Biofuels: cruel fuels? An interdisciplinary assessment on the impact of the European biofuels policy for the Indonesian rural population in terms of environmental justice

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Biofuels: cruel fuels?

An interdisciplinary assessment on the impact of the European b iofuels policy for the Indonesian rural population in terms of environmental justice

Interdisciplinary Project

Photo: Taufik Sudjatnika

University of Amsterdam Future Planet Studies

Expert Supervisor: Dhr. Crelis Rammelt Tutor: Dhr. Jaap Rothuizen 23 May 2014

Word count: 6908

Dorien Vogelsang - 10252045 Sofie Te Wierik - 10154523 Katharina Vlaanderen - 10194576

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1. Introduction

Since the last decade the demand for palm oil as a biofuel source is on the rise. Palm oil is currently the cheapest and most efficient feedstock for biofuels and it is expected that the demand will continue to grow (Carter et al., 2007; McCarthy, 2010). Indonesia is one of the largest palm oil producers in the world and provides the lowest prices on the market due to low wages and abundant land resources (Naylor et al., 2007). During the last half century the palm oil sector in Indonesia has increased significantly. In the period of 2004 to 2012 the harvested area has already doubled resulting in a total harvested area of 6,500,000 hectares in 2012 (FAOSTAT, 2014).

The European policy regarding renewable energy has played a leading role in this growing demand for biofuels (McCarthy, 2010). In 2008, the renewable energy directive on the promotion of use of renewable energy sources was accepted by the European parliament. This directive entailed a target of 10 percent renewable energy for transport and a 20 percent share of renewable energy for the total energy consumption (The European Parliament and the European Council, 2009). As a consequence, European member states have implemented biofuel schemes that oblige diesel and gasoline suppliers to add a certain percentage of biofuels to their product. The European Commission has delivered an impact assessment of the

European biofuel directive where economic models have predicted the consequences of the 10% compulsorily blending regulation. The models work with a baseline scenario, calculating the rise in biofuel production up to 2020 when the 10% compulsory blending is implemented. The outcome is compared with the expected production increase when such policy is not carried out. Both scenarios have incorporated the same trends regarding external trends, such as population growth, income changes, and crop yield efficiency. According to the report, the model returns a positive output concerning the production change: an 8,9 % increase in palm oil production in Indonesia when the mandatory European policy is implemented compared to the counterfactual scenario. This relates to the annual production of an additional 2,620,000 tons palm oil which have to be produced in 2020 to meet the European biofuel demand (European Commission, 2010).

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4 Whereas the classification of biofuels as ‘renewable’ is associated with sustainability, the sustainability of biofuels is quite disputed. The expansion of the palm oil sector in Indonesia has led to great concerns about both environmental and social consequences like social justice concerns about land conflicts with local communities and the subordinated position of

smallholder farmers (Naylor et al., 2007).

Because state changes are often evaluated based on economic pillars, the increase in palm oil might prove positive regarding the economic growth accompanied by palm oil production increase, as stated by the European Commission. However, when negative externalities are not taken into account, certain societal groups might not benefit from increased welfare and might even find themselves disadvantaged. As Indonesia is one of the most rural countries in the world, where the periphery is often poor and dependent on self-subsistent farming, the implications of increased palm oil production might infringe on the livelihood of the rural population. In order to assess these implications, this research focusses on the negative externalities of increasing palm oil production and to what extent they affect the rural population. The research question therefore states the following: ‘What are the social implications of European biofuel regulations regarding increased palm oil production on the rural population in Indonesia?’.

This report is structured as follows. In the first section the methods used for this

research are indicated. Secondly, the integrated theoretical framework is clarified. Based on the three pillars derived from this theoretical framework, this section is followed by three sections where respectively the implications for the rural population in terms of equity, recognition and political participation are explored. In the last section the outcomes will be discussed and conclusions will be made.

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2. Research Method

This research is carried out through an extensive literature study and approached using

interdisciplinary research, where the disciplines of earth sciences, political sciences and human geography are integrated to give a better insight in the complexity of the issue.

Because most real world problems are not limited to the research field of one discipline, interdisciplinary research is required to tackle ‘real world problems’. Repko (2012) defines interdisciplinary studies as follows: “Interdisciplinary research is a process of answering a question, solving a problem, or addressing a topic that is too broad or complex to be dealt with adequately by a single discipline, and draws on the disciplines with the goal of integrating their insights to construct a more comprehensive understanding”.

An important element of issues studied within interdisciplinary research is the complexity and the scope of the issue. When addressing the issue of palm oil, a myriad of involved factors and stakeholders play part in this issue, which stretch out between the fields of social and natural sciences and many disciplines are addressed. In the theoretical framework, the integration and contribution of various concepts and theories used for the social as well as the natural sciences are explained further.

3. Theoretical Framework of Imperialism and Environmental

Justice

The aim of our report is to make an assessment of the impacts of the increasing demand for biofuels for the rural population in countries where these biofuels are produced, whereby this report focusses on the increased palm oil production in Indonesia to meet the consumption demand in Europe.

To theorize the interaction of actors on global, as well as the local level, the Structural Theory of Imperialism of Johan Galtung (1971) is used as an overlapping framework in which power relations on national as well as international level are approached. Imperialism is here defined as an interaction whereby one actor profits on the prejudice of another actor. Galtung (1971) classifies the world system in core and periphery nations; in Northern and Southern

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6 countries. Galtung’s theory (1971) proved useful to the Indonesian case because it states that there is a center and a periphery within nations as well. The center of a core nation has a strong relation with the center in a periphery nation, as they have a harmony of interest (see Figure 1). This existing structure as illustrated in figure 1 certifies the inequality in the world between and within countries and the resistance of this inequality to change.

Figure 1 Structure of Imperialism (Galtung, 1971:84)

To examine whether an interaction is imperialistic, Galtung (1971) lists various factors. Due to the limited size of this report it is impossible to take all these factors into account. Thereby, the theory of Galtung (1971) appears to be somewhat outdated since it does not take into account environmental factors. Therefore we integrated these factors to make the theory of Galtung (1971) more applicable to the case of Indonesia. Whether an imperialistic relation between the EU and Indonesia exists, is in this report concluded on the basis of an

environmental and social assessment on the consequences of palm oil production, international as well as national.

On the national level, the relation between the center and periphery is approached in a way where the rural population acts as the periphery and a small elite group consisting of governmental institutions and companies as the center. The center within the periphery profits more from the relation with the Northern actor compared to the periphery.

The inequality of profit distribution is approached using the theory of environmental justice. This theory addresses the issue of environmental costs of economic development that tend to fall on poor classes of the society; benefits provided by the environment are not equally

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7 distributed between different social groups (Syme & Nancarrow, 2001). Over time, the concept of environmental justice has become an important element in the environmental discourse and a frame of reference for policy makers in environmental resource management (Taylor, 2000). Previously, the theory of environmental justice unilaterally focused on equity and distribution of costs and benefits (Schlosberg, 2004), however critics stated that this focus has severe lacks in addressing the underlying social, symbolic, cultural and institutional conditions of distributional equity (Schlosberg, 2004). Resulting from this statement, two new elements of environmental justice were introduced: (cultural) recognition and (political) participation.

With regard to the social implications for the rural population, the justification of increasing palm oil production will be addressed using the three principles of environmental justice as proposed by Schlosberg (2004).

The first principle of equity will be approached through an assessment on the negative environmental externalities associated with palm oil production, described from the discipline of earth sciences. Whether the rural population is negatively affected by changing

environmental status, will be used to assess the extent to which the pillar of Equity as a condition for environmental justice is violated due to increasing palm oil production.

The second principle relates to the national and local legislation in Indonesia and the recognition of rural communities. A large part of the rural population lives in ‘State Forest Areas’, legally owned by the Indonesian government, meaning that former rural land can easily be acquisitioned and converted to palm oil plantations, leaving the rural population legally powerless (Colchester et al. 2010). The extend of cultural recognition will be assessed based on case studies of former land acquisitions due to the expansion of palm oil plantations.

The last principle of political participation is considered based on the probabilities of the rural population to participate in the political processes that manage environmental policy, for example the most important institution regarding palm oil: the Roundtable on Sustainable Palm Oil (RSPO). According to Galtung, in the current neo-colonialist era the so called bridgehead between Northern and Southern center takes form in international or transnational

organizations. This is the medium whereby the actors in the North interact with actors in the South (Galtung, 1971:94). However, due to globalization, and with it the increased complexity of

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8 value chains, intergovernmental initiatives proved to be increasingly incapable in tackling global problems. As further explained in the section 6, private governance initiatives have begun to fill this regulatory gap. Therefore the legitimacy of the RSPO, will be examined. These outcomes will be included in conclusions about environmental justice in terms of political participation. In this way we integrated the different theoretical insights in one overarching theoretical framework. The structural theory of imperialism is used to localize different actors and to

identify their interactions. Subsequently, these interactions are tested on the basis of the three aspects of environmental justice, with a focus on the social implications for the rural population of Indonesia.

4. Equity: Assessment of Negative Environmental Externalities

Since this research aims to determine the social implications of palm oil expansion according to the theory of environmental justice, the pillar of equity is considered according to the

distribution of negative environmental externalities for the rural population. The negative environmental externalities described for this research will relate to changes in land cover, agricultural potential and surface water quality, since these features might affect the livelihood of the rural population directly.

The main focus of the assessment on negative environmental externalities lies on the drivers and consequences of land uses changes due to the increasing palm oil industry. Because the arable land is finite, the expansion of palm oil plantations will lead to certain tradeoffs in land uses. The consequences of these tradeoffs are discussed below.

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9 Figure 2 Classified vegetation map of Indonesia (European Commission, 2014)

4.1 Driving mechanism of land use changes

The Green Revolution in the late 1960’s ensured relatively low food prices globally, meaning that a rising demand for biofuel crops makes it economically more attractive to convert former agricultural land for food production into palm oil plantations (Naylor et al, 2007). The greatest impacts on arable land and natural resources result from the way in which land is cleared for palm oil plantation. Palm oil can decrease the available land for agriculture or lead to

deforestation by cutting down tropical rainforest. The environmental implications of the latter are significant: initial land clearance leads to soil erosion since there is no vegetation to hold the upper soil layers which easily flushes away with the frequent occurring rainfalls. The eroded sediment load ends up in nearby streams, leading to eutrophication and heavily polluting the surface water (Fitzherbert, 2008).

As stated before, the additional palm oil needed to meet the European biofuel demands by 2020 amount 2,620,000 tonnes of oil. According to Naylor et al. (2007), the Indonesian biofuel production per year lies around 17.8 tonnes/ha. Simple mathematics tells us that more than 147,000 ha palm plantations are needed to realize the increase in palm oil productions due to

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10 the EU policy implementation alone.

Since the arable land on which palm oil can be cultivated is finite and a large part is already in use for agriculture or covered by tropical rainforest (see figure 2, the increase in palm oil plantations from 1990 to 2010 is realized through conversion of prior land uses into plantation area (Gunarso et al., 2013). These land use changes range from mostly forest conversion to the conversion of agricultural land. In order to assess the impact of land use changes on the rural populations in terms of the equal distribution of negative externalities, a distinction is made between direct and indirect environmental implications of plantation expansion (Figure 3).

Figure 3 Diagram of the subdivision of negative environmental externalities, relating to direct and indirect implications of palm oil expansion for the rural population

4.2 Direct implications

Direct implications of land use changes relate to the conversion of agricultural land into oil palm plantations. As stated above, the Green Revolution has led to relatively low food prices

worldwide. While the energy demand is rising, it might become economically more profitable to cultivate oil palm instead of food crops due to EU policy implementation.

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11 According to Gunarso et al. (2013), area for intensive agriculture, agro forestry and plantations converted into palm oil plantations between 1990 and 2010, amounted

approximately 37%. Accompanied by the economic tradeoff between food and biofuel

production, this trend may continue to exist and even rise towards 2020. Table 1 shows that this indicates a surface area of almost 55,000 hectares lost to oil palm plantations.

Table 1 Predicted conversion in percentages of the total predicted land surface needed for palm oil production in 2020 and the absolute surface from the predicted percentage of total 147,000 ha.

Implication Type Defined as: Predicted conversion

(%)

Predicted conversion

(ha)

Direct implications Intensive agriculture/ Agro forestry & plantations

37 54,390

Indirect implications Forest 56 82 320

4.3 Indirect implications

The most serious environmental implications from oil palm plantations expansion derive from the conversion of tropical rainforest. According to Gunarso et al (2013) , 56% of all converted land between 1990 and 2010 consisted of rainforest. The long term negative externalities of deforestation affect the ecosystem health, which determines essential ecosystem services, and might therefore infringe on the livelihood of the rural population . As figure 3 shows, a

distinction is made between 1) soil degradation and erosion and 2) alteration and pollution of the hydrological system.

4.4 Soil degradation and erosion

Initially, forest area in Indonesia is often cleared using a common practice of slash-and-burn technique to make way for new plantations. This method refers to an agricultural technique using fire to clear surface vegetation and is commonly used because it is easily applicable, has a

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12 low labor intensity and replenishes the soil with a layer of ash, enhancing the soil structure (Rodenburg, 2003). According to Ketterings (2002), plant available phosphorus is the main growth-limiting nutrient in Indonesian soil. Beneath the closed canopy of intact natural forest vegetation, the closed nutrient cycle ensures the limitation of leaching and erosion of nutrients. Additionally, phosphorus can accumulate in the upper soil horizon, albeit relatively marginal in the rapid nutrient cycle of tropical rain forest ecosystems. When forests are being converted using slash-and-burn techniques, most of the captured phosphorus previously captured in the vegetation biomass are released and accessible for new vegetation cover types. However, long term experiments conducted on nutrient sorption by Ketterings et al (2002) show an increased P-sorption at the mineral surface at high intensity fires (>300°C), which are frequent intensity rates for slash-and-burn techniques. This means that phosphorus in no longer available for plant uptake, leading to a reduction in the already low phosphorus availability. Besides, nutrients from burned biomass are volatile and will easily spread through the atmosphere, precipitating in the surrounding surface through which it can fertilize other land surface or enter the

hydrological cycle (Rodenburg, 2003).

According to an experiment of Henderson & Seller (1993) on the effects of deforestation in South-East Asia, the soil runoff has increased significantly compared to intact ecosystems. Runoff is a process of soil erosion, where soil is lost when the rainfall intensity exceeds the infiltration capacity of the soil. It is major problem since it leads to a decline in soil fertility and therefore lowers agricultural potential (World Bank, 1989). Because runoff is dependent on several easily obtainable parameters, the level of runoff can be predicted using the Universal Soil Loss Equation. The estimated soil loss in tons per hectare deriving from this equation is dependent on multiple parameters, such as rainfall intensity, soil characteristics and

gravitational gradients within the area. Since it is not yet clear where the additional palm oil plantations will be situated, the run off rates cannot be quantified any further due to the spatial heterogeneity of the landscape (Moehansyah, 2004). However, based on the research of Barbier (1989), soil erosion rates after the plantation of oil palm trees are still two to three times larger compared to staple root crops, significantly affecting the soil quality and therefore reducing the agricultural potential of the area.

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13 4.5 Alteration and pollution of the hydrological system

Although the total amount of runoff caused by deforestation cannot be predicted precisely based on the size of the conversion area, multiple studies have confirmed that runoff increases due to deforestation and are higher after plantation of palm oil compared to intact rainforest or even other crops (Moehansyah, 2004; Rodenburg, 2003; Henderson & Seller, 1993). The

increased run off significantly increases the sediment load ending up into the surround streams. The high rainfall intensity in the area leads to an increased base flow shortly after forests are removed, but fails to replenish ground water levels due to the lack of vegetation to absorb to excessive rainfall and to improve soil structure for infiltration towards the deeper ground waters (Bruijnzeel, 2004). Because the base flow determines soil erosion processes and the transport of nutrients within sub-catchments to the surrounding stream, an increase in base flow increases the amount of nutrients ending up in the surface water. This reduces the oxygen availability due to the stimulation of aquatic plant growth, a phenomenon called

‘eutrophication’. The rate of eutrophication depends on runoff rates, indicating that the extent to which soil erosion exists correlates with the degree of surface water pollution (Lal, 2000).

In order to quantify soil erosion and hydrological pollution due to changing land

management, a more technical, model-based approach is required, since various parameters act on the issue. The extent to which soil is lost and surface water is polluted can subsequently be estimated to precisely quantify the negative externalities from palm oil expansion.

4.6 The allocation of environmental externalities to the rural population

The degree to which the rural population is affected by these land use changes is dependent on the way in which communities make use of their natural resources and the extent to which they are dependent on self-subsistence farming.

It can be stated that the rural population of Indonesia is very much dependent on their direct livelihood in terms of food and water provisioning, income and residence. Agriculture is the main source of income. Small scale subsistence farming accounts for about 87 per cent of total cultivated land where predominantly food crops are grown (Government of Australia, 2000).

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14 The changes resulting from palm oil expansion which are presented in the environmental

assessment are in direct conflict with the living standards of the rural communities of Indonesia. The rural population of Indonesia is largely depended on naturally occurring water resources. Communities provide themselves with drinking and household water mainly derived from sources such as protected wells, rainwater and surface water (World Bank, 2012).

Pollution of the hydrological system due to palm oil plantations runoff will most likely cause a decline in availability of clean water for consumption. Furthermore, the eutrophication of rivers and lakes that provisions the communities with fish for both consumption or market sale has negative consequences for the aquatic ecosystem surrounding palm oil plantations (Dewi, Belcher, & Puntodewo, 2005).

The practices of palm oil plantations will cause indirect reduced agricultural potential due to land degradation, erosion and water eutrophication. In contrast to the other negative externalities, this specific negative externality is mainly allocated to the landowners of the plantations and other stakeholders in palm oil production instead of the rural population because they are owner and exploiter of those lands.

Another aspect of palm oil production which relates to agricultural production is the conversion of agricultural land and agroforestry to palm oil plantations referred to as direct agricultural potential loss. Palm oil is mainly an export crop which pushes food production aside (Barbier, 1989). However, the most important implication of land conversion is that rural

communities are driven off their livelihood. This will be further explained in the following chapter.

5. National recognition and local participation

5.1 Masyarakat Adat: profiling the rural communities of Indonesia

Indonesia is one of the world’s most populous and rural countries. According to the World Bank (2012), 49 percent of the total population of approximately 250 million lives in rural areas. Many of them live according to customary laws called ‘adat’. Several terms are used to identify

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15 those indigenous peoples, but most commonly used is ‘masyarakat adat’, literally meaning ‘communities that adhere to custom’. However, it should be mentioned that there is no clear demarcation of masyarakat adat in Indonesian society. That is to say, people living in cities could call to themselves masyarakat adat, referring to their cultural origin (Murray Li, 2001). Both Murray Li (2001) and Duncan (2006) point out that the Indonesian government has a strict policy of excluding the recognition of indigenous identity in terms of ethnicity from policies on the argument that all Indonesians are equal and have equal rights. This hinders the

development of an indigenous peoples movement and indigenous claims on land (Duncan, 2006)

The main research question addresses to implications for ‘rural communities’, which applies to communities living in rural areas. Subsequently, masyarakat adat (or indigenous peoples) living in rural areas are also covered by this category, which makes ‘rural communities’ a clearer and more comprehensive categorization.

Poverty is increasingly concentrated in these areas; 16.6 per cent of the rural population is poor compared to 9.9 per cent of the urban population. In remote provinces poverty is even more severe. Therefore, many Indonesians migrate to cities to find a better living. Women are particularly vulnerable for poverty because they are often discriminated and excluded from decision-making processes within households and communities. (International Fund for Agricultural Development, 2013).

5.2 Landownership recognition of the rural population

A crucial element that is accompanied with palm oil expansion is the need for land, tremendous amounts of land are converted every year of which often those areas are already in use by the rural population (Colchester et al., 2006). To some extend the Indonesian Constitution respects customary law and the right to self-governing. Unfortunately, other legislations in the

Indonesian law are very weak for protection and do not function well (Colchester et al., 2006). Two main forces can be pointed out that weaken the land ownership position of the rural population. Firstly, during the Dutch colonial period the concept of ‘State Forest’ has been introduced (Bachrardi & Anung Sardjono, 2006). Under the reign of Suharto in the 1980s

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16 Indonesia has executed what is often called ‘one of the largest land grabs in history’. At that time 75 percent of the national land cover was classified as National State Forest (Duncan, 2006). Historically, these forests have been home to indigenous peoples who make their living from the services provided by the forest and agro forestry practices (Bachrardi & Anung Sardjono, 2006). Currently, approximately 60-90 million people live in areas classified as ‘State Forest Areas’, which cover some 70% of the national land area (Colchester et al. 2006). State Forest Areas are of particular relevance for land conversion because as it says, they are owned by the Indonesian State, which means that rural communities cannot claim land rights and the Indonesian Government is able to expand palm oil production by granting permits for oil palm companies of which Colchester et al. 2006 provide many cases in which this has happened. Basically, the Indonesian government can use the annexation of land to ‘State Forest Area’ as a tool for converting land that is in use of rural communities.

5.3 Decentralization of authority

The second factor influencing both recognition and participation is the decentralization phase. Duncan (2007) explains decentralization as ‘the process in which central governments transfer political, fiscal and administrative powers to lower levels in administrative and territorial hierarchy’. Indonesia began experimenting with decentralization at the end of the twentieth century, this transfer of authority transformed one of the most centralized governments in the world into one of the most decentralized (Duncan, 2007). It may seem convincing that

decentralization of authority is in favor of local rural communities, and in some cases it is. For example, in many areas in Kalimantan, politically powerful indigenous groups have been able to retake control over the lands they had lost during other governments. However, the minority groups often remain peripheral in the regional power relations and do not participate in

decision-making processes. Their proficiency in policy-making is often doubted by government representatives which leads to exclusion (McCarthy, 2010). Moreover, district-level

governments are stimulated to increase resource extraction, as they will receive a share of this income. In seeking for economic benefits, district-level governors are reluctant to include or recognize the presence of rural communities, because their interest on land use are often

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17 conflictive (Duncan, 2007). Indonesia is largely known for its corruption and the regional power combined access to income flow provides a great temptations for decentralized authorities (Duncan, 2007).

5.4 The social status of rural communities in Indonesia

Most important is that one cannot deny that the oil palm expansions has major implications for the rural communities of Indonesia. Especially the land acquisition of the Indonesian

government and the palm oil sector cause conflict with the rural population that make their living out of these lands. The annexation of land into State Forest Areas supports dubious land conversions in favor of palm-oil expansion because it neglects the recognition of rural

communities’ rights over those lands. On regional scale, it appears that in many cases rural communities do not participate and are not recognized as landowner either. Especially small communities with weak power-relations are affected by the negative impacts of palm oil expansion.

6. Participation in the RSPO

In the current neo-colonialist era the so called bridgehead between Northern and Southern center takes form in international or transnational organizations. This is the medium whereby actors in the North interact with actors in the South (Galtung, 1971:94).

This section explores the power-balances within inter- and transnational organizations regarding Indonesian palm oil and the possibilities for different stakeholders to participate in these organizations.

6.1 Private Environmental Governance

Due to increasing globalization, the international world is moving from a state-centric towards a more multi-centric world. Production chains become too complex for an unilateralist approach (Partzsch,2011) and this has opened the regulatory arena for new (transnational) actors with

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18 more specific knowledge and financial capacities (Falkner,2003). Civil society campaigns have made clear that to solve transnational problems a relevant global body for such regulative action is needed. Intergovernmental approaches have thus far failed to came up with regulative initiatives to solve global problems and private governance enterprises have begun to fill this regulative gap (Partzsch, 2011). In this way world politics has more and more become

governance without government.

Thus, private companies play an increasingly important role on the international field. Fulfilling the roles of lobbyists, but even more as actors creating private institutional

arrangements that perform environmental governance functions. This new phenomenon is defined as private environmental governance (PEG); not mere cooperation, but institutionalized interaction of transnational actors with a permanent nature (Falkner,2003). Some studies suggest that this shift has a negative impact on state sovereignty and authority, whereas other studies state that this shift is welcomed by many states because PEG relieves them from the burden of arduous and prolonged international negotiations about environmental standards (Falkner,2003).

However, neo-Gramscianist theorists argue that the shift to private governance is caused by capitalist forces to enforce hegemonic structures in environmental governance. They worry about a shift towards a market based ideology regarding ecological issues, merely based on economic incentives (Falkner,2003). Other literature states that the rising power of

multinational companies has evidently more constraining effects on the autonomy of states in developing countries than countries in the western world. Thereby is it obvious that developing countries have far less capacity to influence or resist the constitution of new international standards made through private environmental governance (Falkner,2003).

6.2 The Roundtable for Sustainable Palm Oil

The palm oil industry puts high pressure on the environment and the agricultural sector. As a response to these negative externalities, the Roundtable for Sustainable Palm Oil (RSPO) was

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19 established in 2004 by the WWF to promote the growth and use of sustainable palm oil through co-operation within the supply chain and an open dialogue with its stakeholders (Schouten & Glasbergen, 2011:1893). It is the most important private governance organization regarding the palm oil industry and sets the standards to determine whether palm oil is certified as

sustainable palm oil. It is a transnational organization where private actors are directly involved in regulating (Schouten & Glasbergen, 2011). Actors in the roundtable are divided in seven groups: oil palm growers, palm oil processors and traders, consumer goods manufacturers, retailers, bank/investors, environmental NGOs and social/development NGOs (RSPO,2014). Table 2 figures their eight core principles.

Table 2 Eight core principles of the RSPO

Principle 1 Commitment to transparency

Principle 2 Compliance with applicable laws and regulations

Principle 3 Commitment to long-term economic and financial viability

Principle 4 Use of appropriate best practices by growers and millers

Principle 5 Environmental responsibility and conservation of natural resources and biodiversity

Principle 6 Responsible consideration of employees and of natural resources and biodiversity

Principle 7 Responsible development of new plantings

Principle 8 Commitment to continuous improvement in key areas of activity

6.3 Legitimacy of the RSPO

The emergence of PEG organizations like the RSPO raises questions about legitimacy (Brassett et al, 2012), a virtue of political institutions and decisions. Legitimacy is more or less the

justification of political power or existing political authority (Stanford Encyclopedia of

Philosophy, 2010). In this section the legitimacy of the RSPO is examined. In political philosophy, the legitimacy of the use of political power usually lies within the state (Brassett, 2012). This legitimacy of the state is derived from a social contract whereby every citizen has assent to cede some of its sovereignty to the state in exchange for protection and safety (Hobbes,1668) and to

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20 effectively promote the common good (Rousseau, 1762). This traditional legitimacy is called input-legitimacy (Partzsch, 2011). The RSPO is not based on a social contract and is thus missing input-legitimacy. Therefore the legitimacy of the RSPO is tested in three other respects:

representation, de facto legitimacy and control and accountability.

6.4 Representation

Deliberative democratic theories state that the deficit of input-legitimacy of political institutions could be compensated if all affected groups participate in political decision making (Habermas, 1990). This is the first and principal way the RSPO claims to be legitimate. In this section the actual representation in the RSPO of stakeholders involved in the palm oil industry will be examined.

Theoretically everyone slightly involved in the palm oil sector is allowed to become a member of the RSPO. In practice, the rules to apply are not equally obtainable for every stakeholder. A member of the RSPO has to pay a mandatory membership fee of 2000 euros annually and after entry, membership is compulsory for the first two years (RSPO,2004). It is obvious that this advantages moneyed firms and disadvantages minority groups in developing countries.

As a result, not every stakeholder is equally represented. Schouten and Glasbergen (2011) note that indigenous people, smallholders and women groups are not directly

represented. Partzsch (2011) asserts that NGOs from developing countries, like Indonesia, are underrepresented as well. Thereby is there a dominance of the private sector from the North. Overall, there are three dominant asymmetries founded in participation and

representation within the RSPO: between trade- and production companies, between Northern and Southern actors, and between the private sector and civil society groups (Partzsch, 2011)

All in all, there is no inclusion of all relevant stakeholder groups, which decreases legitimacy in this respect. The RSPO lacks participation of actors from the South (Schouten and Glassbergen, 2011) and the way the RSPO wishes to gain its legitimacy enhances the structural power of the (Northern) business sector at the end of the commodity chain and thereby subordinates (minority) actors from the South.

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21 6.5 De facto legitimation

The second statement the RSPO makes about its legitimacy is that they are necessary because states are not able to solve transnational problems and in this way they are effectively serving the common welfare. This is called de facto legitimacy, whereby the fact that problems are solved outweighs in which way or by whom these problems are solved (Partzsch,2011). Therefore, this section will examine whether the RSPO is actually serving the goals it aims to serve.

According to most of the literature, certification by private governance arrangements exists in the first place to counter reputational damage of companies, and therefore does not primarily aims to serve the common welfare or to obtain sustainability (Falkner,2003; Brassett et al, 2012). Main purpose of the RSPO is to accomplish a sustainable commodity chain for the production of palm oil (RSPO, 2004). However, within the organization there is little consensus about the meaning of the term sustainability. In this way de facto legitimation of the RSPO is not possible (Partzsch,2011). Actors outside the RSPO blame practices of the organization for not being sustainable at all. They accuse the RSPO for the use of pesticides, deforestation and green-washing. Another big issue with certification is the accusation that the RSPO only considers direct land use. In this way they omit to take into account the fact that the

development of new plantations somewhere could mean deforestation for agricultural activities elsewhere (Friends of the Earth,2010).

6.6 Control and accountability

With the emergence of private governance new rules and mechanisms are needed to ensure that organizations serve the common welfare instead of the interests of multinationals. Those who argue for legitimacy by control and accountability state that if political institutions fulfill requirements regarding control and accountability mechanisms to serve the common welfare, an organization is to some extend legitimate (Stanford Encyclopedia of Philosophy, 2010).

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22 There are some organizational features of the RSPO that create legitimacy in this way. Firstly, there is a grievance panel open for non-members as well (RSPO,2012). Nevertheless, the RSPO is a relatively young organization, so the effectiveness of this panel have yet to prove. Secondly, every decision made by the Roundtable can be revised (Schouten & Glassbergen 2011).

Other organizational features are less positive. Most of these refer to the control

mechanisms on local level. Greenpeace says the RSPO is not monitoring the precise activities of the palm oil companies and so companies guilty of deforestation are still affiliated with the RSPO. However the RSPO admits to this and says they are currently investigating this, but this takes time ( AlJazeera, 2010).

Conclusion

If the European policy on biofuels will continue as it is, this will cause an increase in the production of palm oil in Indonesia to meet this demand. In the previous chapters we have addressed to the negative externalities concerned with the implementation of palm oil

plantations in Indonesia. It appears that the negative consequences of these transition are not equitable distributed and mainly fall on the rural minorities whereas district officials and plantation owners profit from the rising demand for palm oil. The rural communities in Indonesia are strongly connected to their livelihood in terms of subsistence farming, water provisioning, income and residence. Any decline in livelihood quality resulting from palm oil plantation practices will result in a decline of living quality for the rural communities that currently occupy lands surrounding these plantations or that had to hand in parts of their territory.

The need for land in palm oil expansion is a great cause of conflict between rural

communities the government. Especially the estimated 50-70 million Indonesians living in State Forest Areas are not recognized as residents of those lands and have no land rights they can claim. The Indonesian government can use annexation of land to State Forest Area in order to

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23 exploit the resources for its own benefit. Since the decentralization phase was initiated, local authorities have obtained more power. In some cases, local communities can profit, but in many they don’t. Especially small communities with weak power-relations are affected by the

negative impacts of palm oil expansion. The decentralized authorities are prone to corruption and eager to expand resource exploitation practices because they will get a share of the profits. On regional and national scale, authorities do not fully recognize rural communities and often they do not approve of those rural communities to participate in policy-making and other decision-making processes.

On international scale, private governance initiatives like the RSPO seem particularly driven by the need of companies to counter reputational damage, while the most vulnerable actors do not always benefit. The RSPO fails to ensure sufficient stakeholder participation from developing countries, instead it enhances the power asymmetries between Northern and

Southern countries. In this way it is highly important to find a way to integrate Indonesian actors to ensure that every interest is included in the certification process of palm oil.

The effectiveness and reliability of the grievance panel has yet to prove, however the control mechanisms on local level are suffering from corruption. Some say certification is not feasible in countries where corruption prevails. Others reckon that a dialogue on field level could to some extent overcome these problems (Oxfam,2013).

If the RSPO in the future fails to involve Southern actors, and in coming to consensus about the meaning of sustainable palm oil, and therewithal appears not to be able to enhance control mechanisms on particularly the local level; the RSPO could not be considered as a legitimate private governance organization. This will also mean that there is no possible way for the consumer to make righteous choices regarding the use of palm oil.

Conclusively, the social implications of palm oil expansion for the rural population of Indonesia are accompanied with environmental injustice. The three pillars of environmental justice: equity, participation and recognition are not complied on regional, national and international scale. With regard to the European policy, it is thus advised to withdraw the mandatory biofuel addition to gasoline and diesel because currently, there is no justified and humanitarian way to make use of palm oil from Indonesia.

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Discussion

The main focus on the assessment of the pillar of equity is concerned with negative

environmental externalities which may appear disadvantageous to rural communities. However, several comments have to be taken into account. First of all, the degree to which negative environmental externalities exists, cannot be quantified due to the undetermined areas where palm oil expansion might take place, the spatial heterogeneity of the landscape, determining the erosional processes, and whether this area is populated by rural communities at all. Secondly, the pillar of equity not only relates to the distribution of adverse effects of palm oil expansion, but to the extent to which the rural population might benefit of the production increase as well. However, this research did not include an economical assessment due to the lack of economical expertise. One could state that increasing palm oil demands might ensure employment and raise income for the frequently poor rural population. In practice however, the oil palm industry is often associated with unequal labor relations, proving to be financially disadvantageous for the poor (McCarthy, 2010).

Furthermore, we linked the 10 percent renewable energy directive of the European Union to the use of biofuels. However, this is not the only form of renewable energy for transport since alternatives like energy from algae or used cooking oil are being developed, which most likely are sustainable alternatives to fossil fuels.

In this report the rural population appears as a homogenous group. The generalization of this group was necessary to get insights in the system of externalities and the policies

accompanied with palm oil. However, Indonesia is a very large and diverse country and the extend of impact from palm oil on the rural communities can differ from region to region. Yet, case studies from the observed literature provided useful insight and grip in evaluating the social implications.

Last but not least, it should be mentioned that the report does not go into

environmental consequences. However, it must be kept in mind that conversion of high bio diverse rainforest that is associated with palm oil expansion threatens many species and causes

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25 ultimate degradation of the Indonesian ecosystem. Therefore, the European Union, should not only take social implications into account, but also environmental consequences.

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Biofuels: cruel fuels? An interdisciplinary assessment on the impact of the European biofuels policy for the Indonesian rural population in terms of environmental justice