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SOCIAL-ECONOMIC IMPACTS OF SUSTAINABILITY CERTIFICATION
Dr. Dodik Ridho NurrochmatDirector of Strategic Studies & Agriculture PolicyBogor Agricultural University (IPB)Email: [email protected] (PERHEPI) Bali, 24 Agustus 2017
SUSTAINABLE MANAGEMENT
Climate
Hidrology
Biodiversity
Socio-economy
ECOLOGY
ECONOMY
SUSTA
INA
BLE D
EVELO
MP
MEN
T
SUSTAINABILITY CERTIFICATION: AN ECONOMIC INSTRUMENT FOR SUSTAINABLE DEVELOPMENT
SUSTAINABILITY CERTIFICATION:A PATH TOWARDS GREEN GROWTH
• Green growth is a tool to achieve sustainable development, not a competing paradigm (World Bank 2012).
• Green growth is growth that is environmentally sustainable, i.e.– Efficient in its use of natural resources,
– Clean in that it minimizes pollution and environmental impacts,
– Resilient in that it accounts for natural hazards and the role of environmental management in preventing physical hazards and excessive commodity price volatility.
SUSTAINABILITY CERTIFICATION & SUSTAINABLE DEVELOPMENT
Sustainable development = sustaining development (growthand equity) with a minimum level of environmental degradation (green)
ENVIRONTMENTAL DEGRADATION:
RESULT OR PROCESS?
PRESERVATIONEXTRACTION
GROWTH GREEN
R
Env. Degradation
PCI
Nurrochmat et al., 2010
Kuznets’ Environmental Curve
R
0
1
PCI
En
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on
men
tal
deg
rad
ati
on
Nurrochmat, 2016
Avoiding irreversibility
R*
R
0
1
PCI; waktu
En
vir
on
men
tal
Deg
rad
ati
on
SUSTAINABILITY CERTIFICATION MAY AVOID
ENVIRONMENTAL DEGRADATION, BUT IS
USUALLY A DISINCENTIVE FACTOR FOR ECONOMIC
GROWTH
Irreversible
Nurrochmat, 2016
MANDATORY VS. VOLUNTARY CERTIFICATION
• Mandatory certification refers to legality factor, coercive power, regulatory instrument.
• Voluntary certification refers to legitimacy factor, incentive power, economic instrument.
• Illustration: ID Card (KTP) vs. Passport/Visa
SUSTAINABILITY CERTIFICATION:LEGALITY VS. LEGITIMACY
• The term legality mostly addresses the role of the state and focuses on law enforcement … (van Heeswijk and Turnhout, 2013).
• Legitimacy refers to “justifications of authority” (Schouten and Glasbergen, 2011). It is, according to Suchman (1995) “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs and definitions”.
• Legitimacy contributes to the effectiveness and stability of institutions, and is regarded as a fundamental condition for rule acceptance.
CONFLICT OF INTERESTS IN SUSTAINABILITY CERTIFICATION
• As part of an international regime, sustainability certification is not immune to political interests.
• Referring to Glueck's theory, Krott (2005, p. 8) argues that interest is a driving force of politics. He states, “interests are based on action orientation, adhered to by individuals or groups, and they designate the benefits (an individual or a group) can receive from a certain object”.
SUSTAINABILITY CERTIFICATION AS GREEN BRANDING
• Sustainability certification is not always associated with increasing the profitability of business, but has emerged as a form of green branding of business management and its products (Correia, 2010).
• That is, in practice sustainability certification can be used as a method to reinforce control over production processes rather than increasing financial benefits.
CASES
(1) FOREST CERTIFICATION (TIMBER LEGALITY VERIFICATION SYSTEM/SVLK).
(2) OIL PALM CERTIFICATION (ROUNTABLE ON SUSTAINABLE PALM OIL/RSPO).
HOW SVLK
WORKS
Nurrochmat et al. (2016)
(1) SVLK: (IL)LOGICAL FRAME
Source: Nurrochmat et al. (2016)
LEGALITY & LEGITIMACY OF
FOREST ADMINISTRATION/CERTIFICATION INSTRUMENTS
Source: Nurrochmat et al. (2016)
CONSIDERING THE EFFECTIVENESS OF SVLK
• The implementation of SVLK for community forests and timber trade in local market is less effective in terms of profitability, legality, and legitimacy.
• We provide two policy options to improve national regulation of forest governance. – The first option is the dissolution of existing national forest
governance systems into a single system of SVLK to avoid cost inefficiency from the redundancy of mandatory procedures.
– Second policy option would establish the SVLK as a “private” forest governance system, among other private certifications, including LEI and FSC. Since the SVLK has been enacted as a mandatory certification, then consequently, the implementation of SVLK should follow opt-in “enforcement basis” instead of mandatory “compliance basis”. The “enforcement basis” of SVLK for is less legitimate and ineffective than existing systems.
(2) OIL PALM CERTIFICATION - RSPO
• Voluntary private certification - Transnational regimes can be defined as “set of norms, rules, and decision-making procedures that are made and implemented across borders through the activities of non-state actors” (Pattberg 2012).
Case of oil palm plantation in Central Kalimantan
(Source: Boer et al., 2012; Nurrochmat et al., 2012)
Sensitivity Analysis of Oil Palm Company’s Scenarios
Ordinary company Certified company -
normal price
Certified company
premium price
Certified company
premium price & carbon
scheme
NPV BCR NPV BCR NPV BCR NPV BCR
Normal 132,427,796,086 1.28 87,382,225,976 1.22 114,665,041,793 1.30 109,867,620,401 1.28
Decreasing
Price 10% 72,586,049,010 1.16 39,508,828,315 1.10 64,397,974,249 1.17 59,550,429,755 1.15
Increasing
Cost 10% 85,828,828,619 1.17 48,247,050,913 1.11 75,864,478,428 1.18 70,537,191,795 1.16
Price
sensitivity 45% 10% 55% 10% 44% 10% 46% 10%
Cost
sensitivity 35% 9% 45% 9% 34% 9% 36% 9%
PRICE SENSITIVE
Financing Gap
Components
Indep.
Smallholder
BAU (IDR)
Indep. Smallholder
improved (IDR)
GAP Plasma Farmer
BAU (IDR)
Plasma
Farmer
Improved
(IDR)
GAP
COSTS df 15% 183,725,579 215,645,152 31,919,573 318,076,824 345,288,685 27,211,861
BENEFITS df 15% 237,265,109 296,581,387 59,316,277 382,987,181 478,733,977 95,746,795
Components
Company BAU
(IDR)
Certified
Company
Premium Price
(IDR)
GAP
Certified
Company
Premium Price
(IDR)
Certified
Company
Premium
Price+Carbon
(IDR)
GAP
COSTS df 15%
465,989,674,675
388,005,633,646
(77,984,041,029) 388,005,633,646
393,304,286,052
5,298,652,406
BENEFITS df 15% 598,417,470,761 502,670,675,439
(95,746,795,322) 502,670,675,439
503,171,906,453
501,231,014
NEG
ATI
VE
PO
SITI
VE
Cost per life cycle and Yield Improvement
8.06 t/ha
10.07 t/ha
12.59 t/ha
15.74 t/ha 19.67 t/ha24.94% 25.02% 0%
Estimated numbers of employment & dependent people of oil-palm plantation in Central Kalimantan
Total area of
current oil-palm
plantation (ha)
Employ
ment
index*)
Numbers of
direct
employment
Average
household
members**)
Numbers of oil
palm
dependent
people
Numbers of
inhabitants
in Central
Kalimantan
Portion of
oil palm
dependent
people
1,270,978 0.2 254,196 3.83 973,569 2,202,599 44%
*) Nurrochmat and Hadianto (2010), ** BPS (2010)
Cou
tesy
csf.o
r.id
Multiplier impacts of oil palm plantation in Central Kalimantan
Multiplier
Impacts*)
Independent Smallholder (ha/year) Plasma Farmer (ha/year) Company (ha/year)
BAU Improved Gap BAU Improved Gap BAU Cert, Prem Gap
Output multiplier
(IDR) = 2.79 13,547,804 17,092,209 3,544,405 26,844,617 32,957,174 6,112,557 35,905,709 30,814,644 -5,091,065
Income
multiplier (IDR )
= 2.5 12,139,609 15,315,600 3,175,990 24,054,316 29,531,518 5,477,201 32,173,575 27,611,688 -4,561,886
Employment
multiplier
(people) = 1.84 0.3680 0.3680 0.0000 0.3680 0.3680 0.0000 0.3680 0.3684 0.0004
*) Source: Nurrochmat and Hadianto (2010); Nurrochmat and Hasan (2012).
Cou
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Estimated Oil Palm Yields (BAU & Alternatives) in Central Kalimantan
Yields Independent
Smallholder
Plasma
Farmer
Ordinary
company
RSPO
certified
company
BAU
Estimated yield (tones/ha/y) 8.06 12.59 19.67 19.67
Estimated area (ha) 5 5 5,000 4,000
Estimated total supply (tones/y) 40 63 98,350 78,680
Improved
Estimated yield (tones/ha/y) 10.07 15.74 NA NA
Estimated area (ha) 5 5 NA NA
Estimated total supply (tones/y) 50 79 NA NA
GAP (tones/y)* 10 16 NA (19,670.00)
GAP (% of BAU) 25% 25% NA -20%
* The RSPO certified company is compared with the ordinary company
OPTION=LESS FINANCIAL BENEFITS; MORE
ENVIRONMENTAL BENEFITS
CONCLUSION• By RSPO certification, an oil-palm
company has to manage HCV area. Consequently, the company will loss the potential yields ca. 20% from HCV area. To be feasible, the minimum premium price shall be 15% higher than normal price. The recent premium price (1% above the normal price) is economically not feasible.
CO
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yafm
plg.
net
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THANK YOUTERIMA KASIH
