CHAPTER I INTRODUCTION

CHAPTER I INTRODUCTION Background of the Research Energy consumption in Indonesia increases rapidly in line with economic and population growth. Currently, Indonesia is very much dependent on fossil fuel for its energy sources and the non fossil alternative renewable energy has not been utilized optimally. Data of fossil energy reserves from the Department of Energy and Mineral Resources [1] shows that the proven reserve of oil is about 9 billion barrels and with an average production rate of 500 million barrels per year, the reserve will be exhausted in 18 years. Around 63% of Indonesia s final energy demand is still depending on oil (most of them are used in the transportation sector). On the other hand, the national oil production facilities are limited and the capacity is decreasing gradually. Therefore, to satisfy the domestic energy consumption, Indonesia has to import crude oil and finished petroleum products, such as gasoline and diesel fuel. Indonesia has become very dependent on overseas oil supply to fulfill the increasing demand. This situation may worsen the security of fuel supply. The increase of the international crude oil and fuel price has become a burden to the state budget, due to the subsidizing policy of fuel products. For example, when the crude oil price stays at around US$125 per barrel, Indonesia has to provide around 240 trillion rupiahs just for fuel subsidy. This will result in reduced government capacity to finance development programs in needed sectors such as health, education, basic human services, and infrastructures either in rural or in urban areas. This means that the government has very limited resources to stimulate and maintain productivity and economic growth. In addition, the air pollution level (especially in big cities like Jakarta) is increasing and is becoming a serious problem [2, 3]. Ambient air quality monitoring results suggest that NO x, CO and THC are a serious problem in almost all areas of Jakarta. PM 10 may be considered as a problem in certain areas and motor vehicles are a major contributor of NO x, PM 10, CO and THC emission (more than

2 70% of each parameter) [4]. One of the main contributors of the increases of air pollution is transportation. The use of energy in this sector has an environmental impact in the form SO 2, NO x, CO, HC and PM. Each type of vehicle has a specific impact and different emission coefficients. To reduce the high dependency on oil and to improve the air quality level, there is no choice but to maximize the development of utilization on environmental friendly alternative fuel. One alternative is to convert plant oil to methyl esters or famously called biodiesel. The business of biodiesel in Indonesia is expected to grow as the government intends to boost the biofuel program since the new National Energy Policy has been issued in 2006 [5]. The policy has stated that biofuels are parts of renewable energy sources beside other types of sources such as geothermal, biomass, biogas, wind, river flow, etc. The targets in this policy may include the role of each renewable energy sources in the energy consumption for optimum primary energy mix. In the latter, the role of biofuels is set for more than 5% in the national energy consumption by the year 2025. This policy has been reinforced by the issuance of the President Instruction concerning the regulation biodiesel utilization [6], the National Biodiesel Standard SNI 04-7182-2006 [7], the Decree of the Oil and Gas Directorate General on Biodiesel Blending regulations that allows maximum blending of 10% [8], and the Decree of the Minister of Energy and Mineral Resources on mandatory of biofuel utilization issued on September 2008 [9]. Although the biodiesel development in Indonesia started ten years ago, it has gained a significant milestone in 2006, when PERTAMINA as a state-owned company which carries out business in oil & gas, LNG, energy and petrochemical industries has been selling a blend of 95% diesel fuel and 5% SNI standard biodiesel (B5) which has the trade name of BIOSOLAR since 20 May 2006. To date, PERTAMINA has been selling BIOSOLAR at almost all fuel outlets on the island of Java and Bali. Following the policy of biofuel mandatory utilization arranging phases and by the continuously growing of domestic biodiesel producer, PERTAMINA will open the BIOSOLAR s fuel outlets in all parts of Indonesia and increase the biodiesel blending content at least up to B20 in 2025. The main

3 current problem in commercialization of biodiesel in Indonesia is the fluctuation of biodiesel price which usually gets higher than fossil diesel oil price, whereas biodiesel is still classified as other fuels which is not subsidized by the government, on the other hand the advantages of biodiesel as an environmentally friendly renewable energy is still less considered. A review of the current status and prospects of biodiesel development in Indonesia has been reported by Wirawan and Tambunan, 2006 [10]. The reduction of the pollutants emission could have direct implication on the improvement of the air quality in the atmosphere to the impacts on various receptors, including the human beings and those impacts could be transferred into monetary values. In the environmental economic science, environmental impact is known as one form of the loss of externalities which could effect the national effective source allocation and needs the government policy to overcome the problem. Externalities are changes of welfare which are caused by economic activities without being reflected in market price. Applied on transport, negative externalities are costs imposed on society and environment that are not accounted for by the producers and consumers of transport services [11]. Hence, it is necessary to estimate the contribution in external costs in transportation energy sector use due its impact on air pollution to human health. Objective of the Research The main objective of this research is: 1. To study the effect of biodiesel fuel in pollutant emission from diesel engine in transportation sector. 2. To perform the external cost analysis in relation to environmental quality and health improvement as affected by biodiesel utilization in transportation sector by using the model simulation. The analysis is performed to Jakarta as the case study.

4 Benefits of the Research This research would specify the following benefits: a. Provision of scientific proof of the advantages of biodiesel utilization on environmental improvement (health impacts and economic values). b. The result could be used as a scientific reference in policy and regulation decision by the government (subsidy, incentive and/or disincentive policy). Boundaries and Methodology Boundaries The boundaries of the study can be specified into geographical area, targeted pollutant, time frame and data sources as explained below. a. Study Area The study area focuses on the area which comprises the Special District of the capital city of Jakarta which is known as Daerah Khusus Ibukota Jakarta (DKI Jakarta), including North Jakarta, East Jakarta, South Jakarta, West Jakarta and Central Jakarta. Jakarta was selected as a targeted research location due to the fact that Jakarta is the capital city with the most densest population, highest mineral diesel fuel consummer, and most polluted city compared to among others big cities in Indonesia. Seribu islands and sea area are assumed as areas outside Jakarta and were not included in this study. Jakarta is used through-out this report as the terminology for the study area of DKI Jakarta. b. Targeted Pollutants The targeted pollutants in the study are nitrogen oxides (NO x ), sulfur dioxide (SO 2 ), Particulate Matters (PM), carbon monoxide (CO), and hydrocarbons (HC) from transportation sector vehicle sources fueled with pure mineral diesel fuel case (base case) and biodiesel blends with diesel fuel case (B10, B20, B50 and B100). Industrial and domestic sector sources and other mobile sources such as ships, aircraft and other sources are not estimated in this study. c. Data Sources Efforts focused on collecting all previous studies and reliable secondary data on air quality model for the traffic sector and air pollution levels in Jakarta for the

5 period of 1992 to the latest year available. The following are comprehensive studies that focused solely on air quality model for the traffic sector and Jakarta s air pollution situation and formed part of this study s background: Air Quality Model for the Traffic Sector, Environmental Impacts of Energy Strategies, Indonesian German Research Project [12]. Study on Air Quality in Jakarta, Indonesia [4]. d. Time Frame The study s time frame was set as follows: The vehicle emission loads without countermeasures or baseline cases were estimated for year 2005 and predicted for the short/medium term (2010 and 2015), and long term (2020 and 2025). The vehicle emission loads with countermeasure (biodiesel blends with petrodiesel, B10 and B20 case) were predicted for both the short/medium term (2010 and 2015) and long term (2020 and 2025). B50 and B100 cases were also estimated in this study in order to evaluate the conservative contribution of biodiesel utilization in the transportation sector to the overall pollution in Jakarta. The health and economic impacts of air pollution were estimated based on the results of simulation as above scenarios. Figure 1 shows the logical frame of the research.

Background of the Research Model Simulation Research Output Chapter 2 Background 63% of energy demand depend on fossil oil Reserved oil is limited 40% of diesel oil consumption are imported Increases of international crude oil prices Air quality of major cities in Indonesia has been deteriorating especially in the city of Jakarta Abundant Biofuel Raw Material National Biofuel Program Bioethanol, Biodiesel and Bio-oil R&D Support Effect biodiesel to engine performance Effect biodiesel to emission Optimum blending Advantages and disadvantages of biodiesel Others Influence Factors World oil price CPO oil price Chemical price (methanol, catalyst) Global policy (technical and environmental aspect) Government policy on biofuel (price, tax, incentive, etc) Tecnology capability (on and off farm) Existing condition Perpres No. 5/2006 Inpres No. 1/2006 SNI 04-7182-2006 Decree No. 3675K/24/DJM/2006 (max. B10) Decree No. 32/2008 (Biofuel Mandatory) Pertamina formally sale BIOSOLAR Plant Installed capacity 2.5 million Kl Commercialization Problems Biodiesel still classified as other fuel (economical price, no subsidy). FAME price is tend to increase and passing the MOPS price. Consumer still dominantly considered the fuel price to decide to use for their car fuel. The advantages of biodiesel (renewable energy, lower exhaust gas emission, effect to engine life time) is just putted aside. Diesel Oil Sample B0 From Pertamina balongan B0(1) From Public Fuel Pump Station B0(2) Meet Pertamina s diesel oil standard Biodiesel Production Engineering Center BPPT Meet SNI 04-7182-2006 Scenarios Time frame: 2005, 2010, 2015, 2020, 2025 Base case B0 BXX Socio Economy Data Population growth Economic growth Historical data Emission Coefficient By type of emission By type of vehicle Meteorological data Wind speed Dose response BXX samples B0 B10 B20 B30 B50 B100 Lab Test Performance: Torque, power, Fuel ConsumptionEmis sion: SO2, NOx, HC, CO, PM Vehicle Growth Model By type of vehicle By type of fuel Emission Quantification Emission Dispersion MLuS Model For Jakarta 1 x 1 km square grids By type of emission Fading model Chapter 3 Chapter 4 Optimum Blending Assessment Lab test result Literarure study Experts interview Short term engine effect Long term engine effect Price Chapter 5 Biodiesel Blending Scenario Recommendation Chapter 7: General Discussion Chapter 8: Conclusion The Effect of Biodiesel to: Pollutant Emission Pollutant Dispersion Chapter 1 Health cost Germany health cost GDPPPP Indonesia and Germany Indonesian health cost External Cost Calculation Chapter 6 The Effect of Biodiesel to External Cost Figure 1. The logical frame of the research - 6 -

7 Methodology The external costs are calculated by using the analysis of emission dispersion effect which is mostly known as Impact Pathway Analysis (IPA). The impact pathways methodology has been used in a large number of research projects and policy application related studies. The method consists of four steps, which are : to quantify the emission, to define the dispersion and transformation of emission for calculating the ambient concentration, to estimate the physical effects by using the dose response function, and to determine the monetary value of the damage for calculating the external costs [13, 14, 15]. Figure 2 shows the summary of IPA method. Each calculation steps has an uncertainty due to the availability data limitation and the limitation of methodology of the used model. Source: Sugiyono, 2005 [13] and Kovacevic et. al., 2001 [14], Wilde et al. 2003 [15] Figure 2: External Costs Calculation by Impact Pathway Analysis Generally, this study will determine the external costs of transportation energy use by using the simulation. Each simulation is based on the scenario which is in line with the development pattern of the government policy. By comparing the base case (B0) with biodiesel blends cases (B10, B20, B50, and B100); therefore the strategy for reducing the external costs could be compiled. Figure 3 shows the steps of simulation methods. The following are principal tasks that have to be undertaken in order to perform the simulation. a. To assess the air pollution levels were:

8 - A collection and review of all available data with respect to air pollution levels in Jakarta. - A review of existing emission coefficient inventory for vehicle pollution sources in Jakarta. - The selection and development of emission dispersion model to estimate the pollution concentration from vehicle sources in various parts of Jakarta. - A prediction of future pollution loads caused by vehicle pollution sources in various parts of Jakarta, based on scenario planning variables including the number and type of vehicles, fuel types, etc. b. To assess the health and economic impacts were: - To study the influence of biodiesel on exhaust emission and health effects. - A collection, review and summary of earlier studies which attemped to assess the health impact of mobile source air pollution as well as the economic impact. - To estimate the value of external cost in relation to environmental quality and health improvement as affected by biodiesel utilization. Economic Growth Historical Data Population Growth SCENARIO: 1. Scenario Base (B0) 2. Scenario B10, B20, B50 and B100 VEHICLE GROWTH MODEL (Number and Type of Vehicle) Emission Coefficient EMISSION QUANTIFICATION Meteorological Data EMISSION DISPERSION MODEL IMPACT ESTIMATION EXTERNAL COST CALCULATION Figure. 3. External Cost Simulation Flow Chart

9 Outline of Dissertation The dissertation is divided into eight main chapters. Background information related to the research topic selection including the objective and benefits of the research and boundaries and methodology of the research performance will be described in Chapter 1, followed by the description of several studies related to the effect of biodiesel utilization to engine performance and its potential emission reduction. The Effect of Palm Biodiesel Fuel on the Performance and Emission of the Automotive Diesel Engine is presented in Chapter 2, and the Estimation of the Effect of Biodiesel Utilization on Transportation Sector Emission in Jakarta is presented in Chapter 3. The study on the Determination of Optimum Biodiesel-Petrodiesel Blending Scenario was performed and the result is described in chapter 4. Chapter 5, is the core chapter in estimating Jakarta s pollution level. It covers the collected previous studies related to the dispersion model input data, the method to determine the emission factor, as well as the air dispersion simulation. Chapter 6, reveals the estimated health and economic impacts (external costs) of air pollution based on the calculated air pollution provided in chapter 5. Finally, the General Discussion based on the previous chapter result information will be described in Chapter 7 and concluded in Chapter 8. Other data including the source of model simulation program, projection of population growth and traffic density map, projection of emission concentration dispersion map and the numerical result of external cost estimation are presented in appendices.