This thesis
aims to introduce circular economy model to the palm oil industry in Indonesia
by focusing on Palm oil mills residues. Within the context of a CE, waste
materials are not disposed and polluted the environment. In doing so, the TIS
approach is applied in this thesis in order to understand the current system
and finally to be able to provide recommendation to the policymakers. To
conclude this thesis, the main research question – “How can policymakers
accelerate drivers and overcome barriers around the circular development of POM
residues TIS in Indonesia?” – will be answered after a thorough analysis
from the findings above.

Currently, the
institutional environment in which the innovation system needs to function is
not providing a strong guidance of the search (F4) and resource mobilization (F6)
to stimulate the development of a circular production model. This is
demonstrated by the lack of a clear regulatory framework that shape the
innovation and the market at the system level that are unaligned with national
objectives. The implication of weak regulatory frameworks from policymakers
lead to infrastructural failures, soft institutional failures and capability
failures. This is specifically shown by insufficiencies in hard institutions. The current
ministerial decree no 12/2014 only regulate POM to follow waste water standard
before discard to water stream. To overcome these barriers, policymakers could
establish a special mandatory program for palm oil mill’s duty to utilize palm
oil waste to be electricity. By doing so, policymakers can encourage
entrepreneurial activities and innovation within Palm oil mills itself and
interact more with related stakeholders. This should be done by involving and
collaborating with industry associations, politicians, governments at various
levels and palm oil companies.

A clear regulatory
framework for the system that is aligned with national legislation could
contribute to strengthen market formation (F5), which in turn, may lead to resource
mobilization (F6) in order to stimulate further system development, especially
to overcome the infrastructure failure. Furthermore, the policymakers could enforce
this through the mobilization of financial resources by implementing subsidy
schemes or tax exemptions for investing in biogas plant technologies. This
could make return on investment more interesting for projects related to POM
residues that would otherwise be too expensive. The impact of such schemes
could potentially benefiting knowledge inststitutes funding streams and ensure the quality of the
infrastructure is adequate.

Furthermore, in
the market environment the main barrier is due to the low price electricity
purchase from the government from renewable energy producers. The low price
offered by the government has put the renewable energy at the same level of
fossil fuel energy. This is ruled by ministerial decree no 12/2017, thus it
should be evaluated and revised. Likewise, government should also think about
raising the BPP or feed-in-tariff of renewable electricity to 100%. In general,
the renewable energy cannot compete to the fossil fuel energy as they are
cheaper. Compare to biogas plant, the technology is rather expensive and the
productivity is not as high as the fossil fuel. This competition hinders demand
for investor to invest in biogas plant as the return is low and consequently
forms a barrier to market formation (F5). The market has already strong driver
as government guarantee PLN will buy electricity for renewable energy producer.

To overcome these barriers, policymakers could revisit and revise the current
ministerial decree no 12/2017 again in order to match the expectation of business
aspect. This offers a possibility for these technologies to improve and reduce
their associated costs. This action will subsequently impact the funding streams
and build confidence for private investors to invest in the technology in the
early stage, in which overcome the capabilities failure. It will open the
opportunity for more project in renewable energy to develop and increase
knowledge development at the same time as it will require experts in this

Lastly, the
current system has shown imbalances in network interaction, especially in
political institutions. The findings show strong network failure between palm oil corporations and the policymakers
that could impact in the creation of legislations. To overcome this barrier, pollicymakers
should intensify the lobby with politicians and involving NGOs as independent
observers. Furthermore, the establishment of a task force for feasibility study
of POM residues utilization should be followed as well to enforce the transparency.

The role of this task force to conduct study and evaluation of which POM that do
or not need to invest in biogas technology. This will create sense of fairness
among the key stakeholders.

In conclusion, the TIS-approach proved to be useful in providing an
answer to the main questions. The framework pointed to institutional, infrastructure,
network and capabilites barriers that block this development process through weak
guidance of the search and resource mobilization functions. I expect this would
be a hard job for our policamker to realize. As a summary of my recommendations,
the policymakers should: establish a mandatory program for POM to utilize waste
to be electricity, implementing tax exemptions or subsidy schemes, change BPP
to 100% not 85%, intensify lobbying and creat a task force