iGrain India - The implementation of the B40 biodiesel policy in Indonesia, expected to be mandatory from January 1, 2025, marks a significant step in the country's efforts to reduce carbon emissions and support its palm oil industry.
Under this policy, 40% of palm oil will be mixed with biofuel, up from the current mandatory mix of 35%. The Finance Minister of Indonesia emphasized that this policy will reduce carbon dioxide emissions by an estimated 40 million tons, positioning Indonesia as a strong global contributor to environmental sustainability.
The B40 policy will increase palm oil demand for biodiesel production, with an expected usage of 13.9 million tons in 2025, compared to 11 million tons in 2024.
This surge in demand is expected to ease the pressure on palm oil producers by reducing surplus stocks and may even help in managing export levels.
This scenario could present opportunities for Malaysia, the world's second-largest palm oil producer, to increase its palm oil exports, as it will be well-positioned to meet global demand.
Furthermore, Indonesia's Palm Oil Fund Agency will receive financial assistance to bridge the price gap between palm oil-based biodiesel and conventional fossil fuels, ensuring the affordability of the new biofuel.
However, concerns have been raised by industry groups such as GAPK, warning that if palm oil production does not rise in line with the increased demand, there may be a supply-demand imbalance.
This could lead to higher palm oil prices, especially in major markets like India, which is the largest importer of Indonesian palm oil, followed by Malaysia and Thailand.
Overall, while the B40 biodiesel policy presents an opportunity for both Indonesia and Malaysia, it also carries the potential for market disruptions if production doesn't keep pace with the growing demand for biodiesel.