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B30 biodiesel addresses more than EU palm oil policy
JP/Budi SutrisnoTariff and nontariff barriers have continued to hinder the growth of Indonesia’s crude palm oil (CPO) exports, especially to Europe and the United States, since the 1990s when the country became a major player in the palm oil industry
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JP/Budi Sutrisno
Tariff and nontariff barriers have continued to hinder the growth of Indonesia’s crude palm oil (CPO) exports, especially to Europe and the United States, since the 1990s when the country became a major player in the palm oil industry.
Facing such rising trade protectionism, President Joko"Jokowi" Widodo realized the urgent need for strategic steps not only to solve the problem of CPO exports but also to strengthen the structure of the palm oil industry alongside the economy as a whole.
One of the programs was the launch of B20 biodiesel, which contains 80 percent diesel fuel and 20 percent fatty acid methyl ester (FAME). The B20 program has not only significantly expanded the domestic CPO market but has also reduced the current account deficit due to a decrease in fossil fuel imports.
Buoyed by the success of the B20 program, the government decided to increase CPO content in biodiesel to 30 percent. Called B30, this biofuel will be introduced in early 2020.
The B20 and B30 programs will certainly further expand the domestic demand for CPO and will solve the export problems caused by two European Union policies.
The first, introduced last March, restricts the volume of palm oil biofuels and totally phases out palm oil-based products from the renewable energy program starting in 2030. The second policy, adopted last August, increases tariffs, ranging from 8 to 18 percent, on palm oil imports which the group said were subsidized.
The target of CPO consumption for the B20 program was 6.2 million tons this year, not including CPO for food consumption, but our estimate is that the target will most likely be overshot as the demand for biodiesel has steadily increased.
The B30 program is expected to absorb 9.6 million tons of CPO in 2020, as the B30 fuel has successfully passed the road test conducted by the Energy and Mineral Resources Ministry in cooperation with other supporting institutions.
All stakeholders and government institutions are expected to support the government policy, which aims to increase the environmental, social and economic benefits of the palm oil industry to the people, especially the 17 million people directly employed in the palm oil industry. Based on data from the Indonesian Palm Oil Producers Association (GAPKI), the livelihoods of an estimated 50 million people rely directly or indirectly on the palm oil industry.
The B30 program will greatly help the government reduce the use of fossil fuels by providing more renewable energy in the form of CPO to increase the percentage of renewable energy in the energy mix from the current 13 percent to 23 percent in 2025 and to reduce carbon emissions from 13.47 percent in 2016 to around 26 percent in 2025.
The development of B30 will also strengthen the nation's energy security. Indonesia’s energy consumption has been continuously increasing due to economic and population growth, while the production growth rate has been lower than the increase in demand.
Based on government data, Indonesia’s need for oil fuel is about 1.3 million barrels per day, and only around half of it can be met by state-owned PT Pertamina oil company as the sole producer of oil fuels. To meet its refining capacity of around 680,000 barrels of oil per day (bopd), Pertamina needs to import more than 300,000 bopd of crude oil as Indonesia’s crude oil production at present is only about 750,000 bopd.
The use of CPO for the production of biofuel under the B20 and B30 will reduce imports of diesel fuel, thereby cutting the trade and current account deficits. Biofuel will also be able to increase Indonesia’s foreign exchange reserves through exports. Moreover, the B30 program will have a multiplier impact on the economy, which has been growing only about 5 percent a year. The multiplier will create new jobs, alleviate poverty and will have other benefits from the palm oil industry’s backward and forward linkages.
Such multiplier benefits will be made possible because the government has expanded its program to replant small holders’ oil palm plantations to increase their yield. It has also used trade diplomacy to diversify the Indonesian palm oil export market away from traditional markets such as India, China and Europe.
To strengthen the palm oil trade diplomacy, Indonesia has established the Council of Palm Oil Producer Countries, which consists of Indonesia, Malaysia, Thailand, Papua New Guinea, the Philippines, Uganda, Ghana, Liberia, Nigeria, Brazil and Colombia.
The multiplier effects will be even higher and wider when the B30 program expands to B50 in 2021 and D100 or green diesel which will be 100 percent produced from CPO in 2023. We can imagine how huge the benefits will be if the D100 program is implemented successfully.
If D100 can be realized, Indonesia could become the Saudi Arabia of Asia regarding biofuel production. But the ambitious program can only be realized if the government consistently supports the palm oil industry with business-friendly policies and necessary incentives for the biofuel industry to flourish.
