Indonesia’s Decade-Long Biofuel Roadmap Update:

Promises High Blends, But Struggles with Policy Support

Indonesia has unveiled its updated biofuel roadmap for 2025-2035, marking its first major revision in a decade. This roadmap outlines increased biodiesel blending rates, the introduction of bioethanol into the non-subsidized gasoline market, and the inclusion of organic waste as a biofuel feedstock.

Despite ambitious blending targets, the roadmap lacks financial incentives and regulatory frameworks that would support bioethanol adoption. Additionally, it does not propose tariff reductions for imported bioethanol, potentially limiting market expansion. This analysis explores Indonesia’s biofuel strategy, the challenges it faces, and its broader implications for the energy market, economy, and climate policy.

Key Features of Indonesia’s 2025-2035 Biofuel Roadmap

1. Higher Biodiesel Blend Mandates

B40 (40% biodiesel blend) starts in 2025, increasing to B50 (50% blend) by 2028. (read B40 Roadmap here)
Biodiesel remains a cornerstone of Indonesia’s biofuel policy, supported by government subsidies financed through palm oil export levies.
Biodiesel blending for non-subsidized diesel follows a slightly lower trajectory, starting at 35% in 2025 and reaching 40% by 2028.

2. Bioethanol Blending Introduced (for Non-PSO Gasoline)

5% bioethanol blend (E5) mandated in 2025, increasing to 10% (E10) by 2029.
Limited to non-public service obligation (non-PSO) gasoline, meaning subsidized gasoline remains unaffected.
No clear government subsidy or incentive plan to cover the price gap between bioethanol and gasoline.

3. Inclusion of Sustainable Aviation Fuel (SAF)

1% SAF blend starts in 2027, gradually increasing to 5% by 2035.
Aligns with global aviation industry goals for reducing carbon emissions.
Represents Indonesia’s attempt to position itself in the growing SAF market.

4. Organic Waste as a Biofuel Feedstock

Expands eligible feedstocks to include organic waste, opening possibilities for municipal waste-to-energy initiatives.
Supports circular economy principles by reducing reliance on palm oil and sugarcane-based biofuels.

5. Preference for Domestic and Locally-Owned Biofuels

Domestic biofuel production is prioritized, but imports are allowed if local supply is insufficient.
Imported biofuels receive preferential treatment only if the exporting company is majority-owned (51% or more) by an Indonesian firm.

Key Challenges in Implementation

1. Lack of Financial Incentives for Bioethanol

The biodiesel mandate is financially supported through palm oil levies, but bioethanol lacks similar subsidies.
Without incentives, fuel retailers and biofuel producers lack motivation to meet blending requirements.
The roadmap does not address tariff reductions for imported bioethanol, keeping costs high.

2. Dependence on Palm Oil for Biodiesel

The continued reliance on palm oil for biodiesel raises concerns about deforestation, land conflicts, and carbon emissions.
Sustainability concerns may affect exports, as EU and U.S. markets impose stricter environmental standards on palm oil-derived biofuels.

3. Market Limitations for Bioethanol Expansion

Indonesia’s gasoline market is dominated by subsidized fuel, which remains cheaper than bioethanol-blended gasoline.
Since bioethanol mandates apply only to non-subsidized gasoline, market penetration will be limited without further policy changes.

4. Infrastructure and Supply Chain Bottlenecks

Expanding biofuel distribution requires investments in blending facilities, storage, and transport infrastructure.
Lack of ethanol production capacity limits supply, requiring either increased investment or more imports.

Economic and Market Implications

1. Potential Growth in Biofuel Investments

Higher blending mandates could attract foreign direct investment (FDI) into biofuel processing plants.
Encourages local farmers and businesses to participate in waste-to-biofuel supply chains.

2. Uncertain Impact on Fuel Prices

If biodiesel subsidies continue, B50 diesel could remain price-competitive.
Bioethanol adoption faces price hurdles, as no subsidies exist to offset gasoline-ethanol price spreads.

3. Trade and Export Considerations

Indonesia may increase biofuel exports, especially palm oil-based biodiesel to countries seeking alternative renewable fuel sources.
Tariff barriers on bioethanol imports remain, limiting potential supply diversification.

Climate and Sustainability Considerations

1. Reduction in Carbon Emissions

Increased biofuel use aligns with Indonesia’s Nationally Determined Contributions (NDCs) under the Paris Agreement.
Transition to organic waste-based biofuels could enhance Indonesia’s sustainability credentials.

2. Risk of Indirect Land Use Change (ILUC)

Expanding palm oil-based biodiesel may lead to deforestation and biodiversity loss.
Need for stronger sustainability certification systems to meet global environmental standards.

3. Aviation Sector Decarbonization

SAF adoption aligns with the International Civil Aviation Organization’s (ICAO) carbon reduction goals.
Requires investment in refining technology to scale up production and lower costs.

Conclusion

Indonesia’s updated 2025-2035 biofuel roadmap outlines an ambitious path toward higher biodiesel blending, the introduction of bioethanol, and sustainable aviation fuel adoption. However, significant gaps remain in financial support for bioethanol, trade policies, and infrastructure readiness. Without clear incentives and regulatory alignment, achieving Indonesia’s biofuel targets may be challenging.

While Indonesia’s roadmap reflects a commitment to biofuels as part of its energy transition, ensuring long-term success will require enhanced infrastructure, investment in alternative biofuel sources, and policies that align economic viability with sustainability goals.

Talk to Us

Contact our Commodity Brokers for expert advice and personalized strategies by visiting Paradigm Futures.

Disclaimer

The risk of loss in trading futures and/or options is substantial, and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades, statistical services, and other sources that Paradigm Futures believes to be reliable. We do not guarantee that such information is accurate or complete, and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice given will result in profitable trades.