Indonesia's impact

The blend rate for biodiesel is set at 30% for 2025 and 2050, totalling 6.9bn litres and 17.1bn litres in volume respectively (see Table 1, p24). For bioethanol, the blend rate is 20% in 2025 and 2050, with volumes of 2.6bn litres and 11.4bn litres respectively.

While biodiesel targets for on-road transportation have been achieved, no progress has been made in fulfilling the bioethanol mandate.

CPO fund and biodiesel subsidy

Indonesia’s biodiesel programme based on blending palm oil-based fatty acid methyl ester (FAME) was unstable until a more reliable financial support mechanism was introduced in 2015, according to the USDA report.

Provision of subsidies was switched from the national state budget to the crude palm oil (CPO) fund, which was set up in 2015 to collect a levy on exports of palm oil products.

The subsidies cover the price spread between biodiesel and fossil diesel. In 2021, the price of biodiesel and fossil diesel increased 47% and 74% respectively. The biodiesel subsidy averaged IDR4,409 (US$0.30)/litre in 2021, 9% higher than in 2020.

Over the past few years, the Indonesian government has frequently adjusted its export levy scheme to maintain the solvency of its CPO fund amidst palm oil price fluctuations, the USDA report says.

In December 2018, the export levy formulation changed from a flat rate structure to a progressive price-based structure in response to declining CPO prices. As the price decline continued into 2019, the government halted CPO levy collection altogether, leading to no new revenues for the whole of 2019.

In 2022, after palm oil prices rebounded to above US$1,000/tonne, the government adjusted the progressive levy structure again to include a new top tariff bracket for palm oil prices reaching between US$1,000 and $1,500.

This new top bracket was added to fund the country’s cooking oil subsidy, introduced to fight sustained high cooking oil prices. The government also added new taxable categories of palm products, including used cooking oil (UCO) and palm oil mill effluent (POME), which are both used as biodiesel feedstocks.

The latest levy structure, modified in June 2022, covers 26 products, with the highest tariff rate set at US$194/tonne for palm methyl ester (PME) and a flat rate export levy of US$35/tonne for UCO and US$5/tonne for POME.

The rise in palm oil prices and the adjustment of the levy structure has yielded a record CPO fund collected since 2015. The estimated levy collected in 2021 was IDR72 trillion (US$4.9bn), more than all the funds collected between 2015 and 2020. In 2022, levy collection is projected to reach between US$3.7-4.6bn.

The vast majority of the CPO fund has been distributed as a biodiesel subsidy, with less than 10% for replanting, research, and promotion.

Blending mandate

Since 2015, Indonesia has aggressively expanded its blending programme from covering only public sector industries to a nationwide B20 programme in 2018, the B30 mandate in January 2020 and the B35 rate due in February.

A B40 blend rate is targeted for some time between 2023 and 2025, pending the results of B40 road tests and assessments on the feasibility of raising enough funds to subsidise such a high rate, the USDA report says.

The aim is for biofuels to constitute 46% of the country’s transportation energy sources by 2050, as set out in the updated Nationally Determined Contributions (NDC) and Long-term Strategy on Low Carbon and Climate Resilience 2050 (LTS-LCCR 2050) plan.

Allocation and consumption

The government has been setting annual domestic biodiesel supply allocations since

2019, according to the USDA report.

The Ministry of Energy and Mineral Resources (MEMR) establishes volumes for fuel retailers and assigns production allocations to biodiesel producers, who supply palm oil-based biodiesel for blending. State-owned oil and gas conglomerate Pertamina alone receives around 80% of the total biodiesel allocation volume.

Indonesia’s biodiesel allocation for domestic consumption this year will be 13.15M kilolitres, the highest on record and an increase of 19% compared to 2022's allocation of 11.02M kilolitres.

The country’s fuel consumption fell by almost 11% in 2020 due to severe COVID-19 restrictions on business operations and travel but the government maintained its B30 mandate by raising its CPO export levy and providing an additional US$195M subsidy from the state budget.

With the easing of pandemic-related travel restrictions in late 2021, the government revised its biodiesel allocation volume up to 9.4bn litres in November 2021.

Biodiesel consumption in 2021 reached 9.3bn litres, 10% higher than in 2020 and was expected to rise to 10.15bn litres in 2022, according to the USDA report.

Fuel transportation is a major contributor towards biodiesel consumption, followed by the industrial sector, including electricity generation. The transportation sector accounted for 85% of biodiesel consumption in 2021.

Production and trade

Indonesian palm oil production is forecast to reach 51-52M tonnes this year, according to the Indonesian Palm Oil Producers Association (GAPKI).

Biodiesel production was forecast to reach 10.6bn litres in 2022, an increase from 9.55bn litres in 2021, the USDA report says. Nameplate capacity was expected to rise to 16.6bn litres in 2022, based on planned expansions of current producers and the addition of a new refinery.

Indonesia does not currently produce commercial volumes of hydrotreated vegetable oil (HVO) or renewable diesel.

Pertamina plans to increase refinery production capacity for drop-in renewable diesel up to 4,000 barrels/day (636,000 litres) in Cilacap, Centra Java and palmbased jet fuel up to 20,000 barrels/day (3,180,000 litres) in Plaju, South Sumatra. Another refinery in Dumai, Riau is ready to produce 1,000 barrels/day of renewable diesel.

Biodiesel production mainly serves the country’s B30 mandate programme, with only a minor portion for export purposes.

Exports in 2022 were forecast to remain limited at 200M litres, the USDA report says. Between January to April, biodiesel shipment totalled 26M litres, mostly to China and South Korea. In 2021, Indonesia exported 193M litres of biodiesel, mainly to China (44%), Peru (18%) and Spain (15%).

Indonesia palm biodiesel exports to the USA remain limited due to high countervailing and anti-dumping