Skip to main content

Increased Indonesia palm oil production threatens climate agenda

April 27, 2021


Indonesia’s biodiesel expansion plans may be thwarted because the palm oil-based fuel already strains the country’s finances, and increased production of the renewable fuel could unwittingly place Jakarta further from the global climate change agenda.

Biodiesel is costlier to produce and its price gaps with conventional fuels like diesel and gasoil are closed by price support provided by the local government to keep the domestic renewable fuel suppliers in operations.

The price support for biodiesel is primarily funded by the export levy imposed on palm oil products, hence it is a fiscal burden on the country, said Putra Adhiguna, energy economics & policy specialist at the Institute for Energy Economics and Financial Analysis (IEEFA), a non-profit think tank in the US.

The government estimates that additional funding of more than Indonesia Rupiah (IDR) 40 trillions ($2.8bn) will be required this year to implement the country’s 30% biodiesel mandate, Adhiguna told ICIS.

“The market price support is a financial commitment for the government,” he added. 

[Bee Lin Chow]

More: Indonesia’s biodiesel expansion plans stymied by financial, climate concerns

Join our newsletter

Keep up to date with all the latest from IEEFA