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Indonesia looks at boosting biofuel production

February 12, 2013

Indonesia, the world’s biggest palm oil producer, is mulling a move to boost biodiesel production to manage abundant local supplies, The Jakarta Post reported in January.

Indonesia, the world’s biggest palm oil producer, is mulling a move to boost biodiesel production to manage abundant local supplies, The Jakarta Post reported in January.

Deputy trade minister, Baya Krisnamurthi, said that the move would be a “fundamental solution” to curb oversupply of the commodity in the overseas market that has, in part, contributed to falling international prices.

The government has allocated a subsidy of Rp3,000 (US$0.31)/litre for biodiesel, with a total allocation of 900,000 kilolitres. It is hoped that the subsidy will promote the use of renewable energy sources and cut dependence on fossil fuels.
Endorsement of biofuels began in 2008, following increases in the price of petroleum fuel. The government issued a ministerial decree that required the blend of all petroleum-based fuels with biofuels.

However, domestic biofuel consumption never reached designated annual targets. In 2010, consumption only stood at 223,041 kilolitres, far lower than the target of 1.73M kilolitres.
The domestic industry has seen robust overseas demand for biodiesel with exports last year topping 1.4M tonnes, particularly to the European Union (EU).
Indonesia introduced a new tax policy in late 2011 that cut export tax on refined palm oil products from 25% to 10% to encourage local producers to export value-added products.
The new structure complements a progressive tax on the export of crude palm oil (CPO) that begins when the commodity’s price is more than US$750/tonne. Exporters are required to pay an export tax of 1.5% for every US$50 increase in the price from the ceiling.

Malaysia responded to the Indonesian policy in October last by cutting its export tax on palm oil to between 4.5% and 8.5% from 23%.


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