Indonesia will implement B40 biodiesel mandate from the beginning of the new year 2025

02-Dec-2024 09:35 AM

Indonesia will implement B40 biodiesel mandate from the beginning of the new year 2025
Indonesia's decision to implement the B40 biodiesel mandate from January 2025 marks a significant shift in the country's renewable energy policy. Under the new mandate, Indonesia will increase the percentage of palm oil used in biodiesel from 35% (B35) to 40% (B40). This move will have multiple implications for both domestic and international markets. Here's an overview of the situation:

Key Points:
Increase in Domestic Palm Oil Consumption:

In 2025, Indonesia expects to consume 139 lakh tonnes (13.9 million tonnes) of palm oil for biodiesel production under the B40 mandate, up from 110 lakh tonnes (11 million tonnes) in 2024 under the B35 mandate.
This increase in consumption will be driven by the new mandate, which will require a higher proportion of palm oil in biodiesel production.
Stable or Declining Palm Oil Production:

While Indonesia is the world's largest producer and exporter of palm oil, its production may not see a significant increase next year. There is the potential for either stability or a decline in production levels.
This means that while domestic consumption of palm oil will rise, the overall production may not be sufficient to meet the demand, leading to a tighter domestic supply.
Global Market Implications:

As Indonesia is a major exporter of palm oil, the increased domestic consumption of palm oil for biodiesel production will reduce the amount of palm oil available for international markets.
The reduced global availability of palm oil could lead to higher international prices, particularly impacting importing countries like India, which is the largest importer of palm oil from Indonesia.
Impact on India:

India, as the top importer of Indonesian palm oil, will be directly affected by any price increases. A rise in international palm oil prices due to reduced supply from Indonesia will likely result in higher import costs for India.
This could, in turn, affect the prices of palm oil-based products in the Indian domestic market, leading to inflationary pressures on food and other palm oil-based goods.
Potential Consequences:
Price Increase in India:

The higher palm oil prices globally could lead to increased domestic costs in India. Given India's large reliance on palm oil for cooking oil, food products, and industrial uses, consumers may see price hikes in these areas.
Supply Chain Disruptions:

The increased demand for palm oil in Indonesia may also affect the global supply chain, potentially leading to tighter availability and higher prices for palm oil-based products in other markets, especially if production cannot keep pace with demand.
Sustainability and Environmental Concerns:

Indonesia's growing use of palm oil for biodiesel, while reducing reliance on fossil fuels, also raises concerns about the environmental impact of palm oil production. Palm oil cultivation is linked to deforestation, habitat loss, and biodiversity decline, which could draw criticism from environmental groups and impact Indonesia's sustainability efforts.
Conclusion:
The shift to B40 biodiesel in Indonesia starting in 2025 will increase domestic demand for palm oil, likely leading to higher global prices and a potential supply squeeze, with consequences for countries like India, which are major consumers of palm oil. The situation underscores the interconnectedness of global agricultural markets and the complexities of balancing energy, environmental, and economic priorities.