The potentials of Indonesian biofuel policy’s replanting scheme to reduce poverty and enhance regional economy

A. Halimatussadiah, F.R. Moeis, A.A. Siregar and D. Nainggolan

Land Use Policy, 2025, vol. 157, issue C

Abstract: Indonesia’s biofuel policy is progressive and palm oil-based biodiesel constitutes one of the main products. In 2023, biodiesel blending reached 35 % of fatty acid methyl ester (FAME) and 65 % of diesel, known as B35. The progressiveness of the biofuel policy could pose alarming environmental consequences if the Government of Indonesia (GoI) resort to land expansion strategy for meeting the increased palm oil needs. An alternative strategy is through replanting policy to enhance palm oil productivity of existing plantations. The present paper assesses the potential impact of a replanting policy, which remains understudied. Using available input and output data, Crude Palm Oil (CPO) and biodiesel projected balance sheets were constructed for 2020–2030 based on three biodiesel blending scenarios. Ex-ante assessments were then made to estimate each scenario’s impact on replanting needs, poverty, and regional growth. The present study found that: (1) The B35 scenario deficit could be covered by replanting, but not under the B30D20 scenario, (2) the replanting policy is estimated to reduce poverty rate by 1.67 % – 1.68 % and poverty gap by 0.37 %, (3) the replanting policy is estimated to increase province growth between 1.36 % – 45.74 %, and (4) replanting location prioritization is needed to maximize the program’s beneficial impacts. Overall, the findings indicate that replanting policy provides benefits in reducing poverty and increasing regional economy growth. However, financial and technical aspects of its implementation remain to be addressed.

Keywords: Biofuel policy; Palm oil; Poverty; Regional economy; Smallholder farmers; Input-output (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:157:y:2025:i:c:s0264837725001577

DOI: 10.1016/j.landusepol.2025.107623

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