This thesisaims to introduce circular economy model to the palm oil industry in Indonesiaby focusing on Palm oil mills residues. Within the context of a CE, wastematerials are not disposed and polluted the environment. In doing so, the TISapproach is applied in this thesis in order to understand the current systemand finally to be able to provide recommendation to the policymakers. Toconclude this thesis, the main research question – “How can policymakersaccelerate drivers and overcome barriers around the circular development of POMresidues TIS in Indonesia?” – will be answered after a thorough analysisfrom the findings above.
Currently, theinstitutional environment in which the innovation system needs to function isnot providing a strong guidance of the search (F4) and resource mobilization (F6)to stimulate the development of a circular production model. This isdemonstrated by the lack of a clear regulatory framework that shape theinnovation and the market at the system level that are unaligned with nationalobjectives. The implication of weak regulatory frameworks from policymakerslead to infrastructural failures, soft institutional failures and capabilityfailures. This is specifically shown by insufficiencies in hard institutions. The currentministerial decree no 12/2014 only regulate POM to follow waste water standardbefore discard to water stream.
To overcome these barriers, policymakers couldestablish a special mandatory program for palm oil mill’s duty to utilize palmoil waste to be electricity. By doing so, policymakers can encourageentrepreneurial activities and innovation within Palm oil mills itself andinteract more with related stakeholders. This should be done by involving andcollaborating with industry associations, politicians, governments at variouslevels and palm oil companies. A clear regulatoryframework for the system that is aligned with national legislation couldcontribute to strengthen market formation (F5), which in turn, may lead to resourcemobilization (F6) in order to stimulate further system development, especiallyto overcome the infrastructure failure. Furthermore, the policymakers could enforcethis through the mobilization of financial resources by implementing subsidyschemes or tax exemptions for investing in biogas plant technologies. Thiscould make return on investment more interesting for projects related to POMresidues that would otherwise be too expensive. The impact of such schemescould potentially benefiting knowledge inststitutes funding streams and ensure the quality of theinfrastructure is adequate.
Furthermore, inthe market environment the main barrier is due to the low price electricitypurchase from the government from renewable energy producers. The low priceoffered by the government has put the renewable energy at the same level offossil fuel energy. This is ruled by ministerial decree no 12/2017, thus itshould be evaluated and revised. Likewise, government should also think aboutraising the BPP or feed-in-tariff of renewable electricity to 100%. In general,the renewable energy cannot compete to the fossil fuel energy as they arecheaper. Compare to biogas plant, the technology is rather expensive and theproductivity is not as high as the fossil fuel. This competition hinders demandfor investor to invest in biogas plant as the return is low and consequentlyforms a barrier to market formation (F5).
The market has already strong driveras government guarantee PLN will buy electricity for renewable energy producer.To overcome these barriers, policymakers could revisit and revise the currentministerial decree no 12/2017 again in order to match the expectation of businessaspect. This offers a possibility for these technologies to improve and reducetheir associated costs. This action will subsequently impact the funding streamsand build confidence for private investors to invest in the technology in theearly stage, in which overcome the capabilities failure.
It will open theopportunity for more project in renewable energy to develop and increaseknowledge development at the same time as it will require experts in thistechnology.Lastly, thecurrent system has shown imbalances in network interaction, especially inpolitical institutions. The findings show strong network failure between palm oil corporations and the policymakersthat could impact in the creation of legislations. To overcome this barrier, pollicymakersshould intensify the lobby with politicians and involving NGOs as independentobservers. Furthermore, the establishment of a task force for feasibility studyof POM residues utilization should be followed as well to enforce the transparency.The role of this task force to conduct study and evaluation of which POM that door not need to invest in biogas technology. This will create sense of fairnessamong the key stakeholders.In conclusion, the TIS-approach proved to be useful in providing ananswer to the main questions.
The framework pointed to institutional, infrastructure,network and capabilites barriers that block this development process through weakguidance of the search and resource mobilization functions. I expect this wouldbe a hard job for our policamker to realize. As a summary of my recommendations,the policymakers should: establish a mandatory program for POM to utilize wasteto be electricity, implementing tax exemptions or subsidy schemes, change BPPto 100% not 85%, intensify lobbying and creat a task force