Impact assessment of the EU import ban on Indonesian palm oil: Using environmental extended multi-scale MRIO

Abstract

Under the Renewable Energy Directive (RED) II, the EU will phase out the use of palm oil for biodiesel feedstock. Environmental concerns are the main reasons for the EU to implement this initiative. This study analyzes the economic and environmental impact of EU import ban to Indonesia at provincial level, using 2 scenarios (a direct and direct-indirect import ban). The analysis is performed using a global-subnational Multi-Regional Input-Output (MRIO) with environmental extensions. This study shows that a direct (combined) import ban of palm oil by the EU will reduce Indonesia's GDP by −0.2 % (−0.26 %) and employment by −0.12 % (−0.54 %) from baseline. At provincial level, Riau, North Sumatra, Lampung, Central Kalimantan and South Kalimantan experience the highest impact on their domestic product (more than −0.5 %). Under a direct import ban, job losses mostly happen in outside Java (96.26 %) and in the oilseeds sector (75.21 %). Low and middle skilled jobs decline more than high skilled jobs and count for 95 % of the total loss. This study also shows that a direct (combined) import ban reduces national GHG emissions by −0.19 % (−0.24 %) and total land use by −0.48 % (−0.6 %). Potential carbon sequestration can be 34.55 (42.27) million tons C equivalent to 149.74 (182.67) million tons CO2e under assumption a full rewilding from the reduction of land use in oilseed. Our study shows that an EU import ban on Indonesian palm oil has relatively small economic and environmental impacts at national and provincial level. Yet, this policy can create potential carbon sequestration that can absorb CO2 by vegetation and soil.