. Making Green Growth investable In the previous section we identified nine green growth interventions whose benefits to society exceed their costs. As discussed in Section 4, these interventions may not in practice be undertaken due to a range of market distortions such as externalities, short-termism etc. This is why many of the interventions do not appear to be an attractive proposition for investors when only private cash flows are considered and a more conventional project hurdle rate used (15% for illustrationâ&#x20AC;&#x2122;s sake in our analysis). Green Growth fundamentally requires that welfare-positive measures such as those identified become investable for the private sector, or that government agrees to directly fund financially unfeasible projects. Making projects investable requires policy designed to increase project rewards and/or reduce project risk. In Table 21 below we have outlined for each intervention a bullet point summary of the key financial areas of concern from the investorâ&#x20AC;&#x2122;s perspective, drawn from the previous section. Then, in the right-hand column we have identified policy categories appropriate for improving the invest ability of each. Where specific existing GoI policy mechanisms have been identified in this area, we have referenced them. Table 21: List of policy categories for making green growth interventions investable

Activity Power

Intervention Coal to biomass

Potential Investability issue - PKS loss-making source of energy relative to coal

Remedial policy category - Full implementation of Feed-in Tariff (MEMR Regulation 4/2012 FiT for Biomass) - Reform of energy pricing system (e.g. reform of fossil fuel subsidies / carbon tax / trading scheme) - Bilateral Offset Crediting Mechanism (supporting RANGRK) -

Farmers demand too high a price for PKS, making it uneconomical once transport costs taken into account -

Coal processing

Gasification of coal for power generation

Financial risk high given market price fluctuations and unproven technology at market scale

If CCS included this significantly raises cost of production

Extremely high capital requirements for East Kalimantan

Lower cost of capital (MoF regulation 117/2006 and 79/2007 Development Credits for Biofuels and Plantation Revitalization) Standard PKS waste price set by government Subsidized finance / guaranteed loans until case proven Lengthy repayment terms Seek subsidized inputs under fertilizer subsidy program

Tax / carbon permit incentive

Use of innovative financing arrangements at national level for provincial deployment including PPP

Palm

BMP

- Limited working capital to invest with

Road

Road extension and hotel construction

- Investors unwilling to finance hotels given risk of delays to public infrastructure

Rail Shipping

CPO Re-route Cold Ironing

None identified None identified - Insufficient reward for shipping operators

BWTS Replacing antifouling paint

- No financial return for port owners - Insufficient financial return for investors (BWTS)

Government loans (potentially under MoF Regulation 79/2007 above) Government builds infrastructure first, potentially financing from later tax revenues from resort Government supports with land acquisition

Subsidy per unit pollution reduced from ships in-port Subsidized electricity rates for ships in-port Port-side infrastructure government funded Payment for Ecosystem Services charged on local fishery and tourism industry

Compensation between industries to fund measures

Direct financing of measures by local fishery and tourism industry

â&#x20AC;&#x2DC;Resilience levyâ&#x20AC;&#x2122;: KIPI Maloy charged for coastal protection value of mangrove/coral

Port authorities implement and maintain a strict policy on allowable antifouling coatings

Making Green Growth possible Even theoretically investable Green Growth interventions are not necessarily practical. Indeed, some of them are expected to be profitable without any policy support, but are still not (fully) implemented. This is generally due to a range of operational and practical factors we collectively call “implementation barriers”. Policy has an important role in providing an enabling environment to overcome these barriers as well as just financial barriers. We have outlined for each intervention a bullet point summary of the key financial areas of concern from the investor’s perspective, drawn from the previous section. Then, in the right-hand column we have identified appropriate policy categories appropriate for improving the invest ability of each. Where specific existing GoI policy mechanisms have been identified in this area, we have referenced them. Table 22: List of policy categories for enabling green growth interventions

Activity Power

Intervention Coal to biomass

Coal Coal gasification processing

Palm

BMP

Potential Invest ability issue Availability of skilled labor

Remedial policy category Government education program

Availability of PKS feedstock

Government restrictions on disposal of PKS

Licenses / permits Availability of skilled labor

Streamlined permitting process Government education program / positive work permit regime for skilled foreign workers

Availability of high-calorie, high-quality coal

Insecure land tenure

Introduction of export restrictions of high quality coal to ensure domestic demand is satisfied Acceleration of ISPO certification and clarification of legal status

Road

Road extension and hotel construction

Rail

CPO

Inter-departmental cooperation on resolution of mining/forestry/palm oil concession disputes [ONE MAP]

Limited uptake by smallholder famers

Lack of available permits to development tourism on forested land

Conflict with coal freight operations

Government program to support capacity building and awareness raising of market value Inter-governmental cooperation between provincial and national (Ministry of Forestry) Co-ordination between private investors, mining, palm oil and transport local departments Government enacts “fair usage” policy

Shipping

Re-route

Hold-up of land purchase by rent-seeking individuals

Cold Ironing

Vessel safety concerns while engines off

BWTS Replacing antifouling paint

None identified

Government support for land acquisition/compulsory purchase High standards of port and vessel safety including strict protocols in the case of fire.

Making Green Growth Feasible For National and Regional Planning The eCBA process has value beyond the approval and design of green projects, or the greening of brown projects. It can also be used at a micro and macro level to draw policy implications, and drive progress across the 5 outcomes of Green Growth. In particular, eCBA can be used in three broad ways to drive Green Growth policy and planning, in the context of this analysis: 1.

As a justification for public policy

2. As a tool for quantification of policy incentives. 3. As a tool for prioritization of policies Firstly, the results of an eCBA during the project appraisal process provide a strong evidence base for justifying public policy intervention. Green projects or the greening of existing projects frequently generate significant social, economic and environmental benefits (positive externalities). However, conventional CBA and other conventional project appraisal tools usually do not measure these positive social returns and the private sector does not have any incentive to fund green policy interventions as long as the benefits of doing so are unclear i.e. are not monetized. Identifying these external costs and benefits provides a clear rationale for government action and strong evidence base for crafting policy interventions. For example, the results contained within this document suggest that there is a justification for subsidies for renewable energy (Palm Kernel Shell combustion) and/or carbon taxation, for subsidized finance to support tourist infrastructure development, and public support for ISPO-type Palm Oil certification or any other measure which encourages the implementation of Best Management Practices on plantations in East Kalimantan. Secondly, eCBA can help the specific quantification of policy incentives to help determine what the precise level of incentives should be. By valuing non-market externalities, this means that they can be levied as per-unit financial taxes or subsidies. This can be then used as a compensation fund for losers of negative externalities as well as an incentive to drive correct behaviors. While we have not specifically quantified policy incentives during the course of this analysis, it is possible to infer some broad quantitative conclusions for Maloy. For example, based on our generation and externality estimates from switching coal-based generation to PKS-based generation, it is possible to justify a per-unit subsidy of approximately USD 0.01/kWh for PKS-based generation based on the negative health outcomes avoided from Sulfur, Nitrogen and Particulate Matter emissions. The carbon incentive is more debatable as there is not yet a consensus on the Social Cost Of Carbon (since in addition to methodological challenges, this is a global concept covering damage from climate change to Indonesia as well as other countries). However, an approximate rule-ofâ&#x20AC;&#x201D;thumb from the analysis is that for every $10/tCO2 social damage, a per-unit subsidy of around USD 0.01/kWh is warranted. I.e., for our assumption of $80/tCO2, the implied subsidy is around 0.07USD/kWh.

Thirdly, by providing a comparable methodology across projects, technologies and sectors, eCBA can help assess and compare the â&#x20AC;&#x2DC;size of the prizeâ&#x20AC;&#x2122; of different options; i.e., the total possible economic, social and environmental benefits. Therefore, eCBA not only makes the case for a particular intervention, and quantifies the policy resources required, but also helps prioritize which policies should be implemented given limited fiscal and economic resources. In this analysis the quantitative metrics suggest that policy efforts should be focused on either the largest absolute returns (coal gasification) or the largest relative returns (Palm Oil BMPs), depending on the scalability of these projects. In the former case, this would suggest that policy attention focus on enabling conditions such as investor environment and providing local resources to support production (e.g. skilled workers) and the fiscal budget be targeted at subsidies for coal gasification outputs (e.g. subsidized fertilizer). In the latter case, this would suggest that government should throw its weight behind efforts to implement BMPs.

Appendix 1: Technical Notes from Stakeholder Validation Workshop On 15 January 2014 the GGGI project team attended a 2-day workshop in Samarinda, East Kalimantan. This workshop was hosted by Bappeda and one of the objectives included the validation of draft assumptions and results included in a previous version of this report. To provide the reader with a history of key changes made to the analysis in response to stakeholder feedback we have included in Table 23 below the main technical comments made during this workshop, and how each has been addressed in the final version of this report. Table 23: Comments from stakeholder workshop, 15 Jan 2014

Stakeholder comment Stakeholders commented that it is not immediately obvious how the â&#x20AC;&#x2DC;social costâ&#x20AC;&#x2122; of GHG and air emissions are defined and calculated. Stakeholders commented that the capital requirements for some interventions are higher than the East Kalimantan government would normally be able to raise One stakeholder claimed that the deployment of coal gasification was previously considered in Kalimantan and was considered very expensive

The units are expressed in US Dollars, but the Rupiah has been fluctuating heavily against USD recently so local costs may be different. One stakeholder asked if it was possible to consider impacts of hazardous and nonhazardous waste generated at upstream coal mine sites. This waste is expensive to dispose of safely (shipped to West Java for treatment), and KIPI Maloy would like to reduce this cost. Update CPO f.o.b price to January 2014 level of $690/tonne Stakeholders identified that the PKS price at coal power plant needs to include transport costs (and it is noted by authors, any pulverization costs in order for smooth combustion) Stakeholders requested that, given the mandatory introduction of ISPO from January 2014, to use ISPO rather than RSPO certification. Please consider role for biofuels / biodiesel in KIPI Maloy

Action taken Expand commentary of social cost of carbon etc. in report. Commentary on finance being key barrier to green growth has been included in the report and on the need for PPP and other innovative arrangements. Our analysis identifies that Coal Gasification is a promising technology with appropriate policy support and providing the underlying assumptions are valid. We have increased the level of commentary on the assumptions required for economic break-even, as well as included commentary on the policy needed to support the business case. We have also drawn attention to the detailed engineering study used in our analysis. It has been highlighted that measures are generally long-term, not short-term, so exchange rate fluctuations will smooth out. Upstream coal mining impacts are not in the current scope and so will be excluded from quantitative analysis. Qualitative consideration will be given to this area in the final report.

The previous assumption of $777/tonne was revised for the final report PKS price now includes transport and pulverization costs in the model (and this is clearly explained in the report) All certification commentary to be based on ISPO standard, although RSPO costs to be used a proxy for cost of implementation and monitoring. Additional industrial activities are not in the scope of work 76

Note no current f.o.b. price for Maloy, only Dumai and Belawan in Sumatera. Once Maloy constructed then there will be fob Maloy. It will served Kalimantan and East part of Indonesia and will increase EK export. Note difficulties in getting tourism licenses in forested areas (from Ministry of Forestry). A bit ambitious to get tourist from Sabah to go to Kutai National Park since there is direct transport Use assumption of 50m of land clearance required for new railway Consider role of railway in carrying PKS to Port as well as CPO â&#x20AC;&#x201C; needed for biomass intervention to be successful One stakeholder from Palm Oil industry claimed that there is zero PKS waste in East Kalimantan, which would jeopardize the coal-biomass intervention

Note mangrove clearance in baseline scenario â&#x20AC;&#x201C; of the c.450ha on the KIPI Maloy side of the peninsula, 100 Ha will be cleared for the shipping berths (it will leave 75m as green belt). This may degrade the ecosystem to the point of destruction, in which case, will the mitigation measures have any protective value?

Noted

Noted in policy section. Clarification that Sabah is being used as a proxy for the number of potential regional tourists, it is not suggested that tourists will literally travel from Sabah. The previous assumption of 100m was updated for the final report. This is commented on in the wider impacts section of this intervention. This was refuted by further validation checks with other stakeholders. It was suggested by other stakeholders that 50% is a reasonable industry minimum. Based on a PKS yield of 0.7/t/ha on 300,000 planted hectares this translates to at least 105,000 tonnes of PKS for biomass combustion each year. Based on this, we revised down our coal-to-biomass replacement proportion from 4% to 2% (which implies longterm that around 150,000 will be made available). The risk of the remaining Mangrove not being a viable ecosystem after the removal of the first 100ha has been explicitly noted in the Clean Shipping results section. A value of 350ha (rather than 450-480) has been used in the Cost-Benefit Analysis calculations to reflect the baseline activities.

Appendix 2: Discounted Cost Benefit Analyses Power NPV @ 10.0% p.a. TITLE: Power - Substitution from coal to biomass Power YEAR : Year 0 Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

$ 8,777,271 $

8,777,271

$ $

11,560,468 $ 263,318 $

11,560,468 263,318

$ $ $ $

11,823,786 11,823,786 11,823,786 20,601,057

$ $ $ $

11,823,786 23,647,572 11,823,786 32,424,843

$ $ $ $

11,823,786 35,471,358 11,823,786 44,248,629

$ $ $ $

11,823,786 47,295,144 11,823,786 56,072,415

$ $ $ $

11,823,786 59,118,930 11,823,786 67,896,201

$ $ $ $

11,823,786 70,942,716 11,823,786 79,719,987

$ $ $ $

11,823,786 82,766,502 11,823,786 91,543,773

$ $ $ $

11,823,786 94,590,288 11,823,786 103,367,559

$ $ $ $

11,823,786 106,414,074 11,823,786 115,191,345

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

G. Total Benefits (Annual) $ $ 17,260,563 H. Total Benefits (Cumulative) $ $ 17,260,563 NET UNDISCOUNTED COST* (=E-G) $ 8,777,271 $ -5,436,777 DISCOUNT FACTOR @ 3.5% p.a. 1.00 0.91 NET PRESENT COST* (Annual) $ 8,777,271 $ -4,942,525 NET PRESENT COST* (Cumulative) $ 8,777,271 $ 3,834,746 TOTAL NET PRESENT COST* = $ -38,291,889 TOTAL NET PRESENT VALUE = $ 38,291,889 ECONOMIC RATE OF RETURN 62% * A minus sign in these rows denotes a Net Present Value rather than a Net Present Cost.

$ $ $

17,260,563 34,521,126 -5,436,777 0.83 -4,493,204 -658,458

$ $ $

17,260,563 51,781,690 -5,436,777 0.75 -4,084,731 -4,743,189

$ $ $

17,260,563 69,042,253 -5,436,777 0.68 -3,713,392 -8,456,581

$ $ $

17,260,563 86,302,816 -5,436,777 0.62 -3,375,811 -11,832,392

$ $ $

17,260,563 103,563,379 -5,436,777 0.56 -3,068,919 -14,901,311

$ $ $

17,260,563 120,823,942 -5,436,777 0.51 -2,789,926 -17,691,237

$ $ $

17,260,563 138,084,506 -5,436,777 0.47 -2,536,297 -20,227,534

$ $ $

17,260,563 155,345,069 -5,436,777 0.42 -2,305,724 -22,533,258

CAPITAL COSTS (£ 000s): Cost of retrofitting power plant Residual Value

8,777,271

A. Total Capital Costs (Annual) B. Total Capital Costs (Cumulative)

$ $

8,777,271 $ 8,777,271 $

REVENUE COSTS (£ 000s): Change in plant running costs O&M

C. Total Revenue Costs (Annual) D. Total Revenue Costs (Cumulative) E. Total Costs (Annual) (=A+C) F. Total Costs (Cumulative) (=B+D) BENEFITS (£ 000s): Avoided Social Costs of Carbon Avoided impacts from SOx emissions Avoided impacts from NOx emissions Avoided impacts from PM emissions

$ $ $ $

8,777,271 8,777,271

$ $

Year 9

$ $

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

$ $

$ 8,777,271 $

$ $

11,560,468 $ 263,318 $

$ $ $ $

11,823,786 118,237,860 11,823,786 127,015,131

$ $ $ $

11,823,786 130,061,646 11,823,786 138,838,917

$ $ $ $

11,823,786 141,885,433 11,823,786 150,662,703

$ $ $ $

11,823,786 153,709,219 11,823,786 162,486,489

$ $ $ $

11,823,786 165,533,005 11,823,786 174,310,275

$ $ $ $

11,823,786 177,356,791 11,823,786 186,134,062

$ $ $ $

11,823,786 189,180,577 11,823,786 197,957,848

$ $ $ $

11,823,786 201,004,363 11,823,786 209,781,634

$ $ $ $

11,823,786 212,828,149 11,823,786 221,605,420

$ $ $ $

11,823,786 224,651,935 11,823,786 233,429,206

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

14,617,983 1,633,775 464,746 544,060

$ $ $ $

$ $ $

17,260,563 172,605,632 -5,436,777 0.39 -2,096,113 -24,629,371

$ $ $

17,260,563 189,866,195 -5,436,777 0.35 -1,905,557 -26,534,928

$ $ $

17,260,563 207,126,758 -5,436,777 0.32 -1,732,325 -28,267,253

$ $ $

17,260,563 224,387,322 -5,436,777 0.29 -1,574,841 -29,842,094

$ $ $

17,260,563 241,647,885 -5,436,777 0.26 -1,431,673 -31,273,767

$ $ $

17,260,563 258,908,448 -5,436,777 0.24 -1,301,521 -32,575,288

$ $ $

17,260,563 276,169,011 -5,436,777 0.22 -1,183,201 -33,758,490

$ $ $

17,260,563 293,429,574 -5,436,777 0.20 -1,075,637 -34,834,127

$ $ $

17,260,563 310,690,138 -5,436,777 0.18 -977,852 -35,811,979

$ $ $

17,260,563 327,950,701 -5,436,777 0.16 -888,957 -36,700,936

$ $ $

$ $

TOTAL

$ -5,266,363 $ $ $ $ $ -5,266,363 $ 3,510,908

8,777,271 -5,266,363 3,510,908

11,560,468 $ 263,318 $ $ $ $ $ $ 11,823,786 $ 236,475,721 6,557,424 $ 239,986,629

231,209,358 5,266,363 236,475,721

14,617,983 1,633,775 464,746 544,060

$ $ $ $ $ $ 17,260,563 $ 345,211,264 -10,703,140 $ 0.15 -1,590,954 $ -38,291,889

239,986,629

292,359,651 32,675,497 9,294,918 10,881,198 345,211,264 -105,224,635 -38,291,889

Road NPV @ 10.0% p.a. TITLE: Road - Extension of the road to develop tourist resort YEAR : Year 0 Year 1 CAPITAL COSTS (£ 000s): Capital costs for hotel/restaurant Capital costs of re-routing road Other overheads (landscaping etc.) Residual Value

A. Total Capital Costs (Annual) B. Total Capital Costs (Cumulative) REVENUE COSTS (£ 000s):

$ $ $

$ $

$ $ $ $

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

83,245,038 6,471,418 16,649,008

106,365,463 $ 106,365,463 $

$ 106,365,463 $

106,365,463

$ $ $

79,294 $ 32,846,413 $ 3,478,457 $

79,294 $ 34,488,734 $ 3,652,380 $

79,294 $ 36,213,171 $ 3,834,999 $

79,294 $ 38,023,829 $ 4,026,749 $

79,294 $ 39,925,021 $ 4,228,086 $

79,294 $ 41,921,272 $ 4,439,490 $

79,294 $ 44,017,335 $ 4,661,465 $

79,294 $ 46,218,202 $ 4,894,538 $

79,294 48,529,112 5,139,265

Annual road maintenance cost O&M Hotel (incl. wages) Displaced tourism spend in Kaltim

C. Total Revenue Costs (Annual) D. Total Revenue Costs (Cumulative) E. Total Costs (Annual) (=A+C) F. Total Costs (Cumulative) (=B+D) BENEFITS (£ 000s): Tourist expenditure - hotels

Year 2

106,365,463 106,365,463

$ $ $ $

44,232,401 201,114,310 44,232,401 307,479,773

$ $ $ $

46,440,056 247,554,366 46,440,056 353,919,830

$ $ $ $

48,758,095 296,312,461 48,758,095 402,677,924

$ $ $ $

51,192,035 347,504,495 51,192,035 453,869,959

$ $ $ $

53,747,672 401,252,167 53,747,672 507,617,630

51,580,733 $

54,159,770 $

56,867,758 $

59,711,146 $

62,696,703 $

65,831,538

$ $ $ $

9,496,187 9,678,806

$ $ $ $

9,970,997 10,162,747

$ $ $ $

10,469,547 10,670,884

$ $ $ $

10,993,024 11,204,428

$ $ $ $

11,542,675 11,764,650

$ $ $ $

12,119,809 12,352,882

$ $ $ $

12,725,799 12,970,526

G. Total Benefits (Annual) $ $ 61,949,661 H. Total Benefits (Cumulative) $ $ 61,949,661 NET UNDISCOUNTED COST* (=E-G) $ 106,365,463 $ -25,545,496 DISCOUNT FACTOR @ 3.5% p.a. 1.00 0.91 NET PRESENT COST* (Annual) $ 106,365,463 $ -23,223,179 NET PRESENT COST* (Cumulative) $ 106,365,463 $ 83,142,285 TOTAL NET PRESENT COST* = $ -209,014,746 TOTAL NET PRESENT VALUE = $ 209,014,746 ECONOMIC RATE OF RETURN 29% * A minus sign in these rows denotes a Net Present Value rather than a Net Present Cost.

$ $ $

65,047,144 126,996,805 -26,826,736 0.83 -22,170,856 60,971,429

$ $ $

68,299,501 195,296,306 -28,172,037 0.75 -21,166,069 39,805,360

$ $ $

71,714,476 267,010,782 -29,584,604 0.68 -20,206,683 19,598,677

$ $ $

75,300,200 342,310,983 -31,067,799 0.62 -19,290,659 308,018

$ $ $

79,065,210 421,376,193 -32,625,154 0.56 -18,416,049 -18,108,030

$ $ $

83,018,471 504,394,663 -34,260,376 0.51 -17,580,990 -35,689,020

$ $ $

87,169,394 591,564,057 -35,977,360 0.47 -16,783,704 -52,472,724

$ $ $

91,527,864 683,091,921 -37,780,192 0.42 -16,022,490 -68,495,214

$ $

49,124,508 $

42,129,872 156,881,909 42,129,872 263,247,372

9,043,988 9,217,911

$ $ $ $

46,785,245 $

40,127,464 114,752,036 40,127,464 221,117,500

$ $ $ $

expenditure - retail expenditure - entertainment expenditure - local transport expenditure - sightseeing other

44,557,376 $

38,220,408 74,624,573 38,220,408 180,990,036

8,613,322 8,778,963

Tourist Tourist Tourist Tourist

36,404,165 36,404,165 36,404,165 142,769,628

$ $

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

$ $ $ -38,250,327 $ $ $ -38,250,327 $ 68,115,136

83,245,038 6,471,418 16,649,008 -38,250,327 68,115,136

$ $ $ $

79,294 $ 83,001,251 $ 8,789,887 $ $ $ $ $ 91,870,432 $ 1,202,702,378 53,620,105 $ 1,270,817,514

1,585,887 1,086,097,995 115,018,496 1,202,702,378

107,232,639 $

112,594,271 $

1,473,332,165

$ $

$ 106,365,463 $

$ $ $

79,294 $ 50,955,568 $ 5,396,228 $

79,294 $ 53,503,346 $ 5,666,040 $

79,294 $ 56,178,513 $ 5,949,342 $

79,294 $ 58,987,439 $ 6,246,809 $

79,294 $ 61,936,811 $ 6,559,149 $

79,294 $ 65,033,652 $ 6,887,107 $

79,294 $ 68,285,334 $ 7,231,462 $

79,294 $ 71,699,601 $ 7,593,035 $

79,294 $ 75,284,581 $ 7,972,687 $

79,294 $ 79,048,810 $ 8,371,321 $

$ $ $ $

56,431,090 457,683,257 56,431,090 564,048,721

$ $ $ $

59,248,680 516,931,937 59,248,680 623,297,401

$ $ $ $

62,207,150 579,139,087 62,207,150 685,504,550

$ $ $ $

65,313,542 644,452,629 65,313,542 750,818,093

$ $ $ $

68,575,255 713,027,884 68,575,255 819,393,347

$ $ $ $

72,000,053 785,027,937 72,000,053 891,393,400

$ $ $ $

75,596,091 860,624,027 75,596,091 966,989,491

$ $ $ $

79,371,930 939,995,958 79,371,930 1,046,361,421

$ $ $ $

83,336,562 1,023,332,520 83,336,562 1,129,697,983

$ $ $ $

87,499,426 1,110,831,945 87,499,426 1,217,197,409

69,123,115 $

72,579,271 $

76,208,235 $

80,018,646 $

84,019,579 $

88,220,558 $

92,631,586 $

97,263,165 $

$ $ $ $

13,362,089 13,619,052

$ $ $ $

14,030,194 14,300,005

$ $ $ $

14,731,703 15,015,005

$ $ $ $

15,468,289 15,765,756

$ $ $ $

16,241,703 16,554,043

$ $ $ $

17,053,788 17,381,746

$ $ $ $

17,906,478 18,250,833

$ $ $ $

18,801,801 19,163,374

$ $ $ $

19,741,891 20,121,543

$ $ $ $

20,728,986 21,127,620

$ $ $ $

$ $ $

96,104,257 779,196,178 -39,673,167 0.39 -15,295,723 -83,790,937

$ $ $

100,909,470 880,105,648 -41,660,790 0.35 -14,601,853 -98,392,789

$ $ $

105,954,943 986,060,592 -43,747,794 0.32 -13,939,395 -112,332,185

$ $ $

111,252,691 1,097,313,282 -45,939,148 0.29 -13,306,935 -125,639,120

$ $ $

116,815,325 1,214,128,607 -48,240,070 0.26 -12,703,118 -138,342,238

$ $ $

122,656,091 1,336,784,699 -50,656,039 0.24 -12,126,653 -150,468,891

$ $ $

128,788,896 1,465,573,594 -53,192,805 0.22 -11,576,304 -162,045,195

$ $ $

135,228,341 1,600,801,935 -55,856,410 0.20 -11,050,893 -173,096,088

$ $ $

141,989,758 1,742,791,693 -58,653,195 0.18 -10,549,293 -183,645,381

$ $ $

149,089,246 1,891,880,939 -61,589,820 0.16 -10,070,428 -193,715,809

$ $ $

$ $

102,126,323 $

$ $

TOTAL

$ $

21,765,435 22,184,001

$ $ $ $ $ $ 156,543,708 $ 2,048,424,646 -102,923,603 $ 0.15 -15,298,938 $ -209,014,746

1,270,817,514

284,807,705 290,284,776 2,048,424,646 -777,607,132 -209,014,746

Rail NPV @ 10.0% p.a. TITLE: Rail - Railway rerouted to follow existing road's route & Railway converted to accommodate CPO freight YEAR : Year 0 Year 1 Year 2 Year 3 Year 4 CAPITAL COSTS (£ 000s): Cost of installing CPO loading/unloading stations $ Cost of purchasing CPO carriages $ Residual Value

A. Total Capital Costs (Annual) B. Total Capital Costs (Cumulative) REVENUE COSTS (£ 000s): O&M CPO carriages Loading/unloading cost of CPO

$ $

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

376,168,751 24,598,875

400,767,626 $ 400,767,626 $

$ 400,767,626 $

400,767,626

$ $

3,156,535 $ 7,482,158 $

3,156,535 7,482,158

C. Total Revenue Costs (Annual) $ $ 10,638,693 D. Total Revenue Costs (Cumulative) $ $ 10,638,693 E. Total Costs (Annual) (=A+C) $ 400,767,626 $ 10,638,693 F. Total Costs (Cumulative) (=B+D) $ 400,767,626 $ 411,406,319 BENEFITS (£ 000s): Total Economic Value of Forest preservation Use Value Direct use: - timber $ 387,455 - firewood $ 1,135 - non forest timber $ 279,824 - water supply regulation $ 3,070 Indirect use: - erosion control $ 289,634 - carbon sequestration $ 7,371,000 - flood protection $ 177,042 - water transport $ 41,867 - biodiversity $ 33,500 Non use value - intangible: option & bequest $ 21,275 - social cost: conflict and safety $ 33,500 Avoided clearance costs $ 79,251 Reduced vehicular operating costs $ 99,052,047 Reduced GHG emissions from rail transport $ 689,444 G. Total Benefits (Annual) $ 8,718,554 $ 99,741,492 H. Total Benefits (Cumulative) $ 8,718,554 $ 108,460,046 NET UNDISCOUNTED COST* (=E-G) $ 392,049,072 $ -89,102,799 DISCOUNT FACTOR @ 3.5% p.a. 1.00 0.91 NET PRESENT COST* (Annual) $ 392,049,072 $ -81,002,544 NET PRESENT COST* (Cumulative) $ 392,049,072 $ 311,046,528 TOTAL NET PRESENT COST* = $ -389,676,257 TOTAL NET PRESENT VALUE = $ 389,676,257 ECONOMIC RATE OF RETURN 22% * A minus sign in these rows denotes a Net Present Value rather than a Net Present Cost.

$ $ $ $

10,638,693 21,277,386 10,638,693 422,045,012

$ $ $ $

10,638,693 31,916,079 10,638,693 432,683,705

$ $ $ $

10,638,693 42,554,772 10,638,693 443,322,398

$ $ $ $

10,638,693 53,193,465 10,638,693 453,961,091

$ $ $ $

10,638,693 63,832,158 10,638,693 464,599,784

$ $ $ $

10,638,693 74,470,852 10,638,693 475,238,477

$ $ $ $

10,638,693 85,109,545 10,638,693 485,877,171

$ $ $ $

10,638,693 95,748,238 10,638,693 496,515,864

$ $ $ $

10,638,693 106,386,931 10,638,693 507,154,557

$ $ $ $ $

99,052,047 689,444 99,741,492 208,201,538 -89,102,799 0.83 -73,638,677 237,407,851

$ $ $ $ $

99,052,047 689,444 99,741,492 307,943,029 -89,102,799 0.75 -66,944,251 170,463,600

$ $ $ $ $

99,052,047 689,444 99,741,492 407,684,521 -89,102,799 0.68 -60,858,410 109,605,189

$ $ $ $ $

99,052,047 689,444 99,741,492 507,426,013 -89,102,799 0.62 -55,325,828 54,279,361

$ $ $ $ $

99,052,047 689,444 99,741,492 607,167,505 -89,102,799 0.56 -50,296,207 3,983,155

$ $ $ $ $

99,052,047 689,444 99,741,492 706,908,996 -89,102,799 0.51 -45,723,825 -41,740,670

$ $ $ $ $

99,052,047 689,444 99,741,492 806,650,488 -89,102,799 0.47 -41,567,113 -83,307,783

$ $ $ $ $

99,052,047 689,444 99,741,492 906,391,980 -89,102,799 0.42 -37,788,285 -121,096,068

$ $ $ $ $

99,052,047 689,444 99,741,492 1,006,133,472 -89,102,799 0.39 -34,352,986 -155,449,054

$ $

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

$ $

$ 400,767,626 $

$ $

3,156,535 $ 7,482,158 $

$ $ $ $

10,638,693 117,025,624 10,638,693 517,793,250

$ $ $ $

10,638,693 127,664,317 10,638,693 528,431,943

$ $ $ $

10,638,693 138,303,010 10,638,693 539,070,636

$ $ $ $

10,638,693 148,941,703 10,638,693 549,709,329

$ $ $ $

10,638,693 159,580,396 10,638,693 560,348,022

$ $ $ $

10,638,693 170,219,089 10,638,693 570,986,715

$ $ $ $

10,638,693 180,857,782 10,638,693 581,625,408

$ $ $ $

10,638,693 191,496,475 10,638,693 592,264,101

$ $ $ $

10,638,693 202,135,168 10,638,693 602,902,794

$ $ $ $

TOTAL

$ $ -155,694,363 $ $ $ $ -155,694,363 $ 245,073,263

376,168,751 24,598,875 -155,694,363 245,073,263

3,156,535 $ 7,482,158 $ $ $ $ $ $ 10,638,693 $ 212,773,861 -145,055,670 $ 457,847,124

63,130,706 149,643,155 212,773,861

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,105,874,964 -89,102,799 0.35 -31,229,987 -186,679,041

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,205,616,455 -89,102,799 0.32 -28,390,898 -215,069,939

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,305,357,947 -89,102,799 0.29 -25,809,907 -240,879,846

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,405,099,439 -89,102,799 0.26 -23,463,552 -264,343,398

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,504,840,931 -89,102,799 0.24 -21,330,502 -285,673,899

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,604,582,422 -89,102,799 0.22 -19,391,365 -305,065,264

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,704,323,914 -89,102,799 0.20 -17,628,514 -322,693,778

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,804,065,406 -89,102,799 0.18 -16,025,922 -338,719,700

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 1,903,806,898 -89,102,799 0.16 -14,569,020 -353,288,719

$ $ $ $ $ $ $

99,052,047 689,444 99,741,492 2,003,548,390 -244,797,162 0.15 -36,387,538 -389,676,257

457,847,124

$ $ $ $

79,251 1,981,040,949 13,788,887 2,003,548,390

-1,545,701,265

-389,676,257

Palm Oil NPV @ 10.0% p.a. TITLE: Palm Oil - Implementation of Best Management Practices YEAR : Year 0 Year 1 Year 2 CAPITAL COSTS (£ 000s): Initial Certification Costs Training staff and implementation Corrective Action

A. Total Capital Costs (Annual) B. Total Capital Costs (Cumulative) REVENUE COSTS (£ 000s): Ongoing certification and maintenance

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

$ $ $

362,155 2,363,213 1,124,316

$ $

3,849,684 $ 3,849,684 $

$ 3,849,684 $

3,849,684

1,333,016 $

1,333,016

1,333,016 2,666,031 1,333,016 6,515,715

1,333,016 3,999,047 1,333,016 7,848,731

1,333,016 5,332,063 1,333,016 9,181,747

C. Total Revenue Costs (Annual) $ $ 1,333,016 D. Total Revenue Costs (Cumulative) $ $ 1,333,016 E. Total Costs (Annual) (=A+C) $ 3,849,684 $ 1,333,016 F. Total Costs (Cumulative) (=B+D) $ 3,849,684 $ 5,182,700 BENEFITS (£ 000s): Increased yield - additional revenue $ $ Use Value Direct use: - timber $ 6,982,394 - firewood $ 18,010 - non forest timber $ 5,516,908 - water supply regulation $ 48,708 Indirect use: - erosion control $ 4,761,897 - carbon sequestration $ 116,931,204 - flood protection $ 2,956,345 - water transport $ 664,162 - biodiversity $ 1,184,951 Non use value - intangible: option & bequest $ 389,483 - social cost: conflict and safety $ 708,611 G. Total Benefits (Annual) $ 140,162,674 $ H. Total Benefits (Cumulative) $ 140,162,674 $ 140,162,674 NET UNDISCOUNTED COST* (=E-G) $ -136,312,990 $ 1,333,016 DISCOUNT FACTOR @ 3.5% p.a. 1.00 0.91 NET PRESENT COST* (Annual) $ -136,312,990 $ 1,211,832 NET PRESENT COST* (Cumulative) $ -136,312,990 $ -135,101,157 TOTAL NET PRESENT COST* = $ -347,296,114 TOTAL NET PRESENT VALUE = $ 347,296,114 ECONOMIC RATE OF RETURN n/a * A minus sign in these rows denotes a Net Present Value rather than a Net Present Cost.

$ $ $ $ $

140,162,674 1,333,016 0.83 1,101,666 -133,999,491

$ $ $ $ $

140,162,674 1,333,016 0.75 1,001,514 -132,997,977

$ $ $ $ $

140,162,674 1,333,016 0.68 910,468 -132,087,509

$ $ $ $ $

1,333,016 6,665,079 1,333,016 10,514,763 -

140,162,674 1,333,016 0.62 827,698 -131,259,811

$ $ $ $

1,333,016 7,998,094 1,333,016 11,847,778

47,076,506 $

$ $ $ $ $

47,076,506 187,239,180 -45,743,491 0.56 -25,821,008 -157,080,819

$ $ $ $

$ $ $ $ $

1,333,016 9,331,110 1,333,016 13,180,794

$ $ $ $

47,076,506 $

47,076,506 234,315,686 -45,743,491 0.51 -23,473,644 -180,554,463

$ $ $ $ $

1,333,016 10,664,126 1,333,016 14,513,810

$ $ $ $

47,076,506 $

47,076,506 281,392,192 -45,743,491 0.47 -21,339,676 -201,894,139

$ $ $ $ $

1,333,016 11,997,142 1,333,016 15,846,826

$ $ $ $

1,333,016 13,330,157 1,333,016 17,179,841

47,076,506 $

47,076,506

47,076,506 328,468,699 -45,743,491 0.42 -19,399,705 -221,293,844

$ $ $ $ $

47,076,506 375,545,205 -45,743,491 0.39 -17,636,096 -238,929,940

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

$ $

$ 3,849,684 $

1,333,016 $

$ $ $ $

1,333,016 14,663,173 1,333,016 18,512,857

47,076,506 $

$ $ $ $ $

47,076,506 422,621,711 -45,743,491 0.35 -16,032,814 -254,962,754

$ $ $ $

$ $ $ $ $

1,333,016 15,996,189 1,333,016 19,845,873

$ $ $ $

47,076,506 $

47,076,506 469,698,218 -45,743,491 0.32 -14,575,286 -269,538,040

$ $ $ $ $

1,333,016 17,329,205 1,333,016 21,178,889

$ $ $ $

47,076,506 $

47,076,506 516,774,724 -45,743,491 0.29 -13,250,260 -282,788,300

$ $ $ $ $

1,333,016 18,662,220 1,333,016 22,511,904

$ $ $ $

47,076,506 $

47,076,506 563,851,230 -45,743,491 0.26 -12,045,691 -294,833,990

$ $ $ $ $

1,333,016 19,995,236 1,333,016 23,844,920

$ $ $ $

47,076,506 $

47,076,506 610,927,736 -45,743,491 0.24 -10,950,628 -305,784,618

$ $ $ $ $

1,333,016 21,328,252 1,333,016 25,177,936

$ $ $ $

47,076,506 $

47,076,506 658,004,243 -45,743,491 0.22 -9,955,116 -315,739,735

$ $ $ $ $

1,333,016 22,661,268 1,333,016 26,510,952

$ $ $ $

47,076,506 $

47,076,506 705,080,749 -45,743,491 0.20 -9,050,106 -324,789,840

$ $ $ $ $

1,333,016 23,994,283 1,333,016 27,843,967

$ $ $ $

47,076,506 $

47,076,506 752,157,255 -45,743,491 0.18 -8,227,369 -333,017,209

$ $ $ $ $

1,333,016 25,327,299 1,333,016 29,176,983

$ $ $ $

47,076,506 $

47,076,506 799,233,761 -45,743,491 0.16 -7,479,426 -340,496,636

$ $ $ $ $

TOTAL

$ $ $ $ $ $ $

362,155 2,363,213 1,124,316 3,849,684

1,333,016 $ $ $ $ $ $ $ 1,333,016 $ 26,660,315 1,333,016 $ 30,509,999

26,660,315 26,660,315

47,076,506 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 47,076,506 $ 846,310,268 -45,743,491 $ 0.15 -6,799,478 $ -347,296,114

706,147,594 6,982,394 18,010 5,516,908 48,708 4,761,897 116,931,204 2,956,345 664,162 1,184,951 389,483 708,611 846,310,268

3,849,684

30,509,999

-815,800,269 -347,296,114

Shipping NPV @ 10.0% p.a. TITLE: Shipping - Ballast Water Treatment Programme; Cold-ironing (on-shore power); & Removal of harmful anti-fouling paint YEAR : Year 0 Year 1 Year 2 Year 3 Year 4 CAPITAL COSTS (£ 000s): Ballast Water Management Programme Installation of power equipment at Maloy Port - Sub-station $ - To port cabling $ - Shore-side transformer $ - Berth cabling $ Installation of power equipment on ships (2 vessels) $ Residual Value A. Total Capital Costs (Annual) $ B. Total Capital Costs (Cumulative) $ REVENUE COSTS (£ 000s):

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

1,269,948 605,875 2,241 129,657 491,655 920,931 3,420,307 $ 3,420,307 $

$ 3,420,307 $

3,420,307

$ $ $ $ $ $ 3,420,307 $ 3,420,307 $

132,286 98,743 26,659 102,864 360,551 360,551 360,551 3,780,859

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 721,103 360,551 4,141,410

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 1,081,654 360,551 4,501,961

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 1,442,205 360,551 4,862,512

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 1,802,756 360,551 5,223,064

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 2,163,308 360,551 5,583,615

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 2,523,859 360,551 5,944,166

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 2,884,410 360,551 6,304,718

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 3,244,962 360,551 6,665,269

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 3,605,513 360,551 7,025,820

Reduced fuel consumption from power use in port $ 162,360 Reduced GHG emissions associated with fuel $ -8,213 Reduced SOx emissions associated with fuel $ 25,027 Reduced NOx emissions associated with fuel $ 21,665 Reduced PM emissions associated with fuel $ 8,810 Avoided biocidal paint costs $ 72,411 Total Economic Value of Mangrove preservation Use Value Direct use - Timber $ 223,442 - Fish & others $ 2,066,036 Indirect use - Waves (breakwater) $ 187,558 - Tourism $ 24,119 - Nursery ground $ 112,168 - Abrasion $ 64,772 Non Use Value - biodiversity $ 40,006 - existence value $ 393,116 Total Economic Value of coral preservation Use Value Direct use - Fishery $ 101,794 Indirect use - Tourism $ 654,930 - Coastal Protection $ 353,355 G. Total Benefits (Annual) $ 4,221,296 $ 282,060 H. Total Benefits (Cumulative) $ 4,221,296 $ 4,503,356 NET UNDISCOUNTED COST* (=E-G) $ -800,989 $ 78,492 DISCOUNT FACTOR @ 3.5% p.a. 1.00 0.91 NET PRESENT COST* (Annual) $ -800,989 $ 71,356 NET PRESENT COST* (Cumulative) $ -800,989 $ -729,633 TOTAL NET PRESENT COST* = $ -241,402 TOTAL NET PRESENT VALUE = $ 241,402 ECONOMIC RATE OF RETURN n/a * A minus sign in these rows denotes a Net Present Value rather than a Net Present Cost.

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $

282,060 4,785,416 78,492 0.83 64,869 -664,764

$ $ $

282,060 5,067,476 78,492 0.75 58,972 -605,792

$ $ $

282,060 5,349,535 78,492 0.68 53,611 -552,181

$ $ $

282,060 5,631,595 78,492 0.62 48,737 -503,444

$ $ $

282,060 5,913,655 78,492 0.56 44,306 -459,138

$ $ $

282,060 6,195,715 78,492 0.51 40,279 -418,859

$ $ $

282,060 6,477,774 78,492 0.47 36,617 -382,242

$ $ $

282,060 6,759,834 78,492 0.42 33,288 -348,954

$ $ $

282,060 7,041,894 78,492 0.39 30,262 -318,693

Ballast Water Management Programme Costs of environmentally-friendly anti-fouling pain O&M for electricity supply Increased electricity charges C. Total Revenue Costs (Annual) D. Total Revenue Costs (Cumulative) E. Total Costs (Annual) (=A+C) F. Total Costs (Cumulative) (=B+D) BENEFITS (£ 000s):

$ $ $ $

$ $

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

TOTAL

$ $ $

$ $ 3,420,307 $

-730,980 -730,980 $ 2,689,327

1269948 605,875 2,241

$ $

$ 3,420,307 $

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 3,966,064 360,551 7,386,371

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 4,326,616 360,551 7,746,923

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 4,687,167 360,551 8,107,474

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 5,047,718 360,551 8,468,025

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 5,408,269 360,551 8,828,577

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 5,768,821 360,551 9,189,128

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 6,129,372 360,551 9,549,679

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 6,489,923 360,551 9,910,231

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 6,850,475 360,551 10,270,782

$ $ $ $ $ $ $ $

132,286 98,743 26,659 102,864 360,551 7,211,026 -370,429 9,900,353

$ $

2,645,726 1,974,857

$ $

2,057,272 7,211,026

9,900,353

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $ $

162,360 -8,213 25,027 21,665 8,810 72,411

$ $ $ $ $

3,247,196 -164,263 500,537 433,295 176,202

$ $ $ $ $

282,060 7,323,954 78,492 0.35 27,511 -291,182

$ $ $ $ $

282,060 7,606,013 78,492 0.32 25,010 -266,172

$ $ $ $ $

282,060 7,888,073 78,492 0.29 22,736 -243,436

$ $ $ $ $

282,060 8,170,133 78,492 0.26 20,669 -222,766

$ $ $ $ $

282,060 8,452,193 78,492 0.24 18,790 -203,976

$ $ $ $ $

282,060 8,734,252 78,492 0.22 17,082 -186,894

$ $ $ $ $

282,060 9,016,312 78,492 0.20 15,529 -171,365

$ $ $ $ $

282,060 9,298,372 78,492 0.18 14,117 -157,248

$ $ $ $ $

282,060 9,580,432 78,492 0.16 12,834 -144,414

$ $ $ $ $

282,060 $ 9,862,491 -652,489 $ 0.15 -96,988 $ -241,402

2,689,327

9,862,491 37,862 -241,402

Coal Gasification NPV @ 10.0% p.a. TITLE: Coal - Promote gasification of coal for power generation YEAR : Year 0 Year 1 Year 2 CAPITAL COSTS (£ 000s): Total Overnight Cost Residual Value

A. Total Capital Costs (Annual) B. Total Capital Costs (Cumulative) REVENUE COSTS (£ 000s):

Avoided costs of generation from counterfactual Sales of sulfur Changes in CO2 emissions Changes in SOx emissions Changes in NOx emissions Changes in PM emissions

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

1,664,427,878

$ $

1,664,427,878 $ 1,664,427,878 $

$ 1,664,427,878 $

1,664,427,878

$ $ $

37,107,955 $ 35,584,268 $ 99,648,558 $

37,107,955 35,584,268 99,648,558

Fixed O&M Variable O&M Fuel cost

C. Total Revenue Costs (Annual) D. Total Revenue Costs (Cumulative) E. Total Costs (Annual) (=A+C) F. Total Costs (Cumulative) (=B+D) BENEFITS (£ 000s): Sales of ammonia fertiliser

Year 3

$ $ $ $

1,664,427,878 1,664,427,878

$ $ $ $

172,340,781 172,340,781 172,340,781 1,836,768,659

$ $ $ $

172,340,781 344,681,563 172,340,781 2,009,109,441

$ $ $ $

172,340,781 517,022,344 172,340,781 2,181,450,222

$ $ $ $

172,340,781 689,363,126 172,340,781 2,353,791,004

$ $ $ $

172,340,781 861,703,907 172,340,781 2,526,131,785

$ $ $ $

172,340,781 1,034,044,688 172,340,781 2,698,472,566

$ $ $ $

172,340,781 1,206,385,470 172,340,781 2,870,813,348

$ $ $ $

172,340,781 1,378,726,251 172,340,781 3,043,154,129

$ $ $ $

172,340,781 1,551,067,033 172,340,781 3,215,494,911

197,997,022 $

197,997,022

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

673,197,029 673,197,029 -500,856,248 0.91 -455,323,862 1,209,104,016

$ $ $

673,197,029 1,346,394,058 -500,856,248 0.83 -413,930,783 795,173,233

$ $ $

673,197,029 2,019,591,087 -500,856,248 0.75 -376,300,712 418,872,521

$ $ $

673,197,029 2,692,788,116 -500,856,248 0.68 -342,091,556 76,780,965

$ $ $

673,197,029 3,365,985,145 -500,856,248 0.62 -310,992,324 -234,211,359

$ $ $

673,197,029 4,039,182,175 -500,856,248 0.56 -282,720,295 -516,931,654

$ $ $

673,197,029 4,712,379,204 -500,856,248 0.51 -257,018,450 -773,950,103

$ $ $

673,197,029 5,385,576,233 -500,856,248 0.47 -233,653,136 -1,007,603,239

$ $ $

673,197,029 6,058,773,262 -500,856,248 0.42 -212,411,942 -1,220,015,181

G. Total Benefits (Annual) $ $ H. Total Benefits (Cumulative) $ $ NET UNDISCOUNTED COST* (=E-G) $ 1,664,427,878 $ DISCOUNT FACTOR @ 3.5% p.a. 1.00 NET PRESENT COST* (Annual) $ 1,664,427,878 $ NET PRESENT COST* (Cumulative) $ 1,664,427,878 $ TOTAL NET PRESENT COST* = 2,682,112,567 TOTAL NET PRESENT VALUE = $ 2,682,112,567 ECONOMIC RATE OF RETURN 30% * A minus sign in these rows denotes a Net Present Value rather than a Net

$ $

Present Cost.

$ $

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

$ -554,809,293 $ $ $ $ -554,809,293 $ 1,109,618,585

1,664,427,878 -554,809,293 1,109,618,585

$ $ $ $

37,107,955 $ 35,584,268 $ 99,648,558 $ $ $ $ 172,340,781 $ 3,446,815,628 -382,468,511 $ 4,556,434,214

742,159,096 711,685,369 1,992,971,163 3,446,815,628

3,959,940,432

$ $

$ 1,664,427,878 $

$ $ $

37,107,955 $ 35,584,268 $ 99,648,558 $

$ $ $ $

172,340,781 1,723,407,814 172,340,781 3,387,835,692

$ $ $ $

172,340,781 1,895,748,596 172,340,781 3,560,176,474

$ $ $ $

172,340,781 2,068,089,377 172,340,781 3,732,517,255

$ $ $ $

172,340,781 2,240,430,158 172,340,781 3,904,858,036

$ $ $ $

172,340,781 2,412,770,940 172,340,781 4,077,198,818

$ $ $ $

172,340,781 2,585,111,721 172,340,781 4,249,539,599

$ $ $ $

172,340,781 2,757,452,503 172,340,781 4,421,880,381

$ $ $ $

172,340,781 2,929,793,284 172,340,781 4,594,221,162

$ $ $ $

172,340,781 3,102,134,065 172,340,781 4,766,561,943

$ $ $ $

172,340,781 3,274,474,847 172,340,781 4,938,902,725

197,997,022 $

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $ $ $ $

331,397,318 7,665,000 56,680,856 25,828,324 21,373,299 32,255,210

$ $ $

673,197,029 6,731,970,291 -500,856,248 0.39 -193,101,765 -1,413,116,946

$ $ $

673,197,029 7,405,167,320 -500,856,248 0.35 -175,547,059 -1,588,664,006

$ $ $

673,197,029 8,078,364,349 -500,856,248 0.32 -159,588,236 -1,748,252,241

$ $ $

673,197,029 8,751,561,378 -500,856,248 0.29 -145,080,214 -1,893,332,456

$ $ $

673,197,029 9,424,758,407 -500,856,248 0.26 -131,891,104 -2,025,223,560

$ $ $

673,197,029 10,097,955,436 -500,856,248 0.24 -119,901,004 -2,145,124,563

$ $ $

673,197,029 10,771,152,466 -500,856,248 0.22 -109,000,912 -2,254,125,475

$ $ $

673,197,029 11,444,349,495 -500,856,248 0.20 -99,091,738 -2,353,217,214

$ $ $

673,197,029 12,117,546,524 -500,856,248 0.18 -90,083,399 -2,443,300,613

$ $ $

673,197,029 12,790,743,553 -500,856,248 0.16 -81,893,999 -2,525,194,611

$ $ $

$ $

TOTAL

$ $

$ $ $ $ $ $ $ 673,197,029 $ 13,463,940,582 -1,055,665,540 $ 0.15 -156,917,956 $ -2,682,112,567

4,556,434,214

6,627,946,361 153,300,000 1,133,617,126 516,566,475 427,465,984 645,104,204 13,463,940,582 -8,907,506,368 -2,682,112,567

Copyright ÂŠ July 2014 The Global Green Growth Institute 19F Jeongdong Building, 21-15, Jeongdong-gil, Jung-gu, Seoul, Korea 100-784 The Global Green Growth Institute does not make any warranty, either express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or any third partyâ&#x20AC;&#x2122;s use or the results of such use of any information, apparatus, product, or process disclosed of the information contained herein or represents that its use would not infringe privately owned rights. The text of this publication may be reproduced in whole or in part and in any form for educational or nonprofit uses, provided that acknowledgement of the source is made. Resale or commercial use is prohibited without special permission. The views and opinions of the authors expressed herein do not necessarily state or reflect those of the Global Green Growth Institute.