CHAPTER VII GENERAL DISCUSSION
Depletion of fossil energy resources, increasing domestic consumption of diesel oil, increasing crude oil price, environmental problem and the abundance of
raw material are become the main background of the country biodiesel development. Opportunity to market biodiesel has been widely opened as the
current government fully supports biofuel development. This support was manifested into several government regulations that covered National Energy
Policy, National Biodiesel Standard, decree of Oil and Gas Directorate General regarding blending regulation and decree of the Minister of Energy and Mineral
Resources regarding mandatory of biofuel utilization. These regulations have forced PERTAMINA as a state-owned company, which conducts its business in oil
gas, LNG, energy and petrochemical industries, to market BIOSOLAR trademark of PERTAMINA’s Biodiesel-petrodiesel blend fuel product in all
PERTAMINA’s Fuel Outlets in all over Indonesia. The most significant hurdle for broader commercialization of biodiesel in
Indonesia is its cost. The fluctuation of FAME price, which is often higher than fossil diesel oil price, and the fact that biodiesel is still classified as other fuel
which receives no subsidy from the government has made higher percentage of biodiesel in blend increase the price of blends fuel. On the other hand, the
acceptance of biodiesel in Indonesia is more influenced by pricing factor. The advantages of biodiesel such as a renewable energy, having lower exhaust gas
emission and being able to prolong the engine lifetime are just putted aside. The acceptance and response to biodiesel as alternative car’s fuel in Jakarta has been
studied by Amrizal, 2006 [74]. The result of the study showed that there were eight important factors influencing the consumer’s decision to switch their fuel to
biodiesel, namely: a. Price
Consumers still dominantly considered the fuel price as the main factor in selecting fuel for their cars. However, if the price of biodiesel were set to be in
120 the form of blended fuel B5, B10 or B20 and be at similar price to the fossil
solar fuel, there would be an attractive selling point. b. Information availability
Information became the important tool to spread the biodiesel advantage, based on both the technical point of view and environmental consideration.
c. Car ManufacturerDealer This factor referred to the guarantee given by the car manufacturer and
maintenance services. d. Engine performance
Componentparts durability and engine power acceleration and power were the keys factor in their consideration.
e. Biodiesel as Environmentally friendly fuel The influence of biodiesel to the environment became the considering issues
due to the increase in global influences. f. Durability
This factor was related to the engine performance factor. g. Engine’s noise
Level of engine’s noise could affect the consumers’ consideration. h. Location
Biodiesel close availability in public fuel filling station was also the important factor in their consideration.
Therefore, more information of the advantages of biodiesel to engine performance and emission should be widely passed to all stakeholders including
producer, consumer, engine manufacture and government as a regulator.
The Optimum Blend of Biodiesel
The optimum blending composition is ranked according to three main parameters, namely the short term effect, long term effect and price. The short
term effect accommodate the direct effect of biodiesel use to the engine, including the emission, fuel consumption and the engine performance torque and power.
The long term effect includes wearing out and deposit formation in the long term use of biodiesel. The test result and a long experiences of American B20 user
121 team indicated that the utilization of blending higher than B20 in the long period
will need engine modification and special engine maintenance. The utilization of blending higher than B20 is recommendable only for private user non
commercial who have wide knowledge in biodiesel and engine. Here, it assumed that the engine technology will not significantly improve toward the most suitable
one to biodiesel use until the year 2025. Considering the final score of those three parameters short-term effect, long-term effect and price parameter, therefore the
optimum biodiesel-petrodiesel blends can be ranked as shown in Table 75. Table 75. The ranking of optimum biodiesel-petrodiesel composition
BXX Total Score
Ranking B20
65 1
B10 60
2 B30
50 3
B50 46
4 B0
45 5
B100 36
6
The Share of Externality to Biofuel Cost
In analyzing potential substitution of fossil fuel with biofuel, price has become the main consideration. The components of price itself may vary and it
should not only depend on production and capital cost but also environmental cost as suggested in the sustainable development principle. In other words, one should
consider all aspects including the external cost and others of implementing such a policy besides the cost of production alone. The following paragraphs are details
of those factors contributing to the total cost of implementing a policy of biofuel substitution.
a. External Cost Implementation of externality concept in the use of fossil fuel is an
alternative effort in boosting the utilization of a renewable energy such as biofuel. According to this concept, environmental damage that occurs due to
implementation of a policy can be evaluated based on its economic value or profoundly known as environmental valuation.
122 The valuation techniques recognize the behavioral adjustments that
individuals consumers or producers make in responses to changes in environmental quality, or the provision of an environmental resource. Two
distinct sets of benefit valuation techniques can be distinguished. The first set is based on technical physical linkages that formally describe cause and effect
relationships. Included in this set of techniques are the change in the output or input of marketable goods, the cost of illness and the replacement cost methods.
The second set of techniques is based on behavioral linkages between a change in the state of the environment and the actions of individuals, whereby values are
either stated or revealed in actual or hypothetical market behavior. Using revealed behavior, the trade-offs individuals was made between the state of the
environment and goods or service traded in actual markets Markandya and Boyd, 2000 [75]. As a comparison, table 76 lists the environmental impacts that need to
be considered in environmental valuation in the developed countries. Tabel 76. Environmental Impact Classification
No. Criteria
Environmental Impact
1 Productivity:
Soil loss Crop damage
Forest loss Habitat loss
Fisheries depletion Water quality loss
Property damage Resource depletion
2 Human Health:
Mortality Work days lost
Restricted activity days Pain and suffering
Medical costs 3
Amenity: Recreation loss
Habitat loss Aesthetic damage
Noise 4
Other: Existence values
Occupational environment Access to water
Sanitation services Travel time savings
Source: Markandya and Boyd, 2000 [75].
123 Although this dissertation only discussed environmental impacts on the
human health, the health cost derived from such impacts does not completely represent the cost in the developing countries. Other environmental impacts that
affect the productivity, natural beauty, and others have not been considered. If all the factors affecting the environment have been considered, the external cost
would be much larger than the one estimated from this study. b. Premium Depletion
Currently, the fossil energy is valued based on the cost needed for exploration, exploitation, direct cost production and small amount of economic
rent. As the fossil energy is limited and if it is already exploited, the next generation will not be able to use it, then there is a necessity to calculate a
depletion cost due to the current use of fossil fuel. Such a cost is commonly known as depletion premium. The inclusion of depletion premium in the
production cost can make the use of renewable energy become more competitive Bappeki, 2005 [76].
c. Carbon Credit Clean Development Mechanism is one of mechanism use for funding the
renewable energy project. The reason for this argument is fossil energy will produce CO2 emission while renewable energy does not produce as such. Thus,
the total emission caused can be reduced Sugiyono, 2001 [77]. The developed countries that have obligation to reduce their CO2 emission mandated in Kyoto
Protocol may transfer their carbon credit to developing countries in the form of compensation fund to develop renewable energy project. The amount of given
fund would be adjusted according to the carbon credit price agreed by both parties. Therefore, the price structure of renewable energies in the developing
countries would change and their production cost would be less, depending on the price of carbon credit.
Given the factors contributing to the total cost mentioned above, the economic price of biofuel in general and biodiesel in particular, the cost might be
competitive with the fossil fuel. Briefly, the following graph Figure 49 illustrates the price structure for both fuels. The graph, however, could not explain
the exact figures as such a study would beyond the scope of this dissertation.
124
Figure 49. Price structure comparison
• Cost of the damage caused to health and the environment by emissions pollutants other than those associated with climate change and
Assessing the externalities of biodiesel fuel Environmental externalities of energy productionconsumption, which based
upon fossil fuel combustion, nuclear power or renewable technologies, can be divided into two broad cost categories. They are emissions of pollutants with local
andor regional impact and emissions that cause global impacts. They are:
• Cost resulting from the impact of climate change attributable to emissions of greenhouse gases.
The distinction of both types of pollutants is important since the scale of damages arising from the former is highly dependent upon the geographic
location of source and receptor points. The geographic source is irrelevant for damages arising from emissions of greenhouse gases.
Cost borne by government, including direct subsidies, tax concessions, indirect energy industry subsidies e.g. the cost of fuel security and support of
research and development costs are not externalities. They however, distort markets in a similar way to negative externalities, leading to increased
consumption and hence increased environmental degradation [78]. In order to effectively address these environmental matters, together with energy supply
security concerns, radical changes in power generation, automotive engine and
125 fuel technologies will probably be required. Such changes must offer the potential
for achieving negligible emissions of air pollutants and greenhouse gases, and must diversify the energy sector away from its present heavy reliance on fossil
fuels and particularly gasoline and diesel oil in the transportation sector. This study is to prove scientifically the advantages of biodiesel utilization
compare to fossil fuel to the emission and transferred to the economical value in the term of external cost. Jakarta city was selected as a targeted research location
due to the fact that Jakarta is the capital city with the highest transportation sector diesel fuel consumption and densest population in Indonesia.
As it has been proven by many world wide researchers, the results of Wirawan et al. study related to the effect of biodiesel to the engine performance
and emission [30], were also came to the conclusion that generally the utilization of biodiesel can reduce the emission considerably with the increasing of biodiesel
content. Based on Wirawan et al., 2008 [45] and referred to the roadmap of biodiesel utilization, which has been formally mandated by the government
through the decree of Minister of Energy and mineral resources no. 322008, it can be assumed that B20 is the realistic scenario for the target analysis. However,
the external cost due to B50 and B100 utilization was also estimated in order to evaluate the conservative effect of biodiesel utilization.
From the evaluation of the performed two cases of studies low and high emission cases and compared it to the previous existing Jakarta’s air quality
studies [64], [4] can be concluded that the external cost of high emission coefficient case is more acceptable see Table 84. The total external cost for
non-biodiesel base case in 2005 is 1,792.5 billion rupiah, and the value increases considerably by the growth of vehicle number and population to be 6,494.9 billion
rupiah in 2025. Compared to the base non biodiesel case in year 2005 as shown above, the reduction of external cost as the effect of biodiesel utilization in 2010
were gradually increase from only 13.4 billion rupiah for B10 case, become 59 billion rupiah for B20, 133.7 billion Rupiah for B50 case and reach to be 245
billion rupiah for B100. The value increases by the time due to the continuously growing of fuel consumption and population density. The utilization of B20 in
2025 will increase the external cost reduction to be 105.7 billion rupiah and the
126 maximum external cost reduction when B100 is used in 2025 is 447.7 billion
rupiah.
Internalizing the externalities In the theory, the most efficient process for imposing the “polluter pay
principle” would be to internalize as many of the externalities. Once monetary values have been derived to reflect the external costs of differing technologies, the
next step is to devise a mechanism for “internalizing” them into market prices. In theory, an energy tax would represent a relatively straightforward solution,
although the practicalities of its imposition would be complicated. The tax should be imposed at differential rates, depending upon the total estimated damages
resulting from the fuel in question. The worst of any social impact of energy taxes on poorer sections of society would have to be offset to ensure that tax burden
was not disproportionate in its incidence. An alternative approach to the problem of reflecting external costs, and one
that would possibly cause less economically disturbance would be to introduce “environmental credits” for the uptake of renewable energy technologies.
However, such credits do not “internalize” the social costs of energy production but rather subsidies renewable. In addition, the taxpayer pays the subsidy and not
the fuel consumer, thus rejecting the “polluter pays principle”. Further, it should be remembered that valuation of externalities is predicated on the discipline of
welfare economics, where economic efficiency is the guiding principle. Therefore, the simplest way to internalize the externality of the utilization of
biodiesel is adding the estimated external value to the product price to be paid directly by the polluter. Government intervention is justified in order to minimize
their impacts on the community. Where taxing polluters is deemed politically, benign technology could be encouraged through grants and subsidies.
Governments may try to influence the actions by voluntary means, such as information campaign, advertising, environmental product labeling,
demonstration projects and facilitating voluntary environmental initiatives.
127 For our case study, the value of external cost that should be paid by the
polluter can be estimated by dividing the external cost value with the fuel consumption, the result is shown in Table 77.
Table 77. External value should be paid by the polluter Rp. per liter
EC External Cost Rp.l Scen
ario 2005
2010 2025
EC Total FC
EC EC
Total FC EC
EC Total FC
EC Billion
Rp. Million
Kl Rp.l
Billion Rp.
Million Kl
Rp.l Billion
Rp. Million
Kl Rp.l
Base B0
1792.50 7.61 235.55
3005.8 10.59 283.83 6494.9
20.52 316.52
Scen ario
2010 2015
2025 ∆EC
Diesel FC EC
∆EC Diesel FC
EC ∆EC
Diesel FC EC
Billion Rp.
Million Kl
Rp.l Billion
Rp. Million
Kl Rp.l
Billion Rp.
Million Kl
Rp.l
B10 13.40
3.29 4.07
20.1 3.78
5.32 25.20
4.97 5.07
B20 59.00
3.29 17.93
70.5 3.78
18.65 105.70
4.97 21.27
B50 133.70
3.29 40.64
160.7 3.78
42.51 230.30
4.97 46.34
B100 245.00
3.29 74.47
302.00 3.78
79.89 447.70
4.97 90.08
The data show that in base non-bodies case, the external cost that should be paid by the polluter is 236 rupiah per liter fuel in 2005 and it increases with the
increasing of the fuel consumption to be 284 rupiah per liter in 2010 and becomes 317 rupiah per liter fuel in 2025. Meanwhile, the external cost as an impact of
biodiesel utilization is also gradually increasing. It starts from 4 rupiah per liter of B10 in 2010 up to the maximum of 90 rupiah per liter B100 in 2025.
Implementations for such a polluter pay principle can be realized in several ways. The first option is to raise the price of pure diesel fuel to cover the external
cost as an impact of biodiesel utilization. The second option is reducing added value tax on fuel PPN-BBM which currently stays at 5. The third option might
be achieved by raising the tax on cars Pajak Kendaraan Bermotor-PKB. Among those options, The easiest option is imposing tax on cars running on diesel engine
because the Indonesian government policy of marketing biodiesel is having biodiesel in the form of blending with diesel oil. Thus, it is imposible to charge
the external cost of biodiesel utilization to those who only use pure diesel fuel. The reason is that they do not have any choice as diesel oils in the retail market
have been blended with biodiesel already.
128 The results however, seem too small to attract the local government of DKI
Jakarta to realize the utilization of biodiesel as an environmental friendly alternative fuel, but it should be remembered that this is only one parameter
among other external cost parameters. The other advantage of biodiesel as a renewable energy, support the national energy diversification country energy
sustainability program, biodegradable fuel, make longer engine lifetime, etc, can be potentially valued and estimated as the total external cost.
The results were sensitively influenced by the emission coefficient factor, wind speed and fading function. The result of sensitivity analysis shows that the
external cost value increase linearly with the increasing of emission coefficient and fading function IGAV value, but decrease exponentially with the increasing
of wind speed. The main impediments to establish the model and obtaining reliable
simulation results are as follows: - Limited detailed vehicle emissions inventory is currently available on a
regular basis let alone the biodiesel fueled vehicle emission data. - The paucity of various supporting data such as; detail annual average daily
traffic vehicleday, coefficient emission for biodiesel fuel case, Indonesian specific health impact cost valuation and estimated damage costs associated
with externalities of fossil fuel combustion tend to lack precision and become a drawback in developing an accurate air dispersion model.
The perfect model of air pollutant concentration would let to predict the concentration resulted from any specified set of pollutant emission, for any
specified meteorological condition, at any location, for any time interval, with total confident in our prediction. The best currently available models are far from
this ideal [79]. All models are simplifications of reality, leading to the belief that “All models are wrong, some model are useful.” Any model is based on
assumptions and simplifications and therefore is debatable and uncertain. Prediction of long-term emissions must be based on models, as these emissions
cannot be measured today. Another criterion might be the quality of the available input data. If they are poor and there is no time or no sufficient resources to
improve them, then there is no need to apply sophisticated models.
CHAPTER VIII CONCLUSIONS
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