Palm oil production in Indonesia
Palm oil production in Indonesia is concentrated on two of its five major islands: Borneo and Sumatra. In 2022, the five leading provinces for palm oil production on these two islands accounted for more than two-thirds of the total palm oil production in Indonesia. Palm oil plantations on these islands are largely divided into three types of administration: government-owned; independent and nucleus estate smallholders; and large private-owned plantations. Among the companies involved in palm oil production, Wilmar International and Golden Agri-Resources make up two of the largest players in the industry. Its biggest palm oil export market is India, the world’s largest consumer of edible oils.The use of palm oil in Indonesia’s biodiesel
Palm oil production is land-intensive, and much of Indonesia’s rainforest has been cleared to make way for plantations. The environmental impact of oil palm cultivation has come under increased scrutiny in recent years. As of 2021, around a quarter of the palm oil produced in Indonesia was certified sustainable. The growing awareness of the environmental cost of palm oil has led to some consumer backlash in the Western market. As part of the European Green Deal, the European Union (EU) planned to introduce ‘certified palm oil free’ labels on consumer goods and cut out the use of palm oil in EU biofuels by 2030. As a result, Indonesia filed a dispute complaint with the World Trade Organization (WTO) against the EU regarding its biofuels directive.Phasing out biodiesel containing palm oil from the EU market would impact Indonesia, the world’s largest biodiesel producer. Crude palm oil is the primary feedstock for biofuel in Indonesia. To ensure a steady market for palm oil and improve its energy independence, the Indonesian government has rolled out a plan to increase the biofuel mix in its biodiesel gradually. Biodiesel is also heavily subsidized by the Indonesian government to encourage drivers to use them. This has led to an increase in domestic biodiesel consumption. Indonesia has recently increased its biodiesel mix from B30 to B35, consisting of 35 percent crude palm oil in 2023, to boost domestic palm oil consumption. The B35 implementation was projected to reduce greenhouse gas emissions (GHG) by nearly 35 million tons of CO2. Furthermore, PT Pertamina, Indonesia’s state-owned oil and natural gas corporation, has targeted the production and supply of B50 biodiesel by 2025.
