Economic impacts of 2nd generation biofuel development in Indonesia

– A Case study of bioethanol production from rice straw in the Citarm river basin –

Hiroaki SHIRAKAWA

Patricia San Miguel

Nagoya University

Introduction

• In order to reduce imported fuel, poverty ratio and GHG emission, the Government of Indonesia is attempting to find alternative renewable energy, particularly in the form of biofuel.

Introduction

• However, it is afraid that promotion of 1st generation biofuel produced primarily from food crops may cause deforestation or compete with food.

• It is increasingly understood that 1st-generation biofuels are limited in their ability to achieve targets for oil-product substitution.

Introduction

• The cumulative impacts of these concerns have increased the interest in developing biofuels produced from non-food biomass, such as agricultural residues. These "2nd-generation biofuels" could avoid many of the concerns facing 1st-generation biofuels.

• However little is known about economic impacts of 2nd generation biofuel

Road map of biofuel development in Indonesia

category 2005－2010 2011－2015 2016－2025 major materials

biodiesel

plan

10％ for total diesel

consumption

15％ for total diesel

consumption

20％ for total diesel

consumption perm

jatropha

demand 2.41 million KL 4.52 million KL 10.22 million KL

bioethanol

plan

5％ for total gasoline

consumption

10％ for total gasoline

consumption

15％ for total gasoline

consumption casaba

sugar cane

demand 1.48 million KL 2.78 million KL 6.28 million KL

biofuel

plan

2％ for total energy

consumption

3％ for total energy

consumption

5％ for total energy

consumption

demand 5.29 million KL 9. 84million KL 22.26 million KL

Major energy crops

Casaba Perm

jatropha

biodiesel bioethanol

Sugarcane

Potential demand and actual supply of biofuel in Indonesia（2006-2010）

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

(million L)

bioethanol biodiesel

Potential demand of biofuel Actual supply of biofuel

Blend ratio of bioethanol is 3% and it of biodiesel is 5%.

0.05 0.66 1.81 1.26 1144 46

120

223

420 0

200235

0

100

200

300

400

500

600

700

800

20

06

20

07

20

08

20

09

20

10

20

06

20

07

20

08

20

09

20

10

20

06

20

07

20

08

20

09

20

10

(million L)

bioethanolbio-diesel

（domestic consumption）bio-disel （export）

（source）USDA（2011）

Reason why the gap between plan and actual supply

0

5

10

15

20

25

30

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

20

09

Mill

ion

ha

soybeans

rice

palm

corn

coconuts

Arable land of major crops

（source）FAO

・production cost ・limitation of land ・afraid of forest degradation

Ethanol potential production from 2nd generation biofuel

(agricultural residues) in Indonesia

Production ( million t)

Ethanol production potential ( thousand

KL)

Share of national target(2025)

Rice straw 99.6 7,728 270%

Sugarcane bagasse

4.0 670.5 11%

Oil palm EFB (Empty Fruit Bunches)

8.6 686.1 11%

fertilizer 7%

feed 13%

plowing into fields 80%

Usage of rice straw in Japan Usage of rice straw in Japan(2003)

8.7 million t

(source) MAFF(2005)

Collection of rice straw

Price of brown rice and rice straw in Japan

Yen

/kg

Note: 1yen = 100Rs , 1$=80yen (source) MAFF(2005)

actual price of rice straw is about 23 Yen/kg (≑0.3$/kg) (about 10% of price of brown rice)

0

50

100

150

200

250

300

strow

rice

Target cost of biofuel in Japan

Materials, 46.4 Depreciation cost, 39.9

Labor cost, 4.5

Steam and electricity, 2.2

Others, 7

0 20 40 60 80 100 120

Yen /L

(source) Saga et.al.(2008)

Target price of rice straw 46.4 yen/L×0.3L/kg ×0.85 ≒ 11.8 yen/Kg (0.15$/kg) ※ratio of water content is 0.15

Case study in Citarm river basin settlements Industrial establishments

Rice producing area Primary and secondary forest area

■population （2003） 17.8 million (4.1 million house holds) 30% delivered from agriculture 9.7% is in poverty. ■Area of irrigated paddy field 390,000 ha(47.5% of the river basin) ■forest degradation 35,000 ha (from 1992 to 2001)

（source）Integrated Citarum Water Resources Management Investment Program (ICWRMIP)

Ethanol production potential from rice straw in Citarm river basin

• Yearly Rice straw production potential 390,000ha×4t/ha×2times×1.5 = 4,680,000t ※rice production assume 4t/ha(dry weight) rice straw / paddy rice = 1.5 • Maximum ethanol production potential 4,680,000t ×0.85×（0.2kg/t～0.3kg/t） = 795,600kL ～ 1,193,400 kL ※ 29% ～ 43% of national target in 2015 13% ～ 19% of national target in 2025

Preliminary result: Estimation of collection & transportation cost

for rice straw in Citarm River Basin

※Target price of rice straw is 1,180 Rp/kg.（0.15$/kg）

CASE A: packing rice straw CASE B: non packing rice straw

CASE A CASE B

Note (Rp/kg) (Rp/kg)

Costs rice straw(A) 1,106

collection(B) 1,209

labor 30 4% of cost in Japan

fuel cost 33 1/3 of cost in Japan depreciation cost 792 same cost in Japan

maintenance cost 208 same cost in Japan net 146 same cost in Japan

transportation（C） 74 74 1/3 of cost in Japan Total (A)+(B)+（C） 1,283 1,180

60 day×15person/300ha×390,000ha×2times (Japan’s experience) (area of paddy in Citarm river basin)

= 120 day × 19,500 person

120day×19,500person×40,000/Rp

≒93.6 billion Rp (≒11.7 million $)

Labor demand (collection & transportation of rice straw)

Thank you for your attention!