Indonesia is targeting a significant increase in palm oil use for diesel blending, aiming to reach a 50% mix by 2025. Currently, the blend is 35%—known as B35—set to rise to B40 next year, contingent on successful trials by December. The agriculture ministry plans to undertake economic and technical studies, road trials, and infrastructure preparations to reduce fossil fuel dependence. This initiative is also expected to decrease the trade deficit and enhance farmer income.
However, this green fuel strategy raises concerns about potential palm oil shortages and higher prices, impacting major importers like India, which relies on palm oil for about 60% of its vegetable oil needs. Indonesia’s palm oil exports declined 3% to 32.2 million tons in 2023, with domestic consumption at 23.2 million tons and 10.7 million tons allocated to biofuels. Production stagnation is anticipated due to aging trees and adverse weather.
The agriculture ministry aims to balance palm oil use between biofuels and other sectors by developing “degraded” land for exclusive energy production. Enhancements in biofuel production capacity, technology, and regulatory adjustments are necessary for the B50 program. This shift presents challenges for automobile manufacturers, who must modify engines to accommodate the higher biofuel blend, increasing costs.
While Indonesia’s biofuel policy progresses, it lags behind targets compared to countries like Brazil, which plans to raise its ethanol blend to 30% from 27.5%.
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