Policy of Mandatory Biodiesel (B30): Economic Policy not Financial Policy
Biodiesel development in Indonesia is supported by mandatory policy instruments. Through Minister of Energy and Resources Regulation No. 12/2015, the mandatory biodiesel policy is accelerated from B-10 in 2014, to B-15 in 2015 and increased to B-20 in 2016. The B30 mandatory policy in these regulation that targeted to be implemented in 2020, can also be realized. Currently, the Ministry of Energy and Mineral Resources is conducting a B40 technical test which is will be implementing in July 2021.
The development of palm oil biodiesel in Indonesia as an alternative renewable energy source is considered as a policy that could be a solution for handling the higher of dependence on the use of fossil diesel and achieving emission reduction targets. The B20 program implemented in 2018 and 2019 was able to save foreign exchange on diesel imports by USD 1.89 billion and USD 3.54 billion. Meanwhile, this program also was able to reduce GHG emissions by 5.61 million tons of C02 and 9.91 million tons of C02.
By implementing a higher biodiesel mix in B30 programme, the use of imported diesel will also decrease. It is estimated, Indonesia will save foreign exchange of USD 5.13 billion or IDR 74.93 trillion. The reduction in carbon emissions due to B30 is also estimated to be greater about 14.25 million tons of C02, or equivalent to 52 thousand small buses. Not only these two indicators, the B30 program is also creating a multiplier effect such as added value in the downstream industry (CPO to biodiesel) and labor absorption. President Director of Pertamina, Nicke Widyawati, said that the B30 program could increase absorption of employment by around 1.2-1.4 million people. Millions of oil palm farmers also have enjoying of a large economic effect due to the increasing need for palm oil as a raw material for biodiesel.
The absorption allocation for biodiesel needs in B30 programme has been set at 9.59 million kiloliters, but cause of declining demand due to the Covid-19 pandemic, the realization of the volume of B30 that has been distributed until August 2020 is only 4.98 kiloliters and it is estimated that it’s absorption for this year only 8.25 kiloliters or not in accordance with initial target. Although the absroption was declined, but B30 programme can save foreign exchange around USD 2.24 billion, so that Indonesia’s net exports of the oil and gas sector in Januray-August only has deficit of USD 4.19 billion. If Indonesia does not implement the B30 program amid this pandemic period, Indonesia’s oil and gas balance deficit has the potential to be even greater and reach about USD 6.43 billion. This shows that the mandatory B30 policy succeeded in saving Indonesia’s trade balance during a pandemic and the threat of a global economic recession.
Even though the mandatory B30 policy has made a significant contribution of economic benefit, some people or parties question whether this policy should be continued, because the cost of this policy is considered to be greater than the benefits, especially when the price of fossil diesel has decreased, and on the contrary when CPO’s global price has increasing, like this condition. With this price trend, the B30 mandatory policy is considered less efficient by some people or parties because the difference between the price of fossil diesel and the Market Index Price of Biodiesel is too large and is detrimental to business or loss financially. In addition, the business/financial losses are getting bigger, because the B30 policy is considered to hinder palm oil producers from exporting to the global market.
In fact, the mandatory policy of biodiesel (B30) is designed as an instrument of economic policy aimed to generating benefits for all Indonesians, not a financial policy that only aims to give benefit for certain parties. The economic benefits as a result of this biodiesel mandatory policy are not only a “healthy” trade balance due to a declining of import solar, but also create a large multiplier effect (added-value, labor, income, and output), which is enjoyed not only by the industries but the general public community both at the regional and national levels. This large multiplier effect will lead to an increase in Indonesia’s economic growth (GDP).
Other economic benefits of the biodiesel mandatory policy, they are: First, CPO and FFB Price Stabilization. The B30 program will increase the absorption of around 10 million tons of palm oil by the domestic biodiesel industry, so the supply and stock of palm oil in the global market is relatively well maintained (not oversupply). The implication is that the international price of palm oil is relatively stable and tends to increas during the pandemic. The higher international price of CPO (CIF) will be transmitted to the FFB price received by smallholders, which also has increased. This is confirmed by FFB price’s data in Riau which increased by 27 percent during the August-October 2020 period. This positive price trends of course profitable for producers, both plantation companies, and smallholders.
The amount of absorption of palm oil as a raw material for biodiesel due to B30 also implies that palm oil stocks in the global market are relatively maintained (not oversupply). The implication is that the global price is relatively stable and tends to increase during this pandemic. The higher CPO’s price in global market will be transmitted to the FFB’s price received by farmers, which has also increased. This was confirmed by data on Riau’s FFB prices has increased by 27 percent during the August-October in 2020. The positive of price trends more profitable for producers, both plantation companies and smallholders.
And in the long term through policy of mandatory biodiesel, Indonesia can regulate palm oil stocks. So that, Indonesia as the largest producer and exporter of palm oil in the world, also has has opportunity to realize our dream as a global pricemaker of palm oil and its derivative products.
This mandatory biodiesel policy also become a solution to pressure of negative campaign against palm oil and trade policies that tend to barrier and discriminate against palm oil, such as RED II ILUC. The B30 program is the right strategy to mitigate the risk of handling the impact of the implementation of EU policies, because the program can absorb the largest volume of palm oil in the domestic market.
The biodiesel mandatory policy is a government effort to developing sustainable energy sources as an alternative to using fossil energy, while also placing palm oil biodiesel as a solution in order to realize SDG-7 (Affordable and Clean Energy), and SDG-13 (Climate Action). Not only these two goals SDGs, the development of the biodiesel industry which creates a large multiplier effect on the nation’s economy also indirectly has the potential to realize the eight goals contained in SDGs such as SDG-1 (No Poverty); SDG-2 (Zero Hunger), SDG-3 (Good Health and Wellbeing); SDG-4 (Quality Education); SDG-8 (Decent Work and Economic Growth); SDG-9 (Industry, Innovation, Infrastructure); SDG-10 (Reducing Inequality); and SDG-12 (Responsible Consumption and Production). By linking the biodiesel industry with SDGs goals, it’s more emphasizing that the palm oil industry is a part of solution in achieving SDGs.
The arguments presented above are expected to giving insights regarding the contribution of biodiesel mandatory policies, which are economic policies that can provide greater benefits with a larger scale/coverage of the population that enjoying these benefits in the long term (long term goals). So that, the cost of implementing the biodiesel mandatory policy is felt to be always lower than the benefits both in terms of economic, social, and environmental aspects resulting from the implementation of the policy.
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