BIODIESEL

duties. Palm biodiesel is not eligible for Renewable Identification Numbers (RINs) in the USA, nor permitted to meet biofuels obligations under the Renewable Fuel Standard (RFS), which requires US oil refiners to blend biofuels or buy credits.

The EU has also imposed 8-18% countervailing duties on Indonesian biodiesel since December 2019.

Sustainability and certification

The European Union (EU)'s focus on biofuel sustainability criteria weighs heavily on the Indonesian biodiesel sector, the USDA GAIN report says.

The EU’s sustainability criteria is outlined in its Renewable Energy Directive (RED) and updated RED II.

RED II entered into force in December 2018 and EU member states transposed its provisions into national law in June 2021. In March 2019, the EU Commission adopted a delegated act which set criteria for:

• determining high indirect land use change (ILUC)-risk feedstocks

• certifying low ILUC-risk biofuels

The commission determined that palm oil qualified as a high ILUC-risk feedstock which must be capped, then gradually phased out after 2023 to zero by 2030.

Several EU member states have already begun an earlier phase-out including Austria, Belgium, France and Germany.

However, some palm biodiesel production, under certain conditions, may be considered in the low ILUC risk category.

The phase-out is only for palm oil-based fuel, not palm oil products for other uses such as food.

The Indonesian government continues to challenge this policy, requesting a World Trade Organization (WTO) consultation in December 2019. A dispute panel was established in July 2020 and in December 2021, the chair of the panel announced that the panel would issue its final report no sooner than the second quarter of 2022.

The government enforces sustainability standards for all oil palm plantations through a regulation mandating all companies and smallholders to adopt Indonesia Sustainable Palm Oil (ISPO) certification by 2025.

Sustainability certification covers a range of criteria, including greenhouse gas (GHG) emissions, land use, biodiversity and labour.

In addition to mandatory ISPO requirements, there are several voluntary sustainability certification schemes in place to support palm oil product exports, such as the Roundtable on Sustainable Palm Oil (RSPO).

Indonesia is preparing a regulation to broaden the scope of its ISPO domestic sustainability certification to downstream products such as cooking oil, biodiesel and oleochemicals, according to the USDA report.

The regulation is expected to apply to companies that process, produce and export ISPO-certified palm oil products.

Market impact

With Indonesia's move to B35, around 120,000 tonnes/month or 1.44M tonnes/ year of palm oil supply will be consumed domestically, according to UK market intelligence firm Mintec.

"Combined with the domestic market obligation (DMO) [regulation], this could mean that Indonesia may have less palm oil to export," Mintec wrote on 6 January.

The DMO requires palm oil exporters to sell a portion of their products domestically before they can export them.

The government changed its DMO proportion to 1:6 from 1:8 on 1 January, meaning that a greater proportion of palm that would have been exported will now find its way into the domestic market.

"It shouldn't come as a shock that the DMO has changed," a trader commented to Mintec. "What is more surprising is that the B35 mandate finally has a start date as it has been up in the air for some time.

"These two factors combined are likely to sap supplies from Indonesia but I don't think prices are going to go up significantly".

This is because good traders should have priced in these factors, and vegetable oils are now broadly cheaper, with palm oil facing more competition than it did a few months ago, the trader said. ●