ANALYSIS

Zero deforestation in
Indonesia: Pledges,
politics and palm oil
Corporations and government share the goal of sustainable economic development
but each faces its own challenges so which rules should apply?
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PABLO PACHECO
Thursday, 7 Jan 2016
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Indonesia's palm oil sector is divided by questions of which rules and whose rules. Ryan Woo/CIFOR

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No Deforestation. No Peat. No Exploitation: The pledges echoing throughout the palm oil sector,
as major consumer goods manufacturers and retailers seek to remove deforestation from supply
chains, sound simple enough. But the commitments are highly complex, and major palm oil
corporate groups along the value chain are struggling to clearly define and operationalize them.
And in the worlds largest producer of palm oil, Indonesia, which is planning to boost supply
through the expansion of plantations into forest and peatland areas, these companies are facing
public opposition from the national government.
Therefore, while simple in their aim, the zero deforestation commitments, and their associated
sustainability goals, have divided the palm oil sector in terms of which rules to follow and whose
rules to follow.
A POLEMIC CROP
The rapid expansion of oil palm plantations across Indonesia during the past decadethe crop now
covers 10.5 million hectareshas been accompanied by fervent controversy.

INFOGRAPHIC

Oil palm: A visual story

On the one hand, the palm oil industry generates significant fiscal earnings for the government and
stimulates economic growth in rural areas, with important spillover effects on the development of
local infrastructure and support to peoples livelihoods. On the other hand, large-scale plantation
development has been implicated in numerous social conflicts, and the unequal distribution of
economic benefits remains an issue.

But perhaps the crops greatest offense is its potential for devastating environmental impacts. Oil
palm expansion often occurs at the expense of both primary and secondary forests, and,
increasingly, of peatlands. The result is major loss of biodiversity and release of greenhouse gas
(GHG) emissions, which certainly raises questions about when, if ever, palm oil can qualify as
carbon neutral.
The impacts of unchecked oil palm expansion once again attracted global attention in 2015 as
forest firesraged across Sumatra and Kalimantan, with huge costs to the environment and human
health. Although attempts to profit from land speculation and oil palm cultivation are an important
factor triggering the spread of the fires, these are associated not only with oil palm. The Indonesian
government has estimated that deforestation and fires account for 63 percent of the countrys GHG
emissions, but other estimatessuggest that it could be as high as 80 percent.
PRIVATE SECTOR, BOLD COMMITMENTS
Major corporate groups began embracing the concept of sustainable production of palm oil through
certification under the Roundtable on Sustainable Palm Oil (RSPO), a standard that has seen a slow
but steady increase in uptake since its inception in 2005. Some producers have also adopted, in
parallel, theInternational Sustainability and Carbon Certification (ISCC) standard that enables them
to export to biodiesel markets under the European Unions Renewable Energy Directive (RED).
These same companies, operating in Indonesia, must also achieve ISPO certification. Therefore,
companies have often been forced to apply three certification standards to the same drop of oil.
Read alsoSmallholders at the heart of Indonesias zero-deforestation dispute
Growing pressure from civil society groups, in the form of attacks on corporate brands and
reputation, led several major consumer goods manufacturers to go above and beyond these
standards and pledge to delink their supply chains completely from deforestation. Momentum
began in 2010 when the Consumer Goods Forum (CGF) and its members committed to zero net
deforestation by 2020. This was followed by individual and collective pledges, notably
the Sustainable Palm Oil Manifesto (SPOM), the Indonesia Palm Oil Pledge (IPOP), and the New
York Declaration on Forests in 2014.
As of December 2015, Supply Change estimated that 188 companies had made commitments to
support sustainable supply in the palm oil sector, 61 of which included commitments to zero
deforestation. These pledges to zero deforestation have been embraced by many downstream
processors and traders, but have yet to be fully understood and embraced by their third-party
suppliers, including smallholders.
GOVERNMENT, WALKING TWO PATHS

The Indonesian government is pursuing two parallel agendas, with implications for both forest
conservation and palm oil development. It has put in place policies to protect primary forests and
peatlands while at the same time promoting palm oil production and seeking to make it sustainable.

It is the contravention of Indonesian law and threats to

national sovereignty that seem to have had the greatest
impact.
Pablo Pacheco
The Yudhoyono administration (20052014) installed several policies to protect primary forests and
peatlands, the most prominent of which was the Presidential moratorium on the issuance on new
plantation licenses on forest and peatland. Despite its good intentions, its effectiveness at reducing
deforestation has been called in to question.
Additional efforts include regulations on land-use planning, the management and protection of
peatlands, and the One Map Initiative, which aims to develop a unified map agreed upon by all
ministries. However, these initiatives have come up against numerous barriers to implementation,
including tensions between government levels and sectors, the intertwined interests of local
politicians and investors, uneven law enforcement, and government reliance on revenues from
concession permits.
In response to the fire and haze crisis in mid-2015, the government issued a presidential
instructionbanning the clearance and exploitation of peatlands, as well as new planting in burned
areas. Yet it remains unclear how this will be implemented and enforced and whether it will
eventually be transformed into a higher-level legal instrument.
In 2011, to support sustainable palm oil, the Indonesian government developed and launched the
mandatory Indonesian Sustainable Palm Oil (ISPO) standard based on pre-existing Indonesian
legislation, but third-party audited. But again, ISPO implementation has been slow, forcing the
original deadline for compliance to be postponed. The illegal status of many smallholders and
plantation companies, located in public lands, has made it particularly difficult to achieve broad
uptake of ISPO, as well as implementing other capacity-building and productivity-enhancing
interventions.
Read alsoDevelopment miracle or environmental disaster? A look behind the oil
palm controversy
In July 2015, the Indonesian government launched the Crude Palm Oil (CPO) fund, built on
a levy from palm oil exports. The fund is to be used primarily for biodiesel subsidies, as well as

complementary activities that support the development of sustainable plantations, expand the
downstream processing industry, and build capacity among smallholders. As a complementary step,
in November 2015, Indonesia and Malaysia created the Council of Palm Oil Producer
Countries (CPOPC), with the primary goal of managing global CPO stocks and harmonizing
national sustainability standards.
One of the key challenges for government remains the fragmented governance of the palm oil
sector. Regulation of the industry is divided into sectoral silos, and the lack of harmony between
ministries often means that the government ends up tripping over its own feet, as the presence of
one policy or regulation limits the success of another.
To add a layer of complexity, some subnational governments have been actively embracing No
Deforestation commitments, seeing them as an opportunity for increased investment and green
growth. They see potential for improved land-use planning and tenure clarification, smallholder
inclusion and production practices, and they recognize the need for supportive provincial
regulations to enforce sustainable supply practices. Although many of these efforts originate from
the climate change agenda, they are increasingly heading toward supporting low-carbon
development strategies.

Neither public rules nor private commitments must dictate

the rules of the game.
Pablo Pacheco
By taking actions along both these paths, which are not clearly articulated, the government risks
undermining its own capacity to transform the palm oil sector. Linking the two more strongly will
be important for paving the road toward a more sustainable palm oil sector.
OPPORTUNITIES AND RISKS
The broad goals of the zero-deforestation movement are threefold, as I have described in an earlier
article: to stop expansion on forest and peatlands, while ensuring smallholder inclusion and
sustaining economic growth and profits. Meeting these parallel objectives creates many challenges,
but also brings unprecedented opportunities for change.

RELATED ANALYSIS

One wicked problem, three major challenges

Commitments create an important incentive to invest in intensification and improve plantation

management with more efficient use of inputs. This includes upgrading smallholder production
systems, and expanding plantation development into degraded or low-carbon lands, thus
helping to meet national emission reduction targets under Indonesias Intended Nationally
Determined Contribution (INDC).
The main risk associated with the commitments is that of excluding those smallholderswho cannot
meet, or report on, stringent zero deforestation standards because of unresolved legal issues and
capacity constraints. The risks of fragmentation in to green (clean) and brown (dirty) supply chains,
as a result, could prompt leakage effects as some suppliers could turn their attention to less
demanding markets.
In addition, the potential for large-scale producers to intrude on community and smallholder lands,
considered as low-carbon or degraded, may lead to increased social conflicts, while committed
companies are still divided over a definition of forests and a methodology for designating go and
no-go areas see the HCS approach, HCS plus, HCV and RSPO Next.
Of primary concern to many at the government level, however, is the potential to slow economic
development of rural areas. This is a legitimate concern shared by many local stakeholders.
THE POLITICS OF IMPLEMENTATION
The capacity of some large firms to incorporate social and environmental criteria into their
operations is improving, partly as a result of the zero-deforestation commitments. Efforts to
improve traceability within supply chains are underway, but for many this stops at the mill. While
company disclosure is improving, transparency varies, and independent evidence and monitoring
are lacking.

The lack of independent evaluation of the commitments and their impacts on equity is worrisome to
many stakeholders, but in the current political climate, this is of minor concern to the companies.
A major issue for the implementation of commitments is that the Indonesian government has
expressedopen opposition to the very concept of the zero deforestation movement. The
governments concern is that the risks of these commitments may outweigh the opportunities, in
terms of the threats they pose to smallholders and SMEs, and the potential for undermining local
development.
Read alsoThe long road to zero deforestation whatever that means
However, it is the contravention of Indonesian law and threats to national sovereignty that seem to
have had the greatest impact. The commitments embraced by groups such as IPOP, framed around
compliance with HCV and HCS, are seen by the government as contradicting its national laws and
regulations on land and forest governance.
In a different line, the Indonesian government is doing its best to support domestic producers by
stimulating and supporting expansion of the domestic market using the CPO Fund to subsidize
biofuel blending quotas. This is seen as an attempt to transform the sector by improving its
efficiency.
Recently, national regulations set a blending target of 20 percent for the transportation sector, and
30 percent for electricity generation. The creation of the CPOPC can also be seen as an attempt to
regain control over the global palm oil market and sovereignty in regulating the industry.
Furthermore, it is hoped that key palm oil purchasing countries, such as China and India, will
embrace the CPOPC standards for sustainability, despite a lack of clarity over what these will
actually be.
This brings us back to the questions of which rules and whose rules should be applied for
sustainable palm oil, an issue that is related to the extent to which end markets actually care about
those rules.
A MULTIFACETED PUZZLE
The public and private sectors each faces its own challenges.
The public sectors main dilemma is how to govern the industry so that it supports medium-scale
and smallholder producers, but does so under credible and enforceable national governance
standards. It must bear in mind that 50 percent of the industry lacks access to capital and training,
as do the civil servants whose job it is to enforce such standards. At the same time, the government

must maintain its competitive edge in international markets so that the industry can continue to
contribute to national fiscal earnings and economic spillovers.
The private sector must respond to pressure from civil society and buyer demands to maintain its
market, but it must do so in such a way that doesnt risk losing third-party suppliers. Businesses
must do this at the same time as making a profit, finding investments to upgrade their value chains,
and gaining efficiencies from production and improved supply chain design and management.

Solving this puzzle requires a collaborative approach:

bringing together public and private initiatives and
pooling finance.
Pablo Pacheco
Third-party suppliers and smallholders face multiple challenges, many of which they are
unprepared for. But, ultimately, they must protect their position in the market without risking any
chance to expand their plantations, so to keep profiting from this polemic crop.
There are not many other options anyway.
The irony is that all have the same objective: healthy economic growth.
SEEKING A RESOLUTION
Solving this puzzle requires a collaborative approach: bringing together public and private
initiatives and pooling finance. Neither public rules nor private commitments must dictate the rules
of the game. The private sector must do what it does bestinvest and innovate to gain efficiencies
and increase profitswhile government must look to protect the wider national interests and
natural capital.
Read alsoWomen lose in West Kalimantan oil palm boom
To benefit both the Indonesian people and the nations rich environmental heritage, the government
must think seriously about resolving internal disputes and power plays, legalizing smallholder land
rights, conditionally granting subsidies or supporting those who adhere to higher production
standards and include independent smallholder in their value chains, as well as stimulating land use
zoning efforts taking into account needs for production, conservation and restoration.
Companies, for their part, must focus on improving yields in their own plantations and those of
their suppliers, reducing their GHG emissions, and providing finance and other capacity-building
services to their third-party suppliers as part of improved strategies for supply chain management.

This is a mammoth challenge.

We must hope that decision-makers in both private and public sectors embrace collaboration as a
way of resolving the puzzle of how to achieve a sustainable palm oil supply.
For more information on this topic, please contact Pablo Pacheco
at p.pacheco@cgiar.org.
This research forms part of the CGIAR Research Program on Forests,
Trees and Agroforestry.
This research was supported by USAID and the UK Department for
International Development through the KnowFor project.