Environmental policy and palm oil exports: Indonesia's competitiveness under the EUDR

Amid growing global concern over climate change and sustainability, the European Union Deforestation-Free Regulation (EUDR), which was formally enacted in 2023, presents emerging challenges for Indonesia as the world's largest palm oil exporter. This study offers a thorough analysis by integrating econometric estimation via Poisson Pseudo Maximum Likelihood (PPML) with structural competitiveness indicators such as Revealed Comparative Advantage (RCA), Relative Symmetric Comparative Advantage (RSCA), the Trade Specialization Index (TSI), and Export Product Dynamics (EPD). We focus on five European countries and eleven non-European countries sharing exports with Indonesia under observation. The findings reveal that while Indonesia maintains a structural comparative advantage in global palm oil trade, the EUDR exerts a significant negative effect, especially in European markets, with spillover impacts on non-European destinations. However, alternative markets like China, Kenya, and Egypt are emerging as significant growth opportunities. This research contributes to the literature by linking regulatory compliance with innovation and sustainability governance, emphasizing that there must be harmonization of ISPO with global certification schemes, expansion of green finance and ESG instruments, and provision of targeted traceability support. Beyond trade competitiveness, the study underscores Indonesia's strategic role in aligning its palm oil sector with broader green development and environmental governance objectives, ensuring that economic gains are pursued in tandem with climate action and forest protection.