Indonesia’s Challenge: How to Push Biofuel without Aiding Deforestation

July 31, 2024

Print This Article Share it With Friends

by Simon Tay and Aaron Choo (Straits Times) Can incoming president Prabowo ramp up production of palm oil without clearing more land and raising the risk of fires and haze? -- Many are watching the upcoming leadership transition in Indonesia with the hope of stability, growth and political continuity between President Joko Widodo and his successor Prabowo Subianto, who will take office in October.

In economic policy, Mr Prabowo has set an ambitious target for 8 per cent growth in gross domestic product (GDP) within the first three years of his presidency, up from the current five per cent. READ MORE

Related articles

Indonesia Eyes Used Cooking Oil Downstreaming for Biofuel (Tempo.co)
Indonesia Seeks Bigger Biodiesel Blend to Reduce Fossil Fuel Use (Bloomberg/Financial Post)
Agriculture minister launches B50 biodiesel in South Kalimantan (Jakarta Post)
Indonesia's Prabowo hopes to implement 50% palm-based biodiesel blending by 2025 (Channel News Asia/Reuters)
Palm oil reaches 3-week high due to biodiesel plans in Indonesia and Malaysia's production woes (World Energy News)
Palm oil climbs to one-month high on Indonesia’s tax, biodiesel plans (Business Recorder)
Indonesia's new leader hopes to implement palm-based biodiesel at 50% by 2025 (World Energy News)
Palm oil prices rebound on Indonesian supply concerns and biodiesel hope (World Energy News)
Indonesia to roll out palm-based B40 in 2025 (Biofuels International) RI palm oil exports to fall in 2024 on rising demand, lower output (Reuters/Jakarta Post)
RI palm oil exports to fall in 2024 on rising demand, lower output (Reuters/Jakarta Post)
Higher biodiesel mandates in Indonesia to curb palm oil supplies, analyst says (Reuters)
Deforestation ‘roaring back’ despite 140-country vow to end destruction -- Demand for beef, soy, palm oil and nickel hindering efforts to halt demolition by 2030, global report finds (The Guardian)
Indonesia Requires 20 Million Kiloliters of CPO Annually to Achieve B50 Biodiesel Goals (Palm Oil Magazine)

Excerpt from Bloomberg/Financial Post: Indonesia is seeking to blend more palm oil with diesel to cut its use of fossil fuels, with the ambitious target raising the risk of tightening supply of the tropical oil. -- Indonesia is seeking to blend more palm oil with diesel to cut its use of fossil fuels, with the ambitious target raising the risk of tightening supply of the tropical oil.

...

The nation wants to increase the mix of palm-based biofuels with diesel to 50%, according to the agriculture ministry. The current blend is 35% — known as B35 — and Indonesia plans to expand that to B40 next year, provided trials on trains, ships and mining and agricultural machines are completed by December.

...

The biggest palm oil producer plans to commission economic and technical studies, conduct road trials and prepare necessary infrastructure to further cut its dependence on fossil fuels, the ministry said in a statement on Sunday. Such a move will also help the Southeast Asian nation reduce its trade deficit and boost farmer income, it added.

Indonesia’s green fuel plan raises the risk of a palm oil shortage and could boost prices, hurting countries like India, which imports about 60% of its vegetable oil needs. Palm oil exports from Indonesia fell about 3% to 32.2 million tons in 2023. Domestic consumption totaled 23.2 million tons, while 10.7 million tons were used to produce biofuels. Production is seen stagnating this year due to aging trees and adverse weather conditions.

The agriculture ministry said it will seek to secure palm oil for biofuels without disrupting its use in food, local industry and exports. The government is working with private companies to develop “degraded” land for palm cultivation exclusively for the energy sector, it said, without elaborating further.

The country needs to increase its biofuel production capacity and improve technology to achieve the expected fuel quality, Andi Nur Alamsyah, chairman for the B50 Working Group, said in the statement. Indonesia will also adjust incentives for the use of biodiesel and amend some regulations before implementing the B50 program.

A higher biofuel blending program poses challenges for automobile makers as vehicle engines need to be modified to run on blended fuels, raising costs for manufacturers. Several countries are going slow on their green fuel initiatives. India, which imports nearly 90% of its oil demand, currently mixes about 16% of ethanol with gasoline, and targets to raise the ratio to 20% by 2026.

Indonesia has been lagging in its targets, but the nation’s biofuel policy is more robust than countries such as Brazil, which is seeking to increase its ethanol blend to 30% from 27.5%. READ MORE

Excerpt from Channel News Asia/Reuters: Indonesia president-elect Prabowo Subianto hopes to implement mandatory 50 per cent palm oil-based biodiesel blending by early next year, which he said would cut fuel imports by $20 billion per year.

Indonesia said last week it planned to raise the blending to 40 per cent in January 2025, from 35 per cent now, in an effort to reduce fuel imports and lower emission from fossil fuels.

Prabowo takes over in October from incumbent Joko Widodo, whose administration has ordered the palm oil industry to prepare for B50, a 50 per cent blend. Tests have already started on the higher blending preparation.

"We are at B35 now and we will accelerate to B40, B50," Prabowo said late on Saturday.

"With B50, 50 per cent biodiesel made of palm oil, once we reach B50, that God willing by end of this year or early next year, we will save $20 billion a year, we do not need to send this money overseas."

Malaysia's benchmark palm oil futures surged and hit its highest in more than a month on the news, before it retreated and settled at 3,921 ringgit ($902.42) a metric ton, a 1.4 per cent gain.

Indonesia's biggest palm oil producers association GAPKI said B50 cannot be implemented in early 2025, as it has not been tested, GAPKI chairman said on Monday.

Indonesia biofuel producer association APROBI said producers would need time to tests the B50 fuel and increase their production capacity to meet the demand, the group secretary general said.

The biodiesel industry may need to improve quality of its products to ensure the fuel will remain stable for higher mandatory blending, said Tatang Hernas Soerawidjaja, a biofuel expert at Bandung Institute of Technology.

Biodiesel is susceptible to forming sediment when in contact with oxygen, especially during transportation and storage, which could clog engine filters, he said.

"Some biodiesel producers may need to install new equipment to meet the new standard, and this would take six months. After that, the commercialisation tests which not only test the fuel on vehicles but also storage tests, which need six months," Tatang said.

"It would be wise to implement it by end of 2025 at the earliest," he added.

B50 will consume an estimated 18 million metric tons of crude palm oil, up from the estimated 11 million used for B35 this year, GAPKI said previously.

Indonesia's palm oil consumption has grown 7.6 per cent annually on average since 2019, according to GAPKI data, while output over the same period has risen less than 1 per cent a year in Indonesia, the world's top producer and exporter of palm oil. The increase in the biodiesel mandate would result in lower export volumes.

"Achieving 50 per cent is not possible in the next few months since the required trials have not been conducted yet. Achieving 40 per cent itself is a big task," said a Mumbai-based trader.

Indonesia's palm biodiesel mandate applies to land transportation, trains, industrial machinery and diesel power plants.

Indonesia is also developing palm-based jet fuel and has conducted flight tests, although implementation of the planned 3 per cent biofuel blending for jet fuel by 2020 was delayed. READ MORE

Excerpt from Biofuels International: Indonesia is set to transition to the use of B40 biodiesel, which incorporates 40% palm oil, starting next year.

This shift will replace the current B35 blend, which consists of 35% palm oil-based biodiesel. As the largest producer of palm oil globally, Indonesia aims to enhance its biodiesel blend to reduce energy imports and boost domestic consumption of palm oil.

The energy ministry anticipates that the move to B40 could significantly increase overall biodiesel consumption, potentially reaching up to 16 million kiloliters in the coming year. This transition is part of Indonesia’s broader strategy to leverage its abundant palm oil resources for energy needs, thereby decreasing reliance on imported fuels and supporting the national economy.

Earlier this week, the energy ministry conducted a successful trial of the B40 biodiesel blend, using it in a train for the first time. READ MORE

Excerpt from Reuters/Jakarta Post: Indonesia's palm oil exports are expected to decline in 2024 due to increased domestic consumption because of a higher biodiesel blending mandate and a slight decrease in production, an industry official told Reuters on Thursday. Lower output in the world's biggest producer of the tropical oil would limit exports and support benchmark Malaysian prices. The country's exports could fall by 2 million tonnes from a year ago to 30.2 million tonnes in 2024, Fadhil Hasan, head of the trade and promotion division at the Indonesian Palm Oil Association, said on the sidelines of the Globoil conference. In the first half of the year, exports fell 7.6 percent from a year ago to 15.06 million tonnes, he said. Production is likely to drop by 1 million tonnes to 53.8 million tonnes as last year's dry weather is lowering yields, he said. READ MORE