Indonesia, the world’s leading palm oil producer, intends to leverage its vast reserves as a renewable energy source. Since 2008, the country has been blending palm oil with fossil-fuel diesel to make biodiesel, starting with a simple B2.5 blend.
Over time, this blend has steadily increased, and currently, according to reports from the Diplomat, Indonesia uses a B35 blend, with plans to raise it to B40 next year. President-elect Prabowo Subianto has set a more ambitious target—a B50 blend by 2029.
An Ambitious Project
This initiative is part of a broader strategy to reduce dependence on imported fossil fuels, strengthen the agricultural sector, and cut carbon emissions.
However, plans to increase the biodiesel blend have raised concerns about the global palm oil supply chain, given Indonesia’s dominant role in the industry.
In 2023, Indonesia produced 46 million tons of palm oil, commanding 59 percent of the global market share. Domestic consumption patterns have shifted, with biodiesel use surpassing food consumption for the first time.
This trend raises concerns about food security, especially after the cooking oil shortage in 2022.
The implementation of the B35 blend has significantly increased palm oil consumption for biodiesel, and the upcoming B40 mandate is expected to drive demand even higher.
Despite assurances from the Ministry of Agriculture, there are concerns that production growth has not kept pace with rising consumption.
Challenges for Indonesia
Since 2020, palm oil production has stagnated, with last year’s output still below pre-pandemic 2019 levels.
Meanwhile, domestic consumption has surged, with biodiesel use growing at 17.5 percent per year from 2019 to 2023, compared to a 1 percent increase in food consumption.
The government may need to tighten export quotas or boost domestic production to address the gap between production and consumption.
Palm oil is a major export for Indonesia. However, exports have declined, partly due to the B35 mandate and European countries’ concerns about the environmental and social impact of Indonesian palm oil.
If production does not increase, the government may prioritize domestic needs over exports, potentially leading to global shortages and affecting industries and consumers worldwide.
Alternatively, Indonesia could expand its palm oil production, but this must be done responsibly to avoid environmental damage. The challenge for Indonesia is to balance its energy goals with the broader economic and environmental implications of its palm oil industry.
By carefully managing the supply chain and ensuring sustainable production, Indonesia can lead in renewable energy without sacrificing economic stability or the global market.