Volume V, Sept 2013
Indonesia Business Council for Sustainable Development
Investing in the Future of Indonesia’s Energy Indonesia’s Energy. Home to some of the greatest energy reserves in Asia, Indonesia is blessed with a wealth of commodities. Despite its natural resource endowments, Indonesia is struggling to satisfy its energy needs. According to the US Energy Information Agency, Indonesia's primary energy consumption grew by nearly 50 percent between 1999 and 2008. Top among its lucrative commodities, oil continues to account for the most significant portion of Indonesia's energy mix. With approximately 3.9 billion barrels of proven oil reserves, Indonesia was the 20th largest oil producer in the world in 2011.
total annual budget. This market distortion has contributed to prolonged over-reliance on fossil fuel, especially oil. At roughly 30%, oil still comprises the largest portion of Indonesia’s energy mix. Consumption is largely driven by industry, followed by transportation and residential demand. Heavy reliance on oil subsidies has been criticized as an impediment for development of new and renewable energy (NRE) sources.
Not Business as Usual. Indonesia is at a cross roads, making the ‘Business as Usual’ (BAU) attitude disadvantageous in the near future. The price of oil remains high and volatile, while concern over Green House Gas (GHG) emissions from fossil fuels has become a major global concern. Understanding that large private companies and state owned enterprises are eager to secure domestic energy supply, Indonesia’s President issued PP no 5/ 2006 (KEN). However, supA History in Transition. Looking back, Indonesia porting government regulation has been slow to became a member of OPEC in 1962, and was a net oil exporter for decades. Indonesia's crude oil follow, and thus far has not been sufficient to develop a conducive policy environment capable production, however, has been in decline since of facilitating the overall process. The govern1998. The country became a net oil importer in 2004 before suspending its OPEC membership in ment did launch a development acceleration program, known as MP3EI, in 2011. As a mode of 2009. Production could not keep up with conpreservation, this program recognizes the counsumption due to aging infrastructure and the maturation of the country’s largest oil fields. Out- try’s strengths, including energy assets and human resources. By reducing exports and encourput fell from 1,7 million bbl/d in 1990 to less aging absorption of surplus in each industry corrithan 1 million bbl/d in 2010. dor, MP3EI acts as a framework for strengthening Moving Away from Oil. The Government has Indonesia’s economic core. To support this proacknowledged the rate of diminishing oil regram, in 2006 the government launched a twoserves, and is reorienting energy production away phase Fast Track program to increase electricity from exports to service domestic demand. Fortuproduction by 10,000 MW by 2013. This program nately, Indonesia also boasts the world’s 14th is geared toward shifting away from oil and focuslargest proven natural gas reserves, and was the ing on coal and natural gas as the nation’s main third-largest exporter of liquefied natural gas sources of energy. (LNG) in 2011. In addition, Indonesia became the world's largest exporter of coal by weight in 2011. In the second phase, the Fast Track II program hopes to add another 10,000 MW capacity by Like oil, coal is increasingly coveted at home, 2014, mostly by shifting away from both oil and primarily for electrification. Generation capacity coal, thereby reducing GHG emissions – in line has been outpaced by domestic demand. Reliawith global priorities. ble access to electricity remains low, disproportionately reaching less than 70 percent of the Geothermal Potential. According to IWR, Indonepopulation in 2010. sia is the world’s 14th largest GHG emitter, adding 453 MtCO2 in 2011. Through Indonesia’s Subsidies Shape Consumption. Consumption internationally declared commitment to reducing behaviour is motivated by several key factors, with price being among the most significant. For CO2 emissions by 26% by 2020, the country has embarked upon a positive path to utilizing clean decades, spanning several administrations, use of Indonesia’s energy resources has been subsi- energy – including geothermal – in the near future. dized by as much as 10% of the government’s
From Editor in Chief Tiur Rumondang
Readers, We are pleased to bring you the 5th IBCSD Newsletter. Highlights are given in this edition to Sustainability on Energy and Palm Oil as well as Pulp and Paper Sector. Hope this edition can contribute and trigger initiative on sustainable development especially in celebrating Indonesa’s independence day. As our best practice, we want to show an emission reduction on pulp and paper sector from RAPP.
Content Investing in the Future of Indonesia’s Energy … 1 News Event—Green Aviation (Garuda Indonesia) .. 2 Palm Oil and Pulp & Paper ...3 Energy Efficiency in Building .. 4 Best Practices - Reducing Emission Level with Black Liquor (RAPP).. 6
“To catch the reader's attention, place an
Indonesia has the unique opportunity of becoming independent of reliance on fossil fuels, if it were able to harness its geothermal resources, which are estimated to be a whopping 40% of total global potential, possibly capable of producing 29 Giga watts of power. By far the nation’s largest energy reserve, only 4% of Indonesia’s geothermal capacity has been tapped. Properly managed, geothermal energy could be a sustainable renewable energy source emitting almost no GHG. Unfortunately, considering the challenges involved in formulating policies for regulating the sector, development of geothermal energy in Indonesia has been far slower than expected. Nevertheless, challenges have not stopped businesses from pursuing opportunities. Medco Power Indonesia, for example, one of the IBCSD’s founding member companies, is rallying investment in renewable energy with innovative financing strategies for geothermal aspirations. Innovation and Technology. It is clear that other NRE opportunities, such as micro hydro power, solar PV, wind and biomass, are on average only reaching less than 5% of their potential utility. There are also huge untapped reserves of coal bed methane (CBM). Various other down stream efforts are still open for development. With efficient, effective energy conservation policies, there is considerable room for optimism. Thinking from a national perspective, and beyond reducing GHG emissions, Indonesia could add to an energy reserve of 150,000 bbl/d. For example, in Bunyu, East Kalimantan, rather than using diesel, 2 MW production from mini gas powered generation (PLTMG) could save Rp. 11 billion per year.
Help is Out There. It is often too easy to overlook the resources on our own door steps. Homes and commercial buildings, where we live and work, have heat, ventilation, and air conditioning (HVAC) systems that use considerable volumes of electricity. Energy consultants can provide a wide range of services, including audits and assessments of low-cost or no-cost energy alternatives, as well as monitoring mechanisms for energy cost control and conservative consumption. They can suggest efficient channels for connecting energy suppliers to end-users. Some Indonesian companies have begun making their way toward alternative energy sources and more efficient cogeneration power plants. Unfortunately, they are still presently among the minority. Development of innovative energy efficient technologies and NRE sources, away from fossil fuel for homes and industry, has become a new niche for investment initiatives necessary for both the public and private sectors, national and international, for sustainabile business prosperity. Starting can be as easy as changing a light bulb.
NEWS EVENT Green Aviation Conference Garuda Indonesia On 2-3 July 2013 Garuda Indonesia held an International Green Aviation Conference 2013 in Bali. It is an Indonesia Green Aviation Initiative for Sustainability Development, a collaboration of Directorate General of Civil Aviation (DGCA) Indonesia and Garuda Indonesia. Its objective was to develop a positive dialog among the authorities, operators, all aviation industry stakeholders, as well as other relevant institutions regarding Indonesia commitment to reduce the GHG emission. Several initiatives including EcoAirport, Technology Improvement, and several alternative fuels policy were delivered from the Conference.
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PALM OIL AND PULP & PAPER—GLOBAL INDONESIAN BUSINESS From the TFA 2020 Jakarta Workshop - June 2013
Increasing Demand Within Planetary Boundaries. Wood is the primary raw material for manufacturing pulp, although other raw materials can be used. Palm trees are the raw resources for palm oil, which is capable of producing a wide range of products, for both food and non-food purposes. Unfortunately, given demand for forest goods and the need for new cultivation areas, pristine Indonesian forests have been violated. Understanding the gravity of such circumstances, astute business action must be taken to concentrate on the economic scale without compromising the prospects of future generations who may also need forest resources for their own livelihoods. Conservation Amid Rising Demand. Improved global living standards have contributed to intensified competition for forest products and have complicated the misfortunes associated with deforestation. Some wood-based industries and their business partners lining the product value chain are responsible for manipulating forestry assets without sufficient consideration of environmental degradation and the consequences for containing Greenhouse Gas Emissions (GGE). This includes indifference toward preserving virgin forest area and disregard for professional scientific application of sustainable forestry management practices. Apathy is Unacceptable. At this point in time, indifference toward the plight of Indonesia’s forests is in-excusable. There are effective business mindsets seeking to sustain operations within existing industrial forest areas to meet market demand, wherein operations can proceed profitably without further damaging untouched forestland. Considering the Earth’s obvious limitations, companies should be held accountable for actions that molest the environment. Woodbased companies must be expected to further invest in innovative and competitive business solutions that shift consumption behaviour in favour of the struggle against deforestation. The Government should guide positive narrative on sustainable consumption given the pretext of prevailing economic cycles. The Government can be held accountable for transparent and effective law enforcement. These are key drivers that could shift some of the regrettable ‘business as usual’ practices to sustainable business management. Present responsibility can hopefully ensure the prosperity of future generations, who may one day enjoy the benefits of the remaining forests that we treasure today. Profitable Sustainability. There are various reservations regarding the challenges confronting Indonesia’s palm oil and pulp and paper sectors. Ensuring sustainable forestry and preventing deforestation is a top priority, yet it is a delicate dilemma when deliberating how to address increasing global demand for Indonesian forestry assets without encroaching upon protected forestland. From a business perspective, greater financial gains often come from improvements in operations, documentation systems, labour relations, and other internal factors. Improved business innovation for sustainability in the pulp and paper industry initiates competitive advantage and reduces the risk. As business performance improves, trickle-down benefits simultaneously occur, such as poverty alleviation, which occurs when companies undertake environmental and social responsibility. For the pulp and paper industry, using renewable resources, maintaining energy efficiency, and decreasing greenhouse gas emissions benefits self-sufficiency and profitability. Many customers had been attracted to the RSPO due to price premiums granted to certified sustainable operations. There are associated reputational benefits, as intelligent consumers appreciate companies with reliable ethics. Some consumers, mostly in developed countries, are concerned and well-informed about the business practices of palm oil and forestry industry in Indonesia, and would prefer to purchase products from certified supply chains (CSVO, and FSC in collaboration with LEI). For most international customers, sustainable performance has become a market requirement.
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Palm oil ….. Transitional Learning. Although suppliers should be compensated for implementing sustainable practices in the palm oil and pulp and paper industries, there are still consumers who hesitate to pay premium prices. Finding this balance can be challenging, as there is a transitional learning process when shifting paradigms are accommodated. Indonesia needs support in confronting the challenges involved with changing behaviour. Environmentally progressive management takes sincere effort. Changing consumption patterns takes time. Without support, it is not easy to move out of the ‘business as usual’ and ‘consume as usual’ routine while ‘changing as usual’ is not good enough. Indonesia as a Resource Based Investment Market. Indonesia remains a top investment destination for many resource based businesses. The country’s economy is transforming rapidly. Consumers are empowered by growing income. Given that Indonesia’s economy is largely driven by domestic demand, Indonesia has performed impressively over the past decade and has done relatively well while enduring the prolonged global economic crisis. At this critical juncture, when global issues drive the necessity of revamping the holistic value approach to doing business, Indonesia can expect continued strong economic growth by benefiting from positive ongoing trends, including sustainable forestry and a firm commitment to restraining deforestation. Over the past several years, Indonesia has taken necessary action with its commitment to fighting deforestation, which is shown by many of the GoI’s programs associated with combating illegal logging and reducing carbon emissions. In the palm oil sector, there are approaches to ensuring sustainability, such as the Indonesia Sustainable Palm Oil (ISPO) policy. The Consumer Market. The contributions of forestry and agriculture to Indonesia’s GDP – including palm oil and paper production – have reached US$27 billion. Pulp and paper manufacturing and its associated industrial forest plantations directly employ around 1.51 million people. If dependents are taken into account, this amounts to more than 15 million people reliant upon these sectors. Given that Indonesia’s resources serve both domestic needs and international demand, the next relevant question is whether there should be any acting role of consuming countries and foreign investors in preserving Indonesian resources. The world should be concerned about Indonesia’s tropical forests, for, among other reasons, their importance to the world’s climate stability and constancy of water systems that enable life on Earth. Consumption is Shaping Supply and Demand. There are many supportive capacity building efforts extended by developed nations and international development agencies, but this does not solve everything. Despite powerful voices from various international groups criticizing production patterns in Indonesia’s palm oil and pulp and paper industries, consumer behavior remains largely unchanged. For the majority of people, price is still a top priority, often overshadowing concern for the premium placed upon “We are the agent of change”’ ‘environmentally responsible’ products. Business by nature, however, evolves with the development of its market, and the market will follow shifting demands. Businesses engage changes in demand patterns, and pay close attention to providing supply to meet expectations. Beyond supply potential and business opportunities, changes in purchasing behaviour should also anticipate the possibility that consumers may carry some of the responsibility associated with environmental preservation. Business and Changing Production Behaviour. IBCSD is dedicated to promoting sustainable development and believes that Indonesia’s commitment to fighting deforestation is not a conflict of interest. It is clear that sustainability in palm oil and pulp and paper production is not merely a government agenda, but is also a private sector and consumer priority. Sustainability brings mutual benefit for all stakeholders reliant upon Indonesia’s finite land and forest resources. The investment paradigm is shifting from land expansion to innovation and technology developments. The result is increasing productivity and production yields. We Are the Agents of Change. We have our own roles, be it in government, the private sector, cooperatives, NGOs, or civil society. Recognition that certain weaknesses remain reinforces the conviction that there is still considerable room for improvement. As one chapter of WBCSD, IBCSD implores our distinguished members to support the commitment to spearheading actions that combat deforestation and reduce greenhouse gas emissions. Rather than fuelling negative campaigns, we call upon civil society and trustworthy development organisations to work closely with IBCSD member companies in facilitating solutions and paving avenues for future accomplishment.
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WBCSD COLOMN
Energy Efficiency in Buildings (EEB) – Facts and Trends Summary from WBCSD Report on Energy Efficiency in Buildings Project About EEB Vision - Zero net energy for buildings. The EEB vision is a world in which buildings consume zero net energy. It is ambitious, but ambition is necessary to achieve the progress needed to address climate change and energy use. Progress must be made now if we are to vastly improve the energy efficiency of both new and existing buildings. And there are many ambitious goals; for example, the UK government anticipates dramatic energy reductions to achieve its goal that all new homes in England be carbon-neutral by 2016.
Achieving change, based on sound policies. The knowledge, technology and skills are already available but are not being widely used to achieve dramatically lower energy use in buildings. The previous pages have shown that progress is hampered by barriers in the form of industry structure and practices, professionals’ lack of know-how and support, and a lack of leadership.
Encouraging interdependence with a holistic approach. Lifespan & embodied energy. A holistic approach begins with master planning, takes the whole life cycle The urgent challenge of energy efficiency. Buildings into account and embraces integrated building design are responsible for at least 40% of energy use in most processes. This approach is essential to maximizing countries. The absolute figure is rising fast, as conthe potential of individual technologies and innovastruction booms, especially in countries such as China tions. It begins at the community planning level to gain and India. It is essential to act now, because buildings efficiencies on a larger scale than can be achieved in can make a major contribution to tackling climate individual buildings and to integrate other energy uses, change and energy use. Progress can begin immedisuch as transport. Within individual buildings, efficienately because knowledge and technology exist today to cy is improved with a greater degree of collaboration slash the energy buildings use, while at the same time between specialists from the earliest stages of the improving levels of comfort. Behavioral, organizational design process. Integration helps to adopt approaches, and financial barriers stand in the way of immediate technologies and materials that can significantly lower action, and three approaches can help overcome energy use in buildings in economically attractive them: encouraging interdependence, making energy ways. Costs can be minimized with this holistic apmore valued and transforming behavior. proach to integrated design and innovation. The Business Opportunity. The need for muchimproved energy efficiency presents risks and opportunities for companies in the building industry seeking to enter this market. The EEB Project’s view is that early entrants can gain first-mover advantage, but there are risks, especially with regards to the timing of market entry.
Providing financial information and mechanisms. Financial considerations are critical to property development and investment, but they appear to be limiting the advance of energy efficiency. This is true of major development projects as well as smaller investments in improvements of individual buildings, including energy efficiency projects. Financial pressures have become more powerful, especially in the US, because of Alarming energy growth. The WBCSD identified buildthe rise of real estate as an investment class alongings as one of the five main users of energy where side equities and bonds and a decline in the number “megatrends” are needed to transform energy efficien- of owner-occupied buildings. Owner-occupiers are in cy. They account for 40% of primary energy5 in most the best position to make long-term investment decicountries covered by this project, and consumption is sions about their buildings. They will tend to have a rising. The International Energy Agency (IEA) estimates longer term perspective and stand to benefit directly that current trends in energy demand for buildings will from energy savings. This applies both to owners specistimulate about half of energy supply investments to fying a new building that they will occupy as well as to 2030.6 If building site energy consumption in China existing owner-occupiers considering retrofitting. and India grows to current US levels, China’s and India's consumption will be respectively about four and Changing behaviour. Energy has important symbolic and behavioral aspects that can have as much impact seven times greater than they are today. on consumption as energy efficient equipment does. In A complex sector. The building market is diverse and many people’s minds, energy “rationing” is a negative complex. The commercial relationships between the symbol of hard times, whereas energy consumption is many specialists involved are intricate and critical in a sign of prosperity. Saving energy therefore carries sparking action on energy efficiency. The sector is ambiguous connotations. In developing countries, uscharacterized by the fragmentation within sections of ing energy can be a symbol of progress and affluence; the value chain and nonintegration among them. Even social recognition can come from consumption, which the largest players are small and relatively local by clashes with saving energy. In the developed world, it international business standards, with the exception of is a commodity that is taken for granted and its insigmaterials and equipment suppliers. nificance can lead to thoughtless waste. Lifestyle or habit may increase energy consumption. For example, Barriers within the industry. Progress on energy effipeople tend to prefer individual houses rather than ciency depends on people in the building industry beapartments. Houses are also getting larger, with fewer ing aware of the importance of the issue, and then being able and willing to act on it. Awareness is high in people per household. In the EU, the number of households increased twice as much as the population. most countries covered by this project, but there are significant barriers preventing widespread involveConclusions and next steps. Technology available toment. The EEB Project commissioned research that day can achieve dramatic improvements in building identified serious gaps in knowledge about energy energy efficiency, but market failures and behavioral efficiency among building professionals, as well as a barriers are blocking progress toward the EEB vision of lack of leadership throughout the industry. Energy zero net energy. The challenge in this first phase has costs and energy use were the highest priorities for been to understand those impediments. In the next building professionals. Their other prominent objecphase the project will explore ways to overcome them tives were occupant well-being and productivity, conand develop a roadmap with practical measures that servation of water, and reducing the risks from rising businesses can implement. energy costs. Potential future resale value and reputational benefits for companies were ranked lowest of the main factors.
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STORY FROM GERMANY :-) IBCSD WELCOMES NEW MEMBER TOTAL INDONESIE E&P IBCSD announces that Total Indonesie E&P has joined its membership on 23 Augustus 2013 in Jakarta, sharing a common view and commitment in meeting sustainable development challenges ahead of us. Total Indonesie E&P is an Indonesian private equity company specializing in acquisitions, growth capital, and special-situation investments. The company has commitment to the sustainable development by investing in many sectors that closely related with sustainable issue such as natural resources, energy, and food & beverage.
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BEST PRACTISE To learn more about IBCSD membership, please contact: info@ibcsd.or.id. Indonesia Business Council For Sustainable Development (IBCSD) Menara Duta Building, 6th Floor Wing B Jl. HR. Rasuna Said Kav. B-9 Jakarta 12910 T: +62 21 5290 1941-42 F: +62 21 5290 1949 www.ibcsd.or.id
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Reducing Emission Level with Black Liquor RAPP In the pulp and paper making process, emissions result from burning fossil fuels and chemical reactions. Being conscious of the negative impacts of ozone-depleting emissions, APRIL Indonesia ensures that no ozonedepleting substances are emitted from the mills in the manufacturing process. Riaupulp, APRIL’s pulp and paper mill in Indonesia, has made significant steps to reduce air emission level by investing in new technologies and utilizing bio-fuel, such as black liquor and tree back, which reduces its dependence on fossil fuels. Further reductions in emissions were made since 2008 when the company invested in a methanol plant; this has ensured that all gases produced as a result of the pulp and paper making process remain in the production system instead of being emitted. Emission levels of particulates, nitrogen dioxide (NOx), sulphur dioxide (SOx), total reduced sulphur (TRS) and carbon dioxide (CO2) are regularly monitored. Dissolving tanks are used to recover and recycle black liquor during the pulping cycle. These gases are then recovered and burned in the recovery boiler where chemicals required for pulp production are recycled in the process. In 2010 Riaupulp generated 87% of its energy from renewable biomass sources such as tree bark and black liquor. The use of black liquor in recovery boilers went up from 58% in 2008 to 70% two years later. However, the downside of organic matter such as bark is its high nitrogen and ash content which resulted in an upward trend in particulate and NOx level. With consistent efforts to reduce emission level, RAPP has contributed to sustainable development through utilization of wastes and residues, mitigation of local environment pollution and health hazards, and climate change mitigation through switching over from using of fossil fuels and reducing the demand for fossil fuel based energy.