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Analysis: RI to implement B40 biodiesel mandate in 2025
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The government is planning to issue a regulation on the production of 25-percent biodiesel ( B25 ) early next year. Once issued, the policy will replace the current regulation on 20-percent biodiesel ( B20 ) production. (Shutterstock/File)
T
he Indonesian government is set to increase the palm oil-based content share in biodiesel from 35 percent (B35) to 40 percent (B40) starting in 2025. This move aligns with the nation’s renewable energy and carbon reduction targets while advancing the downstream development of its palm oil industry. However, the policy has sparked concerns over the environmental impact of palm oil cultivation and its potential to drive up cooking oil prices.
The B40 mandate will take effect on Jan. 1, 2025. According to the Energy and Mineral Resources (ESDM) Ministry, implementing the policy will require 15.62 million kiloliters of crude palm oil (CPO) in 2025. However, Indonesia's CPO production has declined, falling from 50.1 million tons in 2023 to 47.8 million tons in 2024, according to the Indonesian Palm Oil Producers Association (Gapki). Gapki also anticipates that B40 implementation could reduce CPO exports by 2 million tons. Meanwhile, the Center of Reform on Economics (CORE) Indonesia highlighted that 5 million hectares of oil palm plantations are unproductive, with only 10 percent having undergone revitalization.
Despite these challenges, the ESDM Ministry forecasts significant economic and environmental benefits from the B40 policy. It estimates a reduction in petroleum diesel imports worth Rp147.5 trillion (US$9.1 billion) in 2025, following a similar success with B35, which cut petroleum imports by Rp122.98 trillion in 2024. Additionally, the ministry predicts that B40 will boost CPO’s added value by Rp20.9 trillion, lower carbon emissions by 41.46 million tons of carbon dioxide equivalent (CO2eq), and generate 1.95 million on-farm jobs and 14,730 off-farm jobs.
The Oil Palm Plantation Fund Management Agency (BPDPKS) projects that subsidies for B40 could amount to Rp46 trillion to Rp47 trillion in 2025. The agency expects to finance these subsidies from its funds, which include an estimated Rp24 trillion from CPO export duties, bringing its total budget to Rp53.5 trillion. However, the subsidy is restricted to biodiesel produced as part of CPO producers’ public service obligation due to the anticipated high price disparity between crude oil and CPO.
Gapki believes that the subsidies will be manageable if CPO exports reach 30 million tons in 2025. However, exports are projected to fall to 27 million tons in 2024 due to higher prices compared to other vegetable oils. In a bid to support the B40 policy, the government is considering raising the CPO export duty rate from the current 7.5 percent, stipulated under Finance Minister Regulation No. 62/2024, to 10 percent. While this could increase revenues for the B40 subsidy, it may also push up prices for CPO-derived products, including cooking oil, and reduce CPO’s competitiveness in international markets. CORE Indonesia has suggested that using alternative feedstocks, such as used cooking oil, could help meet the biodiesel demand. Indonesia produces 1.2 million kiloliters of used cooking oil annually, which has potential as a biodiesel mix.
The government must tread carefully with the B40 policy. Expanding oil palm plantations to meet biodiesel demand risks further compromising local biodiversity, while revitalizing unproductive plantations will require significant time and resources. Policymakers must also address the potential chaos in cooking oil markets, as seen in previous attempts to control prices. Strengthening plantation revitalization efforts and cracking down on cooking oil hoarding are essential to mitigate the unintended consequences of the B40 policy.
