ADDINUL YAKIN: PPP Palm Oil Malaysia Page 1
Application of Polluter Pays Principle for Improving Environmental Quality in the Palm Oil Industry of Malaysia: A Success Story
By Addinul Yakin
Department of Agricultural Socio-Economics Faculty of Agriculture, Mataram University
Lombok, Indonesia Mobile: +6281339530987
e-mail: [email protected]; [email protected] www.addinulyakin.blogspot.com; https://unram.academia.edu/AddinulYakin
ABSTRACT Palm oil industry has been profoundly developed and has created significant contribution to Malaysian economy. However, this has produced enormous wastes and pollution that has emerged as a major environmental problem. To avoid further environmental degradation and social costs Malaysian government has enacted Environmental Quality Act 1974, as the basis for controlling the pollution through a combination of regulatory approach and economic instrument in form of polluter pays principle (PPP). The amount of effluent-related fee payable to the Government was linked to the BOD load of the effluent discharged onto land, watercourse or both. The amount of fee collected dropped sharply in the first year and continuously dropped overtime, despite the increase in the number of oil palm mills operating in the country. As a result, degree of pollution also decreased significantly leading to favorable change in environmental quality in the palm oil industry. It shows that the application of PPP in the Palm Oil Industry has been quite thriving, but it is recommended for the industries to take further benefits of developing green technologies to process other possible benefits such as biogas. Key words: Polluters Pay Principle, compliance, environmental quality, palm oil industry.
ABSTRAK
Industri Minyak Kelapa Sawit telah memberikan kontribusi yang signifikan terhadap perekonomian Malaysia. Namun demikian, hal itu telah menimbulkan limbah dan polusi yang tinggi sebagai masalah lingkungan utama. Untuk menghindari degradasi lingkungan dan biaya sosial lebih lanjut, pemerintah Malaysia telah melahirkan Undang-Undang mengenai Kualitas Lingkungan pada tahun 1974 sebagai landasan pengendalian polusi di industri sawit Malaysia melalui kombinasi pendekatan regulasi dan penerapan Pencemar Bayar (PPP) . Dalam penerapannya, besaran fee yang dibayarkan perusahaan kelapa sawit kepada pemerintah dikaitkan antara kandungan limbah atau polusi dalam entuk BOD dari limbah yang dialirkan ke lahan, air, atau keduanya. Jumlah fee yang dikumpulkan menurun secara drastis dari tahun ke tahun, meskipun jumlah industri kelapa sawit meningkat terus di negara tersebut. Akibatnya, tingkat polusi menurun secara tajam yang menyebabkan terjadinya perubahan kualitas lingkungan ke arah yang lebih baik. Inui menunjukkan bahwa penerapan PPP adalah cukup efektif dalam menangani kasus polusi pada industri minyak sawit Malaysia, dan pada saat yang sama disarankan pula agar industri minyak kelapa sawit untuk mengambil benefit dari
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penerapan teknologi ramah lingkungan, antara lain dengan memanfaatkan limbah hijau untuk produksi biogas. Kata kunci: Prinsip Pencemar Bayar, Kepatuhan, Kualitas Lingkungan, industri kelapa sawit. I. Background
Palm oil Industry in Malaysia has been strongly developed in the past 30 years particularly
to anticipate increasing demand of the palm oil products with reasonable prices. Large areas of
forest have been continually converted into oil palm estates (Hai, 2002) to fulfill growing global
demand for palm oils which have a tendency to increase significantly in the last two decades or so.
After Oil palm (Elaeis guineenis) had been introduced in Malaysia in 1875, and started with the first
commercial planting in 1911, palm oil plantation was robustly expanded partly due to the relatively
high price of palm oil during 1920s. In 1921, palm oil plantation only covered 770 hectares and
sharply increased to 20,655 hectares by 1930 (Aiken et al., 1982). In forty five years later (1975)
area of palm oil plantation reached 641,791 hectares and in 2002 significantly increased 3,670,243
hectares and has spread out to 11 states in Peninsular Malaysia except Perlis (MPOB, 2003).
Although the contribution of agricultural sector to Malaysian economy, especially in the
last three decades, has decreased substantially which reached only 8.3 percent in 2001, the role of
palm oil industries, particularly to total agricultural exports and total exports has increased
substantially. In 1970, the contribution of palm oil industry to Malaysia’s agricultural exports was
only 7.7 percent, but in 2001 it increased to 44.5 percent. In addition, Malaysia has been
traditionally the top exporter of palm oils in the world market. In 2001, Malaysia exported
10,618,000 tones of palm oil which accounted of 61.12 percent of the world market and followed
by Indonesia, and other countries (MPOB, 2002). It clearly shows that the aggressive expansion of
palm oil industry has contributed considerably in Malaysian Economy.
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Palm oil industries involves a diverse array of activities which process raw agricultural
products, which may create adverse impacts on the environment in forms of water, air, and noise
pollution, disposal of solid wastes, and changes in land use (World Bank, 1991). Large quantities of
water are used during the extraction of crude palm oil from the fresh fruit bunch, and about 50%
of the water results in palm oil mill effluent (POME). POME is a thick brownish liquid that contains
high amounts of total solids (40,500 mg&), oil and grease (4000 mg/L), COD (50,000 mg&) and
BOD (25,000 mg/L). This amount of discharge will have a significant impact on the quality of low
volume and slow moving / stagnant water bodies if not treated prior to release into the
environment.
However, the increasing growth of agro-based industries the oil palm produced has
produced enormous wastes and pollution as the result of the effluent discharges from the
operation of palm oil industry, and emerged as a major pollution problem in Malaysia. The
effluents have been identified as major contributors to the rapid deterioration of the aquatic
environments in the 1960’s and 1970’s and the largest source of water pollution during this period
(Abdullah, 1995). By 1970s, 42 rivers in Malaysia were severely aerobically polluted by untreated
effluents. Consequently, this situation led to significant impacts on coastal areas and coastal
resources, which in turn affected the socio-economy of the local communities. It this could not be
treated properly and effectively, they can create huge social and environmental costs and then
may hamper economic development in the long run.
This phenomenon evolved people concerns and forced the federal government to take
action to produce environmental regulations and laws which the most important one was
Environmental Quality Act in 1974. In the following years, series of environmental measures and
programs have been introduced for controlling the pollution to promote sustainable practice in
the palm oil industry. The most crucial environmental policy measure was the introduction of
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economic instruments in the form of Polluter Pays Principle (PPP), appropriate mitigating
measures have been instituted and certain standards have to be followed as per requirement of
the Dept of Environment (DOE) with respect to the quality and rate of the effluent discharged into
water courses. However, the implementation and enforcement of the environmental policies has
been questioned especially it impact on environmental quality. This paper tries to identify
magnitude of environmental problems in the palm oil industry; (2) implementation of PPP and its
impact on environmental management of the industry; (3) to discuss the result of the instrument
to improve environmental quality. Finally, this paper will propose some other options for better
environmental governance in the palm oil industry.
II. Application of Polluter Pays Principle (PPP) in Pollution Control in the Palm Oil Industry In managing environmental concern, the government of Malaysia has traditionally given
priority to the most significant environmental problems arising at any particular time. In the 1970s
and early 1980s, the main challenge was to control pollution from agro-based industries such as
palm oil mills and rubber factories (Visvanathan and Tiong, 1999). The Environmental Quality Act
1974 is the principal regulation to prevent, abate, and control pollution, which also incorporates
punitive as well as economic measures for the control of effluents discharge into the environment.
Furthermore, the 3rd Malaysia Plan (1976-1980) within the chapter on development and
environment has laid down the machinery for pollution control in order to achieve that objective.
Furthermore, in the 6th Malaysia Plan, it was envisaged that the Department of Environment (DOE)
would examine the use of licenses, fines and charges for the control of effluent disposal. In
addition, one of the policy thrusts in the 8th Malaysia Plan (2001-2005) is to promote the use of
market-based instruments and self-regulatory measures among industries.
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Regarding to environmental measures in the palm oil industry, the Malaysian Palm Oil
Industry (Licensing) Regulations that was put into effect on 1st March 1979 require that all those
involved in the palm oil business obtain appropriate licenses from MPOB. This includes the sale,
purchase, milling, storage, export and import of oil palm products. Dealers, brokers, chemists and
surveyors are also required to obtain licenses for their activities. The main objectives of these
Regulations are to regulate and coordinate all activities related to the palm oil industry, to check
malpractices that are detrimental to the industry, and to conduct quality control of palm oil
products produced and traded.
Pollution control in the palm oil industry has been implemented through a combination of
command & control approach and market based instrument. The EQA 1974 clearly indicates the
levels of charges and penalties to those who pollute the environment. In general, Table 1 shows
levels of charges and penalties regarding to all types of pollution in Malaysia. It is apparent that
maximum level of charge is RM 100,000 with maximum penalty of 5 years in prison.
Table 1: Pollution Charge and Penalties in Malaysia based on EQA 1974
Restriction and Prohibition Charge and Penalties
Restrictions on Pollution of the atmosphere, the soil, and inland waters
≤ RM 100,000 or imprisonment not exceeding 5 years or both ≤ RM 1,000 a day if ignoring a notice
Restrictions on noise pollution ≤ RM 100,000 or imprisonment not exceeding 5 years or both ≤ RM 500 a day if ignoring a notice
Prohibition of discharge of oil and wastes into Malaysian Waters, and open burning
≤ RM 500,000 or imprisonment not exceeding 5 years or both
Environmental Quality (Prescribed Premises) (Crude Palm Oil) Regulations, 1977
The firms are required to obtain a license in order to be allowed to dump effluents into the
watercourse or land and authorities can use it as a threat (to cancel the license) in case of excessive
violation of regulations by the firms (command and control component), while standard effluent
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charges are levied according to the BOD load discharged (market based component). The scheme
provides incentive for firms to reduce discharge as they are charged according to the BOD load
discharged, it may also be also necessary to set a maximum level of pollution discharge beyond
which any level of pollution is not allowed regardless of the payment.
A licensing system was introduced to control the pollution load into rivers and
onto land. Due to the lack of a proven technology for the treatment of effluents from
agro-based industries, a progressive reduction program was allowed under the
regulation. Under this regulation, a license is necessary before effluents can be dumped
into the water or land. The license to discharge effluents was given based on class of
premises; location of premise; quality of waste discharged; pollutants or class of
pollutants discharged, and the existing level of pollution. Based on regulation 25 of the
Malaysian Palm Oil Industry (Licensing) Regulations 1979 states that for any person who
contravenes any of the provisions of these Regulations is guilty of an offence and shall be
liable on conviction to a fine not exceeding ten thousand Ringgits or to a term of
imprisonment not exceeding two years or to both fine and imprisonment".
The government provided a provision in the regulations authorizing it to grant a partial or
full waiver of effluent-related license fees to industries conducting research on effluent treatment
as an incentive for the palm oil industry to use new technology in their effluents disposal. The
manner the effluence fee was structured serve as an incentive for the industry to improve their
technological capability to reduce pollution arising from their production activities. Committed to
overcome the problem, the government and the industry worked together to source for
treatment technologies that are environmentally and economically sound. Bear in mind, none was
available any where in the world then to specifically treat POME. This government-industry
synergy towards common goal-pollution abatement paid off handsomely. Systems for treatment
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of organic industrial wastes were successfully adapted for POME treatment. The three most
commonly used systems were pounding system, open tank digester and extended aeration
system, and closed anaerobic digester and land application system.
Table 2: Development of Pollution Standard in Malaysia
Parameter* Std A Std B Std C Std D Std E Std F
1/7/78 1/7/79 1/7/80 1/7/81 1/7/82 1/7/84
PH 5 - 9 5 - 9 5 - 9 5 - 9 5 - 9 5 - 9
Biological Oxygen Demand
5000 2000 1000 500 250 100
Chemical Oxygen Demand
10000 4000 2000 1000 - -
Total Solids 4000 2500 2000 1500 - -
Suspended Solids 1200 800 600 400 400 400
Oil and Grease 150 100 75 50 50 50
Ammoniacal Nitrogen
25 15 15 10 150 100
Total Nitrogen 200 100 75 50 - -
Temperature (°C) 45 45 45 45 45 45
Source: Environmental Quality Report 1981-1984
Theoretically, introducing pollution standards and charges may lead to better
management of resources in agro-based industries. In order to give time to the industry to use
technology to dispose off their effluents, a mechanism in the progressive phasing in the standards
were adopted. The standards set by government have become increasingly stringent overtime.
The year 1978 witnessed the enactment of the Environmental Quality Regulations detailing POME
discharge standards. BOD was the key parameter in the standards. From the initial BOD of 25,000
ppm of the untreated POME, the load was reduced to 5,000 ppm in the first generation of
discharge standard, down to the present BOD of 100 ppm.
In history of application of PPP, the quality standard used in the instrument has been
progressively phased out that has allowed the industries to adapt to the more stringent standards
and at the same time, the industry have a favorable time to adopt technology to dispose off their
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effluents. Moreover, the reduction of effluence fees over time due to the more stringent standards
has allowed the industries to invest into more technology improved treatment facility.
In the implementation of the "polluter pays principle" (PPP) fee structure was adopted
where the amount of effluent-related fee payable to the Government was linked to the BOD load
of the effluent discharged either onto land, watercourse or both (UNESCAP, 1996b).
III. Compliance of PPP and favorable change in environmental quality
Compliance is an indicator how far all standard that has been fulfilled by the industry.
Results of monitoring by DOE (1991) shows that level of compliance by the industry was very high
as indicated in Table 3.
Table 3: Status of Compliance of Palm Oil Mills and Rubber (Watercourse discharge) in 1990
Parameter % of compliance
Palm oil Mills Rubber
pH 97.6 96.7
BOD3@300C 82.0 84.4
Suspended Solids 97.6 78.2
Oil and Grease 92.8 n.a
Ammoniacal Nitrogen 93.4 80.6
Total Nitrogen 93.4 81.0
Total solids 97.6 n.a
COD n.a 78.2
Source: Environmental Quality Report 1990
The amount of fee collected dropped sharply in the first year and continuously dropped
overtime. The amount collected dropped despite the increase in the number of oil palm mills
operating in the country.
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Table 4: Responses of the Palm Oil Industry of the Polluter Pays Principle, 1978-1982
Range of fees % of Mills
1978 (5000)
1979(2000) 1980 (1000)
1981(500) 1982(250)
0-1000 19 63 73 68 75
1001-10000 35 37 24 31 25
10001-50000 24 - 3 1 -
50001-100000 15 - - - -
100001 or more 7 - - - -
Note: Based on 130 mills (____) BOD standard Source: Environmental Quality Report 1981-1984
Table 4 shows that from 1978 when BOD standard was still 5000 mg/l the collected fees
were still quite high, however, in seven years later the collected fees decreased dramatically
although BOD standard has downed to 250 with high number of palm oil industries. This
achievement has been possible because the companies have had the opportunity to adapt with
the more stringent standards through investing into more technology improved treatment facility.
Environmental Quality Report 1989 showed that from 1986-1989 BOD load discharged
from agro-based industries (palm and rubber) remained low which was 11 tonnes per day (DOE,
1990). The latest Malaysia Environmental Quality report 2001, BOD load (tonnes per day) from
agro-based industries has been quite low ranging from 8 tonnes per day in 1997 and 22 tonnes per
day in 2001 (DOE, 2002).
Between 1979 and 1994, the palm oil and rubber industries' contribution to organic
pollution load into the rivers was reduced significantly by about 91 per cent although the total
number of mills increased by 26 per cent during that period. Today, the Department Of
Environment's monitoring results indicate that in terms of BOD, only 13 per cent of the 936
stations monitored at 116 river systems are categorized as 'very polluted' because of organic load
from agro-based and other manufacturing industries. In comparison, 37 per cent are categorized
as 'very polluted' due to organic loading from sewage and animal husbandry (UNESCAP, 1996b).
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As result of employing PPP in pollution control in Malaysia, positive responses from agro-
based industries for better management practices are clearly shown in Table 4. There had been a
significant decrease in amount and level of fees paid by the industries from 1978 to 1982. It shows
that in the same period, the industries have been successful to adopt effective treatment systems
as also claimed by Abdullah (1995). The tremendous reduction in the amount of fees collected
indicates compliance on the part of the industry.
The success story of application of PPP in the Palm oil industry could be seen in term of
favorable changes in environmental quality. The changes can be seen in three important
parameters. Firstly, the comparison of BOD Load between agro-based industry (palm oil and
rubber industries) against other pollution sources in Malaysia. Table 5 shows that, during 1997-
2001, BOD load for agro-based industries including palm oil industry was relatively lower than
other sources of pollution. It indicated that the implementation of PPP has had a positive effect to
decrease the number of effluent discharged to watercourse and land.
Table 5: BOD Load (tones per day) for Agro-based Industries against Other Sources 1997-2001 in Malaysia
Year Sources and BOD Load
Agro-based industries
Manufacturing Pig farms Domestic Sewage
1997 8 5 305 776
1998 14 13 312 957
1999 13 14 166 955
2000 14 19 196 1023
2001 22 24 35 1101
Source: Environmental Quality Report 2001
Despite the increase in the number of Crude Palm Oil Mills, the level of pollution in the river
system remains remain very low. Data in 2001, as shown in Table 6, percentage of water pollution
based on sources in Malaysia show that agro-based industries produced the lowest percentage
compared to other sources of pollution.
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Table 6: Distribution and Percentage of Water Pollution by sources in Malaysia, 2001
Source Number of sources (unit)
Percentage (%)
Manufacturing Industries 5086 39
Sewage treatment plants 6693 53
Agro-based industries 472 4
Pig farms 909 7
Total 100
Source: Environmental Quality Report 2001
The good compliance of PPP and good environmental management by the industry has
resulted in favorable change in environmental quality. If we look at graph 1, trend of river water
quality from 1997 to 2001 is relatively positive, meaning river water quality has been improved
overtime. This also shows that Malaysian government policy of controlling water pollution in agro-
based industries (especially palm oil industry) has been successful.
Source: Environmental Quality Report 2001
IV. Developing More Sustainable Practice in the Palm Oil Industry
One of main purpose of the pashing out of fee structure and BOD load in the
application of PPP is to allow the palm industry to introduce more sustainable
technology and practice in managing pollution and wastes in the industry. At the same
Graph 1: Trend of River Water Quality 1997-2001 of Malaysia
0 10 20 30 40 50 60 70
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year
Percentage
Clean
Slightly polluted
Polluted
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time, the government also assigns a provision in the regulations authorizing it to grant a
partial or full waiver of effluent-related license fees to industries conducting research on
effluent treatment as an incentive for the industries to use new technology in their
effluents disposal in managing pollution and wastes.
One of advancing stage in treatment technology by introducing the decanter-
drier system. This system reduced the volume of clarification sludge by 75% while at the
same time harnessing solid from POME using a rotary drier. The drier obtained its heat
from the boiler exhaust gas. The system, while reducing the volume of effluent also
helped reduce the problem of air pollution. The dried solids have been used as soil
conditioners and animal feeds.
Anaerobic digestion of POME produces another valuable product, the biogas. It is
estimated that about 20,000 cubic meters of biogas could be obtained per day from 60 tone FFB
per hour mill operating for 20 hours. The biogas has a calorific value of 53,000 kcal per cubic meter.
Tremendous savings on fuel could be obtained when the biogas is harnessed for heat and
electricity generation. Other solid wastes such as mesocarp fibers and shells are the main sources
of energy in the palm oil mills. Together, they can produce sufficient energy to meet the mills
energy requirement.
In 1980, there were 133 palm oil mills in Peninsular Malaysia, 10 palm oil mills in Sabah and 4
palm oil mills in Sarawak. In 1980, the DOE reported that 63 mills had applied biological 'treatment
and oxidation pond systems, 39 mills disposed off their effluents on to land and 2 mills used
chemical treatment systems (Guha, 1995).
Energy conversion from the fiber and shell of the industry wastes is a strategic and
sustainable way to promote sustainable management of palm oil wastes, at least to fulfill energy
needs for the palm oil mill industry. In the energy point of view, the advantage of the palm oil
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industry is that the fiber and shell can be conveniently used as fuel for the steam boiler, which is
the heart of a palm oil mill. This energy is considered as free for the palm oil milling process. The
calculation has shown that the shell and fiber alone can generate more than enough energy to
meet the energy demand of the palm oil mill. Another advantage of using the fiber and shell as a
boiler fuel is that it helps to dispose of these bulky materials which otherwise would contribute to
environmental pollution. The ash from the combustion process is also found suitable for fertilizer
for the palm oil plantation (Mahlia et al, 2001). Biomass, particularly oil palm residues have been
identified as the most promising renewable energy among other renewable energy resources in
Malaysia. Several enabling factors were introduced in Malaysia to provide inroads for renewable
energy into the mainstream energy supply, particularly for electricity generation (Jafaar et al,
2003).
In the refinery, the industry has to contend with treating the palm oil refinery effluent
(PORE). The characteristics of PORE are very much dependent on the types of refinery process. The
three most common types of operation are physical refining and dry fractionation, physical refining
and detergent fractionation and physical and chemical refining and dry/detergent fractionation.
The treatment technology for PORE has reached the stage where the BOD could be brought down
to as low as 50 ppm before final discharge. One such cost effective system for treatment of
refinery effluent is the sequencing batch reactor (SBR) process.
It is apparent that the oil palm industry is eco-friendly in every aspect of its activities. Right
from the plantation to the refinery, the industry's commitment for cleaner environment is
unquestionable. The achievement in controlling POME pollution bears testimony on the
seriousness of both the government and the private sector to see a greener Malaysia. Together
they formed a synergistic teamwork that tackled the problem in record time. Indeed, the solution
to POME problem paved the way for growth of the industry to what it is today. Without such
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effective treatment technology the industry's development would have been inhibited in many
ways.
A zero waste concept in the oil palm industry is not a mere lip service but a reality. The
active recycling of biomass accruing from plantation activities, together with POME from the mill,
without doubt provides good fertilizer substitute. What is even more gallant, such a practice
indirectly cuts down on pollution that is caused by over dependence on fossil fuel.
A POME treatment system based on membrane technology shows high potential
for eliminating the environmental problem, and in addition, this alternative treatment
system offers water recycling. The treated effluent has a high quality and crystal clear
water that can be used as the boiler feed water or as the source of drinking water
production. In our current research, a pilot plant was designed and constructed for
POME treatment; two stages of treatment have been conducted whereby coagulation,
sedimentation and adsorption play their roles at the first stage as a membrane
pretreatment process, and ultrafiltration and reverse osmosis membranes are combined
for the membrane separation treatment. Results from the total treatment system show
a reduction in turbidity, COD and BOD up to l00 %, 98.8 % and 99.4 %, respectively, with
a final pH of 7. Thus, the results show that this treatment system has a high potential for
producing boiler feed water that can be recycled back to the plant (Ahmad et al, 2003).
VI. Concluding Remarks and Policy Implication
This paper has demonstrated that development of Palm oil industry has been
profoundly developed and has created significant contribution to Malaysian economy. However,
this has produced enormous wastes and pollution that has emerged as a major environmental
problem. To avoid further environmental degradation and social costs Malaysian government has
ADDINUL YAKIN: PPP Palm Oil Malaysia Page 15
enacted Environmental Quality Act 1974, as the basis for controlling the pollution through a
combination of regulatory approach and economic instrument in form of polluter pays principle
(PPP). The amount of effluent-related fee payable to the Government was linked to the BOD load
of the effluent discharged onto land, watercourse or both. The amount of fee collected dropped
sharply in the first year and continuously dropped overtime. The amount collected dropped
despite the increase in the number of oil palm mills operating in the country. As a result, degree of
pollution also decreased significantly leading to favorable change in environmental quality in the
palm oil industry. It shows that the application of PPP in the Palm Oil Industry has been quite
thriving, but it is recommended for the industries to take further benefits of developing green
technologies to process other possible benefits such as biogas.
Acknowledgement: My high gratitude goes to the Nippon Foundation which provided the Asian Public Intellectual (API) Fellowship program that unable me to become a visiting researcher at the National University of Malaysia (UKM) where I produced the earlier version of this manuscript. My thanks also go to Prof. Chamhuri Siwar, Prof. Jamal Othman, and other colleagues at the Institute of Development and Environment Studies (LESTARI) who share a lot of knowledge and experiences during my five-month stay in the center.
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