Indonesia’s Palm Oil Industry: Governance Reform Through a Licensing Moratorium in the Perspective of Economics and Environmental Carrying Capacity (D3TLH)
Indonesia’s palm oil industry faces mounting domestic and global challenges. Economically, the expansion of oil palm plantations has not translated into improved welfare for producing regions. The industry is also associated with significant environmental and social harms. At the global level, regulations such as the European Union Deforestation-free Regulation (EUDR) are pushing for the adoption of sustainability certifications. However, the levels of legality and certified sustainable practices in Indonesia remain low.
On the fiscal side, the government is reportedly losing trillions of rupiah in potential tax revenue from the palm oil sector, while policies such as land amnesty programs and licensing mechanisms remain vulnerable to corruption. Recent developments—such as plans to increase the biodiesel mandate to B35 and B50—are also likely to demand further land expansion, heightening the risk of deforestation.
In 2018, the government issued Presidential Instruction No. 8/2018 on the Moratorium and Evaluation of Oil Palm Plantations. The policy aimed to improve sustainable governance and conserve the environment by reducing deforestation, forest fires, and carbon emissions, while also enhancing productivity without further land expansion. Unfortunately, this moratorium was not extended after it expired in 2021.
Economic Perspective
Studies using economic modeling suggest that a licensing moratorium combined with replanting would result in better long-term economic outcomes, including positive impacts on GDP, income, tax revenue, and employment. The moratorium-plus-replanting scenario is projected to generate up to IDR 27.3 trillion in economic output by 2045—far better than the non-moratorium scenario, which shows declining output. Community and business income also improve significantly under this scenario, especially if replanting is implemented. While exports may decrease slightly, the moratorium enhances Indonesia’s competitiveness in environmentally-conscious global markets.
Environmental Carrying Capacity Perspective (D3TLH)
Using spatial modeling across Sumatra, Kalimantan, Java, Bali-Nusa Tenggara, Sulawesi, Maluku, and Papua, an environmental carrying capacity assessment (D3TLH) estimated the national upper threshold (cap) for palm oil plantations at 18,148,602.96 hectares, or approximately 18.15 million hectares. A significant portion of existing plantations are located on lands not designated for oil palm—such as non-protected forests and both wet and dry agricultural lands. Sumatra and Kalimantan have exceeded their ecological capacity, while Java, Sulawesi, Papua, and Maluku are still below the threshold. However, many ecologically sensitive areas can no longer support further development.
Policy Recommendations
Based on these economic and environmental findings, civil society organizations call on the government to issue policies that improve governance, consolidate reliable plantation data, boost productivity, and enhance the economic contribution of the palm oil sector without undermining environmental limits.
A combined moratorium and replanting scenario could generate an estimated IDR 30.5 trillion in GDP output and create 827,000 jobs during the assessment period. In contrast, a business-as-usual expansion scenario without a moratorium would result in negative GDP output of IDR 30.4 trillion and only 268,000 new jobs.
Therefore, civil society urges the issuance of a Presidential Regulation, followed by sectoral policies from relevant ministries, to halt the issuance of new oil palm plantation licenses. This is a critical step toward ensuring a more positive economic impact from palm oil without exceeding the environmental carrying capacity. Moreover, such a policy would promote more sustainable palm oil governance, safeguard both national and regional economic resilience, and support Indonesia’s commitment to reducing carbon emissions.
