Indonesia to Halt Low-Grade Diesel Imports in July, Accelerates Palm Oil-Based Biofuel Shift

Indonesia will stop importing low-grade diesel fuel starting in July 2024 as part of a broader strategy to strengthen energy security and reduce reliance on fossil fuels, according to the country’s Minister of Energy and Mineral Resources. The policy shift accelerates the nation’s mandatory biodiesel program, which now requires a 35% blend of palm oil-based fuel (B35) in all diesel-powered transportation and industry, with plans to increase to B40 by 2025.

The move comes amid global oil price volatility and aims to cushion the economy from external shocks while supporting domestic palm oil producers. Indonesia, the world’s largest producer of palm oil, has increasingly turned to biofuels as a strategic tool to manage trade balances, reduce air pollution and meet climate commitments.

Government Confirms July Diesel Import Ban

In a May 2024 statement, Energy and Mineral Resources Minister Arifin Tasrif confirmed that Indonesia will cease imports of low-sulfur diesel (typically 500 parts per million sulfur content) beginning July 1, 2024. The decision follows a gradual phase-down of such imports over the past two years, as domestic refining capacity and biofuel blending have expanded.

“We are moving toward self-sufficiency in transportation fuels,” Tasrif said. “By halting low-grade diesel imports, we are ensuring that all diesel consumed in Indonesia meets our national B35 mandate, which uses locally produced palm oil methyl ester (POME) as the biodiesel component.”

The policy applies to all diesel used in road transport, industrial machinery, and power generation. High-grade diesel (with sulfur content below 50 ppm) may still be imported for specific industrial or maritime uses where engine compatibility requires it, but such volumes are expected to remain minimal.

Biodiesel Program Expands to B35, Targeting B40 by 2025

Indonesia’s biodiesel mandate, first introduced in 2008, has become one of the most ambitious in the world. As of January 2023, the country implemented B35 nationwide, meaning that 35% of every liter of diesel sold must be derived from processed palm oil. The remaining 65% is conventional diesel.

According to the Directorate General of Fresh, Renewable Energy, and Energy Conservation (EBTKE), biodiesel consumption reached 11.3 million kiloliters in 2023, avoiding approximately 8.4 million tons of carbon dioxide emissions and saving the equivalent of $3.4 billion in imported fossil fuel costs.

The government plans to increase the blend to B40 by 2025, a target outlined in the National Energy Policy (KEN) 2022–2050. Achieving B40 would require over 15 million kiloliters of biodiesel annually, further reducing diesel imports and boosting demand for crude palm oil (CPO).

“Biodiesel is no longer just an environmental policy—it’s a cornerstone of our energy and economic strategy,” said Dadan Kusumah, Director of Bioenergy at EBTKE. “It protects us from oil price spikes, supports farmers, and advances our net-zero goals.”

Strategic Benefits: Energy Security, Farmer Support, Emissions Reduction

The shift to palm oil-based biodiesel delivers multiple strategic advantages:

• Energy Security: By reducing diesel imports— which accounted for over 40% of domestic consumption as recently as 2021— Indonesia lowers its vulnerability to global supply disruptions and price spikes.
• Farmer Livelihoods: The biodiesel program absorbs surplus palm oil, helping stabilize CPO prices and supporting approximately 17 million smallholder farmers across Sumatra, Kalimantan, and Sulawesi.
• Emissions Reduction: Life-cycle analyses by the Bandung Institute of Technology (ITB) show that B35 biodiesel reduces greenhouse gas emissions by up to 20% compared to fossil diesel, with even greater reductions projected for B40.
• Air Quality Improvement: Biodiesel combustion produces lower particulate matter and sulfur emissions, contributing to better urban air quality in cities like Jakarta, and Surabaya.

Challenges and Sustainability Safeguards

Despite its benefits, the expansion of palm oil-based biofuels raises concerns about deforestation, peatland degradation, and competition with food crops. To address these, Indonesia has strengthened its sustainability framework:

• The Indonesian Sustainable Palm Oil (ISPO) certification is now mandatory for all palm oil used in biodiesel production.
• A moratorium on new palm oil plantations in primary forests and peatlands remains in effect, extended indefinitely in 2023.
• The government is promoting the use of degraded lands and smallholder replanting programs to increase yields without expanding forest frontiers.
• Research into next-generation feedstocks—such as used cooking oil, jatropha, and algae—is underway to diversify the biodiesel supply chain.

International partners, including the European Union, have scrutinized Indonesia’s biodiesel policy over land-use concerns. In response, Jakarta has engaged in dialogue through the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA) to ensure compliance with sustainability standards while maintaining market access for palm oil exports.

Outlook: Biofuel as a Pillar of Indonesia’s Energy Future

Indonesia’s approach reflects a growing trend among developing nations to use domestically produced biofuels as a tool for energy independence and rural development. Unlike countries that rely on imported ethanol or advanced biofuels, Indonesia leverages its dominant position in palm oil to create a vertically integrated system—from plantation to pump.

Analysts at the Institute for Energy Economics and Financial Analysis (IEEFA) note that if Indonesia successfully reaches B40 by 2025 and sustains growth in biodiesel use, it could eliminate nearly all diesel imports for transportation by 2030.

“What Indonesia is building is not just a fuel program—it’s a national energy transformation,” said Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR). “By anchoring its energy security in a renewable, domestically sourced fuel, the country is setting a model for others in the Global South.”

As the July import ban takes effect, Indonesia will continue to monitor engine performance, fuel distribution, and market impacts. Public awareness campaigns and technical support for mechanics and fleet operators are being rolled out to ensure a smooth transition.

With clear policy direction, strong domestic backing, and alignment with climate and development goals, Indonesia’s shift away from low-grade diesel and toward palm oil-based biodiesel marks a decisive step in its long-term energy strategy.

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