Indonesia wants to add more palm oil to diesel to reduce its consumption of fossil fuels. However, this ambitious goal risks a shortage of the tropical oil.
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Published August 19, 2024 • 2 minutes reading time
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(Bloomberg) — Indonesia is blending more palm oil into diesel to reduce its use of fossil fuels, but the ambitious goal risks creating a shortage of the tropical oil.
The country aims to increase the share of palm oil-based biofuels in diesel to 50 percent, the agriculture ministry said. The current share is 35 percent – known as B35 – and Indonesia plans to increase that to B40 next year, provided tests on trains, ships and mining and agricultural machinery are completed by December.
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The largest palm oil producer plans to commission economic and technical studies, conduct road tests and prepare the necessary infrastructure to further reduce its dependence on fossil fuels, the ministry said on Sunday. Such a move will also help the Southeast Asian country reduce its trade deficit and increase farmers’ income, it added.
Indonesia’s green fuel plan raises the risk of a palm oil shortage and could push up prices and hit countries like India, which imports about 60% of its vegetable oil needs. Indonesia’s palm oil exports fell about 3% to 32.2 million tonnes in 2023. Domestic consumption was 23.2 million tonnes, while 10.7 million tonnes were used to make biofuels. Production is expected to stagnate this year as trees age and adverse weather conditions prevail.
The Agriculture Ministry said it would seek to secure palm oil for biofuels without affecting its use in the food industry, local industry and export. The government is working with private companies to develop “degraded” land for palm oil cultivation exclusively for the energy sector, it said, without giving further details.
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The country needs to increase its biofuel production capacity and improve technology to achieve the expected fuel quality, Andi Nur Alamsyah, chairman of the B50 working group, said in the statement. Indonesia will also adjust incentives for biodiesel use and change some regulations before implementing the B50 program.
A biofuel blending program poses challenges for automakers because engines need to be modified to run on blended fuels, increasing costs for manufacturers. Several countries are moving slowly in their green fuel initiatives. India, which imports nearly 90 percent of its oil needs, currently blends about 16 percent ethanol into gasoline and aims to increase that to 20 percent by 2026.
Although Indonesia has not met its targets, the country’s biofuel policy is more robust than that of countries like Brazil, which aims to increase its ethanol share from 27.5 to 30 percent.
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