PALMOILMAGAZINE, JAKARTA – Coordinating Minister for Maritime and Investment Affairs Luhut Binsar Panjaitan is confident that Indonesia could sustainably replace fossil fuels with biofuel sourced from palm oil and stop oil imports which annually drain billions of dollars from Indonesia’s foreign reserves.
“We are currently doing research on palm oil as an alternative, renewable fuel, because we believe that by 2045 we can produce around 100 million tons of palm oil. 30 percent of the output will be directed for food and the remaining 70 percent for biofuel,” Luhut asserted early this year..
Luhut said palm oil is one of the five pillars of the green economy that Indonesia is prioritising. The other four pillars are decarbonization of the electricity sector, low-carbon transportation through the massive adoption of electric vehicles, green industry, and carbon sinks which include carbon capture and the carbon offset market.
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As the world’s largest producer of CPO, biodiesel, and used cooking oil, Indonesia has implemented a mandatory program to use CPO-based biodiesel since 2008. Currently, the government has set B35, a blend of 35 percent of biofuel sourced from palm oil and 65 percent fossil fuel. The government also funds research on the 1.5th and 2nd generation of biofuels, namely green gasoline, green avtur (Sustainable Aviation Fuel), and green diesel.
Luhut’s projection about the total replacement of fossil fuels with palm oil-based fuel may seem overly optimistic, however, his observation asserts the vital role of palm oil in Indonesia’s economy as a major employer, source of food and many other consumer goods and the third largest export. The country, richly endowed with land suitable for oil palm growing, does have a big potential even to triple its output.
Even though Indonesia increases its palm oil output to more than 100 million tons, that will not glut the domestic and international market. Because palm oil will continue to play an increasingly vital role in the global economy as well, not only as a source of biofuel. This commodity is relatively inexpensive, highly versatile, and fulfils more than 40 percent of global demand for vegetable oil on less than 6 percent of all land dedicated to producing vegetable oils.
The biggest question though is could Indonesia double its palm oil output from around 50 million tons a year now? The outlook seems rather gloomy. The huge potential is one thing, but how to realise the potential is quite another.
In fact, the painful reality is that the country’s palm oil production seems to have reached its peak and is now on a downward trend. In the 2005-2010 period, national CPO production growth reached 10.12 percent annually, then slowed to 7.39 percent in 2010-2015, and down again to 3.2 percent in 2015-2020. In the 2020-2023 period, national CPO production growth was negative, contracting by 1.15 percent.
We describe below several key issues the Indonesian palm oil industry is facing and we also propose several strategies to the government and other relevant stakeholders on how to remove the barriers on the road to achieve 100 million tons of palm oil production in a sustainable manner.
Firstly, the government and all concerned stakeholders should develop a conducive regulatory framework to speed up new development of sustainable oil palm estates in priority areas, notably Papua, under the Indonesian Sustainable Palm Oil standard and other applicable principles of sustainability. This should be mandated to palm oil state owned enterprise to stave off allegations of oligarchy or preference for private companies.
