Biodiesel Mandate Saves Foreign-Exchange Earnings and Carbon Emissions Worth of 42 Trillion Rupiah

The palm oil biodiesel mandate, which is gradually replacing imported fossil fuels with domestic palm biodiesel, is an important step in building national energy independence, saving foreign exchange earnings and also carbon emissions (improving environmental quality).

At present and in the future, Indonesia’s dependence on imported fossil diesel continues to increase, so gradually replacing solar fossils with biodiesel will reduce our dependence on imported fossil diesel and at the same time also save foreign exchange earnings. In the period of 2014-2017 alone, Indonesia succeeded in saving accumulative fossil diesel imports by 7.78 million tons and saving foreign exchange earnings to import fossil fuel of around Rp. 38.8 Trillion.

We have also committed to the international community to contribute to reducing carbon emissions. Indonesia’s biggest source of emissions is from fossil energy consumption including fossil diesel. Increasing consumption of fossil diesel translates to increasing carbon emissions. Subtituting fossil diesel with palm oil biodiesel can reduce carbon emissions by 62 percent. So that the more palm oil biodiesel mixed with fossil diesel, the lower the emissions that are released.

During 2014-2017, Indonesia’s carbon emission reduction due to the use of biodiesel (replacing fossil diesel) reached 11.7 million tons of CO2. The reduction in emissions, if calculated by the shadow price, is USD 20 / ton, then the value of environmental benefit generated from the biodiesel mandate reaches Rp. 3.15 trillion. In other words, the value of benefits enjoyed by Indonesia from the mandatory policy of biodiesel during 2014-2017 accumulatively reached USD 3.1 Billion or Rp. 42 Trillion.

The value of these benefits has not take into account the benefits created in the plantation sector itself. Production of palm oil (as biodiesel raw material) involves 13 million hectares of oil palm plantations in which there are around 4.6 million smallholders, in 200 districts of oil palm producers in Indonesia. Therefore, increasing the absorption of domestic palm oil through biodiesel mandate, means also guaranteeing the farmers’ palm oil production market and driving the economy of at least 200 districts.

Benefits that cannot be forgotten are for our palm oil industry as a whole. Indonesia is the world’s largest palm oil producer, of which around 70 percent of our palm oil production is exported to various countries around the globe. This means that our palm oil industry is too dependent on the world’s CPO market. To reduce the dependence on the export market, it is necessary to develop a domestic market that can increase the use of domestic palm oil. The use of palm oil into biodiesel and use it as a substitute for the imported fossil diesel, will reduce the dependence on the world’s CPO market.

In other words, mandatory biodiesel must continue and even need to be expanded not only the PSO market segment, but also the non-PSO market. It should be noted that around 50 percent of our fossil fuel consumption is in the commercial sector (non-PSO). If biodiesel mandate is expanded to additional PSO merket, the benefits we enjoy will be around IDR 100 Trillion or at least double that of today.

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