Indonesia Seeks Bigger Biodiesel Blend to Reduce Fossil Fuel Use

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(Bloomberg) — Indonesia is seeking to blend more palm oil into diesel to cut its use of fossil fuels, with the ambitious goal raising the risk of tightening tropical oil supplies.

The country wants to increase the proportion of palm-based biofuel blended with diesel to 50%, according to the agriculture ministry. The current blend is 35% — known as B35 — and Indonesia plans to expand it to 40% next year, provided trials on trains, ships, mining and agricultural machinery are completed by December.

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The country’s largest palm oil producer plans to conduct economic and technical studies, conduct road trials and prepare the necessary infrastructure to reduce its dependence on fossil fuels, the ministry said in a statement on Sunday, adding that such a move would help the Southeast Asian nation narrow its trade deficit and boost farmers’ incomes.

Indonesia’s green fuel plan raises the risk of a palm oil shortage and could push up prices, hurting 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. Total domestic consumption was 23.2 million tonnes, while 10.7 million tonnes were used to produce biofuels. Production is expected to stagnate this year due to aging trees and adverse weather conditions.

The agriculture ministry said it would seek to secure palm oil for biofuel without disrupting its use in food, domestic industry and exports. It said the government was working with private companies to develop “degraded” land to grow palm exclusively for the energy sector, without elaborating.

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The country needs to increase its biofuel production capacity and improve technology to achieve the expected fuel quality, Andy Nur Alamsyah, head of the B50 Working Group, said in the statement. Indonesia will also adjust incentives for biodiesel use and amend some regulations before implementing the B50 program.

The higher biofuel blending program poses challenges for automakers as vehicle engines need to be modified to run on the blended fuel, raising costs for manufacturers. Many countries are dragging their feet on their green fuel initiatives. India, which imports nearly 90% of its oil, currently blends about 16% ethanol into its gasoline and aims to increase that to 20% by 2026.

Indonesia has fallen behind on its targets, but the country’s biofuels policy is more robust than countries like Brazil, which is seeking to increase its ethanol mix to 30% from 27.5%.

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