Developing Biofuel-Based Road Transport Industry: Market Penetration Assessment of Biodiesel (B100) and Bioethanol (E100) as Road Transport Fuels in Indonesia

Market Penetration Assessment of Biodiesel(B100) and Bioethanol (E100) as Road TransportFuels in Indonesia Prepared byEconomic Research Institute for ASEAN and East Asia (ERIA) In collaboration withMinistry of Industry of the Republic of Indonesia Edited byAlloysius Joko PurwantoDian Lutfiana DevelopingBiofuel-Based Road Transport Industry: Market Penetration Assessment of Biodiesel (B100) and Bioethanol (E100) as RoadTransport Fuels in Indonesia Economic Research Institute for ASEAN and East Asia (ERIA)Sentral Senayan II 6thFloorJalan Asia Afrika No. 8, Gelora Bung KarnoSenayan, Jakarta Pusat 10270Indonesia © Economic Research Institute for ASEAN and East Asia, 2024ERIA Research Project Report FY2024 No. 13Published in August 2024 All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted in any form by any means electronic or mechanical without priorwritten notice to and permission from ERIA. The findings, interpretations, conclusions, and views expressed in their respectivechapters are entirely those of the author/s and do not reflect the views and policies ofthe Economic Research Institute for ASEAN and East Asia, its Governing Board, AcademicAdvisory Council, or the institutions and governments they represent. Any error in contentor citation in the respective chapters is the sole responsibility of the author/s. Materialin this publication may be freely quoted or reprinted with properacknowledgement. Disclaimer All currency values mentioned in this report are expressed in constant 2020 unlessotherwise specified. Preface Indonesia aims to achieve four main objectives by the deployment of biofuels in roadtransport sector. First to contribute to meeting 23% renewable share target in 2025 totalenergy mix, to support the government’s intention to reduce 29% of GHG emissions by2030 compared to the business-as-usual scenario, to decrease the national tradebalance deficit and improve energy security and self-sufficiency by reducing fossil fuelconsumption and imports, and to develop the palm oil industry by stabilising CPO pricesand adding values by down-streaming the palm oil industry. The 2014 biodiesel blend mandate has been implemented with an increasing blendingrate of 10% in 2014, known as ‘B10’, to 20% (B20) in 2016 and 30 % (B30) in December2019. At the same time, Ministry of Energy and Mineral Resources (MEMR) data showsthat diesel fuel imports decreased from 35% of total diesel fuel consumption in 2014 to22% in 2018. Indonesia’s blending rate should reach 40% (B40) by the middle of 2022. Apart from using the biodiesel (B100) blend which is conventionally produced bytransesterification of crude palm oil (CPO) fats with methanol known as ‘FAME’ or fattyacid methyl esters, Pertamina also plans to commercialise a new renewable fuel productcalled ‘green diesel’ (D100) or Refined, Bleached and Deodorized Palm Oil (RBDPO)categorised also as hydrotreated vegetable oil (HVO). Green diesel qualifies as a drop-infuel, meaning that it can be blended with conventional diesel fuel, and it can use the samefuel supply infrastructure. In contrast to biodiesel, green diesel does not requireadaptation of the vehicle powertrain or engines, making it more widely adoptable. The Ministry of Industry of the Republic of Indonesia requested the Economic ResearchInstitute for ASEAN and East Asia (ERIA) to conduct this study on “Developing Biofuel-Based Road Transport Industry: Market Penetration Assessment of Biofuels as RoadTransport Fuels in Indonesia”, which estimated the possible level of advancement of thedifferent levels of biofuel blend in Indonesia based on the different economic and energymarket situations, and developed a framework for policy recommendations to optimisethe penetration level of biofuels towards 2040. The study analysed first, the existing biofuel production technologies and paths in theworld and the existing paths and technologies in Indonesia, second, the strategies andregulationsto promote biofuel use,third,the automotive technology and thepreparedness of the automotive sector to accommodate biofuel policies, and forth, thepossible market penetration of the different biofuels and its impacts through modelling. The report shows that several findings, among others: the importance of consideringeconomic and energy market development, the need to synchronise the objective ofpromoting biofuels and of protecting health by reducing emissions from vehicles especially by the implementation of EURO IV vehicle and fuel standards, the importanceof financing strategies, and the development of the coordinated policy measures acrossthe different sectors – energy, industry, and agriculture – to be included in the biofuelroadmap. On behalf of the Economic Research Institute for ASEAN and East Asia (ERIA), I wouldlike to thank to the Ministry of Industry of the Republic of Indonesia for the opportunitygiven to ERIA to make contribution for the Re