PUSHING BIODIESEL BOUNDARIES: B50 & BEYOND - PROMISE OR PREMATURE?

Mha Ridhwan, Meily Ika Permata, Rudy Marhastari, Fichrie Fachrowi Adli, Leinnia Fawaqa, Rasyid Ramadhan, Amanda Lethizya Lestari, Annisa Fisakinah, Muhammad Adamul Khair, Yulian Zifar Ayustira and Gandhiano Dwi Putra
Additional contact information
Mha Ridhwan: Bank Indonesia
Meily Ika Permata: Bank Indonesia
Fichrie Fachrowi Adli: Bank Indonesia
Leinnia Fawaqa: Bank Indonesia
Rasyid Ramadhan: Bank Indonesia
Amanda Lethizya Lestari: Bank Indonesia
Annisa Fisakinah: Bank Indonesia
Muhammad Adamul Khair: Bank Indonesia
Yulian Zifar Ayustira: Bank Indonesia
Gandhiano Dwi Putra: Bank Indonesia

No WP/05/2025, Working Papers from Bank Indonesia

Abstract: This paper assesses Indonesia’s strategy of downstreaming crude palm oil (CPO) into biodiesel, with a focus on higher blending mandates (B50 and above) and their implications for energy security, macroeconomic stability, and sustainability. We combine CPO and biodiesel material balance sheets with trade and subsidy accounting to quantify diesel import savings, foregone CPO export earnings, and fiscal needs under alternative blending scenarios. These sectoral results are then integrated into a 207-sector, multiregional computable general equilibrium (CGE) model for Indonesia, calibrated using national and interregional input–output tables, as well as empirically derived shocks for diesel and biodiesel output under B50, B60, and B70. The findings show that while biodiesel blending clearly reduces dependence on imported diesel and supports the government’s renewable energy and downstreaming objectives at moderate blend levels, higher mandates generate increasing macroeconomic and fiscal costs. For B50–B70, foregone CPO export revenues systematically exceed diesel import savings, the current account deficit widens, real GDP and household consumption fall, and GRDP declines in all major palm oil–producing provinces. Subsidy requirements rise sharply as biodiesel remains structurally more expensive than diesel. Additionally, the potential land-use change from forest and peat conversion to source feedstock could undermine the net emission benefits of higher blends, raising sustainability concerns. Overall, the results suggest that any move beyond B50 should be conditional on demonstrable improvements in CPO productivity, feedstock diversification, financing architecture, and land-use governance.

Keywords: Biodiesel policy; crude palm oil; downstreaming (search for similar items in EconPapers)
JEL-codes: C68 F41 Q18 Q42 Q43 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2025
New Economics Papers: this item is included in nep-ene and nep-env
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