Challenges & Potential of Indonesia's Biodiesel & Bioethanol Programs
Biodiesel, which is a form of diesel fuel that is derived from plants or animals (in the case of Indonesia it mainly uses fatty acid methyl ether, FAME, which is derived from palm oil), has been on the political agenda of Indonesia since the 1990s when the first (in-depth) research was conducted by a number of state agencies.
When global oil prices started to rise profoundly in the mid-2000s, studies became more serious as the government – back then under the leadership of President Susilo Bambang Yudhoyono (SBY) – started to feel massive pressures due to ballooning fuel subsidies as domestic fuel demand soared (amid the country’s rapid economic expansion), while Indonesia’s oil production has been in a state of decline ever since the mid-1990s, thus causing the growing need for oil and fuel imports into Indonesia (turning the nation into a net oil importer in the mid-2000s).
Considering slashing the fuel subsidies has always been a sensitive issue – and one that is not without political risks – in Indonesia (although President Joko Widodo had more courage to go for such structural reforms after he came into office in late- 2014), an alternative fuel would therefore be a problem-solver (including reducing the link between Indonesia’s annual state budget and international oil prices as an increase in global oil prices would cause a rising budget deficit).
Through Energy and Mineral Resources Law No. 32 of Year 2008 on the Provision, Utilization, and Trading Procedures of Biofuel as an Alternative Fuel, the biodiesel program was imposed in Indonesia in 2008 with a 2.5 percent mandatory mixture (implying 2.5 percent biodiesel was mixed together with 97.5 percent petroleum-diesel), abbreviated as the B2.5 program. Gradually the biodiesel mix rate was raised over the years. Hence, the B7.5 program was initiated in 2010, followed by the B10 program in 2014, the B15 program in 2015, the B20 program in 2016, and the B30 program in 2020 (with a biodiesel content of 30 percent). At the launch of the B30 program President Widodo said the program can save some IDR 63 trillion (approx. USD $4.5 billion) in foreign exchange, and more generally, “it can help Indonesia to become independent in terms of energy”.
And, there are a number of factors (or circumstances) that – indeed – seem to make Indonesia a great place to produce (and use) biodiesel:
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