Analysis of Agronomy and Environmental Impacts of Palm Oil Production: Evidence from Indonesia

Abstract

Indonesia relies heavily on palm oil production to meet the expanding demand for inexpensive vegetable oil. Approximately nine percent of the annual rise in palm oil production can be attributed to the rising demand for biofuels. However, the oil palm business has been connected to severe environmental issues, such as peatland mismanagement, biomass burning, and deforestation, which produce carbon dioxide (CO2) and contribute to climate change and global warming. Consequently, the present study aims to empirically examine the effects of palm oil production on environmental pollution, namely CO2 emissions in Indonesia from 1990 to 2020, while controlling for energy consumption, economic growth, and agricultural production. Applying the Quantile Autoregressive Distributed Lag Model (QARDL) for empirical evaluation, this study evaluates the influence of oil output at different quantiles. According to the study, long-term palm oil production has a considerable and favorable effect on CO2 emissions in the lower to middle quantiles (0.05th to 0.7th quantiles). In the short term, the impact of palm oil production is significant and positive across all quantile levels. The post-estimation Wald Test and Granger Causality Test at quantiles suggest that bidirectional causality exists between all of the study variables, confirming the consistency of the parameters. The findings advise the implementation of proper management of the oil palm crop by the Indonesian government. Green management policies and environmental standards are encouraged by the government of Indonesia to have sustainable growth and development of the oil palm sector.