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Indonesia, the world’s top palm oil producer and exporter, now faces a dilemma between energy transition and economic growth. (Photo by Nanang Sujana/CIFOR)
Indonesia’s plan to raise its palm oil-based biodiesel blend to 50% next year is now in question. A senior official from the Ministry of Energy and Mineral Resources (ESDM) acknowledged ongoing uncertainty over palm oil feedstock availability and production capacity.
The government is currently consulting with experts to assess the feasibility of the B50 policy. Some analysts also warn that rising renewable fuel demand could pose risks to both the environment and Indonesia’s palm oil export performance.
Uncertainty in palm oil output, delays in biodiesel infrastructure
Eniya Listiani Dewi, Director General of New, Renewable Energy and Energy Conservation at ESDM, stated on July 17 that the government has not yet made a final decision on implementing the B50 policy in 2026 and is still calculating the volume of fatty acid methyl ester (FAME) required.
The B50 mandate is part of Indonesia’s broader energy transition plan, aiming to cut emissions in diesel-reliant sectors by using a 50/50 blend of palm oil and conventional diesel. FAME is the primary component of palm-based biodiesel.
Dewi noted that five large-scale biodiesel plants are needed to support the policy, but only three are currently under construction. Infrastructure gaps, especially in eastern Indonesia, also hinder implementation. ESDM estimates that 19.7 million kiloliters of biodiesel will be required annually for B50 to be feasible.
Indonesia has been gradually raising its biodiesel blend over recent years, moving from B35 to B40 this year, with B50 initially scheduled for 2026. However, palm oil output remains a key variable. In 2024, crude palm oil (CPO) production is projected at 48.26 million tons—down 1.81 million tons from the previous year. Palm oil yields are highly susceptible to climate conditions, with both drought and excess rainfall negatively impacting harvests.
Indonesia implements the B40 policy in 2025. (Photo: ESDM)
Experts call for safeguards amid fears of overreach
CIMB Indonesia forecasts that the B50 policy could drive domestic palm oil demand up by 3 million tons, potentially reducing export volumes. On the other hand, higher domestic demand could stabilize or boost CPO prices in 2026, offsetting the impact of newly raised U.S. tariffs on palm oil.
Still, environmental and legal concerns persist. The Institute for Essential Services Reform (IESR) and other analysts warn that growing demand for biodiesel may incentivize palm plantation expansion, threatening forests and biodiversity. Such expansion could also run afoul of the EU Deforestation Regulation (EUDR), which may restrict exports to Europe.
The Indonesian Palm Oil Association (GAPKI) has also raised red flags. With CPO production plateauing and domestic demand climbing, GAPKI warns that without adequate supporting policies, the B50 push could divert financial resources away from replanting and sustainability programs which ultimately undermining Indonesia’s decarbonization goals.
Source: Jakarta Post, NST
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