EPR

As the largest economy in South East Asia, Indonesia produced over 60 million tons of waste in 2021. With an estimated plastic recycling rate of currently 10%, less than 1 million tons of plastic will be recycled every year. According to the Indonesian National Plastic Action Partnership (NPAP), 70% of the plastic residues is mismanaged.  

The existing waste management system is inadequate and underfunded. There is no proper formal collection system in place. In Indonesia, the informal sector, consisting of waste scavengers and waste collectors, represents the primary collection infrastructure of recyclable resources. What makes it worse is there are almost no local food-grade recycling facilities available. The first PET food-grade recycling facility was only established by Danone and Veolia in 2021, which was designed for an annual capacity of 25,000 tons. However, changes are on the rise, Indonesia has started to embrace the circular economy approach.  

Key to Indonesia’s approach to circular economy is the Extended Producer Responsibility (EPR) system, which holds manufacturers and importers of goods accountable for the entire life cycle of the product and its packaging material. The responsibility of these producers includes the collection, sorting, and recycling of the left-over packaging material and the goods themselves. Furthermore, producers bear financial responsibility as well as the responsibility for any environmental impact of the product and its packaging.  

EPR in Indonesia is enshrined in article 15 of the 2008 Waste Management Law, which states that producers are responsible for the disposal of packaging and products that cannot be composted or are difficult to compost. Government Regulation No. 81/2012 further clarifies the law by mandating industries to use recyclable materials and to take care of the packaging recycling. Presidential Regulation No. 97/2017 (also known as Jakstranas) builds on the regulation from 2012 and formulated concrete targets for waste reduction and specified a broad range of possible measures on how to achieve these reductions.  

So far, the culmination in regard to the development of the legal framework of EPR in Indonesia is the enactment of Minister of Environment and Forestry Regulation No. 75/2019. Also known as the "Waste Reduction Roadmap", it specifies the implementation of the Jakstranas targets for the consumer goods industry, the retail sector, and the hotel and restaurant industry.  

With this “roadmap”, the development of an EPR system is expected to gain momentum. According to the regulation, from 2030 onwards, there will be a complete ban on plastic straws, plastic bags and single-use polystyrene packaging. The passing of the regulation has thus led to many initiatives from the sector to comply with the new requirements. For example, Coca-Cola re-established its Plastic Reborn 3.0 initiative, which aims to increase the capacity of garbage workers by increasing the usage of technology and educating the workforce about recycling activities.  Another example is Kentucky Fried Chicken (KFC), which has collaborated with Divers Clean Indonesia in launching the #NoStrawMovement campaign and has stopped using plastic straws since 2017.   

HIGHLIGHTS

Waste Composition Data 2021

Source: Indonesian Ministry of the Environment and Forestry (KLHK)  

Data from the Indonesian Ministry of the Environment and Forestry (KLHK) indicates that the country generated a total amount of 9.8 million tons of plastic waste in 2021, constituting 15.57% of the whole. The table above shows an overview of different wastes generated in 2021. 

Plastic Production Data 2019

Source: Indonesian Ministry of Industry

In 2019, national demand for plastic stands at 5.63 million tons, which is significantly lower compared to the waste generated. One reason why the generated amount of plastic waste is rather high compared to the output of local factories are the imported packaged goods. Even though domestically more plastic is generated than needed, Indonesia still relies on imported plastic residues to utilize the existing recycling capacities in its factories. 

Key Benefit of EPR System

CHALLENGES

A large number of countries have implemented EPR schemes, either following a mandatory or voluntary approach. Based on the current scope of the regulatory framework, Indonesia is somewhere between voluntary and mandatory EPR. While reduction and recycling have become mandatory, the overall framework of the Indonesian waste management system makes the implementation rather challenging. 

In Indonesia, the municipal waste management is financed with the budgets of the central as well as municipal governments. Specifically, the national budget is mostly used to support municipal governments with the procurement of equipment or the construction of facilities. Municipal budgets on the other hand are used to finance the operation of the municipal waste management. Ideally, the government strives to have the waste handling spending by 2025 to be Rp 22,000 (roughly US$1.47) per person per year for capital expenditures and Rp 43,000 per person per year for operational spending. Currently, the year for capital expenditure is Rp 5,000 and Rp 19,000 for operational spending.   

The current situation is also challenging for producers. To comply with the regulation, businesses have to develop a roadmap with measures that shall be implemented after approval from the Ministry of Environment and Forestry (KLHK). Since the regulation is not very specific, proposed activities and required funding will vary widely between producers. Furthermore, companies will be reluctant to spend much at this stage since no regulatory level-playing field exists. Meanwhile, the informal nature of waste collection is considered largely non-transparent, which makes larger investments unattractive. 

Lastly, the current regulatory framework in Indonesia does not mention the establishment of a Producer Responsibility Organization (PRO). In general, the government seems to be aware of the need of PROs, but no further plans have been communicated publicly. Therefore, all eyes are on the first industry-lead initiative. In 2020, the Indonesia Packaging Recovery Organization (IPRO) has been set up by private sector operators. Since the current regulatory framework does not require any collective approach, there has yet to be any significant increase in the number of producers joining IPRO or the establishment of more PROs by other organizations. 

CONCLUSION

So far, the manufacturing, retail and hotel and restaurant sectors have taken significant initiatives to help combat plastic pollution in Indonesia by launching different projects on different aspects of EPR. As previously mentioned, an important driver is the existence of IPRO. Indonesia’s implementation of EPR will depend on whether more companies will be joining and whether, ultimately, PROs will be supported legally by the Indonesian government. 

Another important factor in a well-functioning EPR system is financing. In Germany, for instance, producers pay a fee according to the nature and weight of the packaging that they will make available in the market by selling their products. With the application of the “Polluter pays”-principle, the burden of financing the waste management system will be transferred from the municipalities and taxpayers to the producers, i.e., the polluters.  

Financially, the largest initiative from the German government to EPR is by far the Green Infrastructure Initiative (GII). It does not have a direct EPR component like the other projects, but it supports the development of physical environmental infrastructure in Indonesia. Solid waste management is one of the three focus sectors. The KfW supports the project by providing €2.5bn in loans. The main Indonesian partner is the Indonesian Coordinating Ministry of Maritime Affairs and Investment. For capacity building Committee for the Acceleration of Priority Infrastructure Delivery (KPPIP) and the Agency for regional development (BAPPEDA) and work units (SATKER) are part of the projects and help with coordination.  

Among other international supporting countries, there is Denmark, which entered into a bilateral partnership with Indonesia on solid waste management and circular economy. Among the objectives of the initiative is the development of an improved framework to enable more private sector involvement in the Indonesian solid waste management sector, incl. contributions to the development of an EPR scheme. Together with the Norwegian government, Denmark co-sponsored a recent study that would analyze the status quo of the Indonesian EPR system.  

At present, it is difficult to foresee how fast Indonesia will be able to implement EPR. With limited chances of a stronger legal framework, much will depend on whether the general public pressure and the pressure coming from the existing regulation will encourage further private sector-driven initiatives. Donor funding will continue to be an important driver for the piloting of innovative approaches. 

MARKET RECOMMENDATION

In order not to miss the right time to enter the market, continuous monitoring of developments is necessary. It is also necessary to familiarize yourself with the existing regulatory situation.  

The German-Indonesian Chamber of Industry and Commerce (EKONID), part of the world-wide network of German Chambers Abroad (AHK) with 140 offices in 92 countries world-wide, represents the mutual interest in business relationships of German and Indonesian companies, organizations and institutions.  

Since 2016, EKONID has been actively engaged in the initiative “Environmental Protection Made in Germany”, which includes these objectives: 

1. Support the development of business opportunities through the provision of information from different sources that are related to Circular Economy in general and EPR in particular.  

2. Introduction to German EPR expertise and experiences through its online-seminar series.   

3. Support the dialogue between the Indonesian government and local industry to implement the Waste Reduction Roadmap by conducting online seminars and providing relevant information. 

More information about EKONID’s previous waste management projects can be found here. To stay up to date on the latest development in regard to EPR in Indonesia, send your email to info@ekonid.id or call +62 21 5098 5800.