AreaIndonesia
Commodity GroupBiofuels
CommodityBiodiesel
Date01/03/2015
Policy CategoryConsumption and marketing
Policy InstrumentRenewable energy policy
DescriptionAnnounced a rise in mandatory blending of palm oil-based biodiesel into transport diesel fuel from 10 percent to 15 percent.
NotesThe government decided to raise nation-wide mandatory blending of palm oil-based biodiesel into transport diesel fuel to 15 percent. The current rate in place only since last October is 10 percent. It is not clear when the new rule will become effective. The move is aimed at boosting domestic biodiesel consumption so as to help contain the countrys outlays for fossil fuel imports, while also reducing CO2 emissions and lending support to the countrys oil palm sector. The latter has been adversely affected by the recent slump in international petroleum prices, which, by eroding the competitiveness of biodiesel, curtailed domestic palm oil demand. Under the higher blending mandate, the government expects domestic biodiesel consumption to reach 4.8 million tonnes per year which compares to only 1.6 million tonnes used in 2014. Private sources questioned the effectiveness of higher blending requirements, pointing out that even existing targets could not be enforced due to a variety of obstacles (see MPPU July14). Reportedly, to support its ambitious biodiesel policy, the government is considering a number of accompanying measures. First, the government may require plantation owners to set aside 15 percent of their output for domestic usage (possibly offering tax breaks in return), which would help secure the raw material needed for the expansion in biodiesel production. With respect to the biodiesel industry, the government will have to find additional resources to subsidize the increased blending volumes that stem from higher blending mandates (see also MPPU Mar.15). To this effect, the government is considering to introduce a fixed levy of USD 50 on each tonne of crude palm oil shipped outside the country which would be in addition to the existing ad valorem export tax. Finally, with regard to setting the domestic biodiesel price (i.e. the price at which distributors purchase biodiesel), the government has already reached the following agreement with biodiesel manufacturers: a reference price for biodiesel will be calculated by adding a fixed amount of USD 125 to the prevailing price for crude palm oil, thereby accounting for processing costs and profits. In conclusion, barring a recovery in international mineral oil prices, the government will likely implement a selection or all of the above measures with a view to ensure that biodiesel producers can continue producing and distributors can continue purchasing biodiesel, without passing the price gap to end-users.
