Detail

Indonesia

Biofuels

Biodiesel

01/09/2018

Renewable energy

Biofuel policy

Required, starting 1 September 2018, all diesel fuel sold in the country to contain biodiesel, and widened the ability of the country’s Oil Palm Estate Fund to subsidize the price gap between conventional diesel and biodiesel, reflecting increased efforts to raise domestic palm oil uptake.

Further to its recent decision to extend mandatory biodiesel use to the country’s mining and railway sector, the Indonesian Government plans to require all diesel fuel sold in the country to contain biodiesel, starting 1 September 2018 (see also MPPU Mar. & Apr.’18). While, currently, blending obligations only apply to subsidized diesel outlets, under the new rule, fuel pumps countrywide would only be allowed to sell diesel blends containing biodiesel. Besides allowing Indonesia to lower its mineral fuel imports (and thus reduce the nation’s current account deficit), the envisaged measure is aimed at boosting domestic palm oil consumption, thereby helping stabilize palm oil prices and lower the oil palm industry’s dependence on the export market. Moreover, the biodiesel industry’s capacity utilization rate, which currently is lingering around 25 percent, would improve. Reportedly, encouraged by a more favourable mineral oil-to-palm oil price ratio, the Government is also considering to bring forward the planned shift in the country’s mandatory blending rate, from 20 percent to 30 percent, to 2019 (i.e. one year earlier than anticipated) – despite resistance from both regulators and the automotive and oil industries. Furthermore, the Government started offering incentives for the development of a new 100% palm oil-based fuel called “green diesel”. Produced using hydro-treated vegetable oils, the fuel is said to be free from the adverse effects found in esterification-based biodiesel (see also MPPU Nov.’15). With regard to total domestic consumption, the latest official estimates project next year’s biodiesel use at 5.3–5.4 million tonnes, compared to estimates for 2018 ranging between 2.9 and 3.5 million tonnes. Actually, according to observers, the existing B20 target has yet to be met fully. The delay is attributed to logistical bottlenecks and to past gaps between mineral oil and palm oil prices, which reduced the effectiveness of the financial support provided to the industry.