Indonesia's B50 Biodiesel Mandate Needs Opportunity Cost Analysis, Economist Says

Indonesia is set to implement its mandatory 50% biodiesel (B50) policy across the country on July 1. This move follows a series of positive tests in various sectors, including automotive, maritime, and agricultural machinery.

The government anticipates significant savings from reduced diesel imports, estimating around Rp 157.28 trillion in 2026. This figure, when compared to the estimated Rp 32 trillion in incentives managed by the Palm Oil Fund Management Agency (BPDPKS), suggests a net economic benefit.

However, Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (CORE), argues for a more comprehensive evaluation. He stresses that the calculation of savings should also account for the potential loss of foreign exchange earnings. This loss arises because a portion of crude palm oil (CPO) production will be diverted from the export market to meet domestic biodiesel needs.

"The measure of the program's success is not enough to just compare import savings with the amount of subsidy," Yusuf stated, "but must also include the opportunity cost of forgone exports."

Manilet further noted that the fiscal success of the B50 program is heavily influenced by global commodity prices, particularly the price difference between CPO and petroleum-based diesel. The policy's true economic impact, therefore, depends on a broader analysis that weighs import reduction against export revenue and subsidy expenditures.

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The measure of the program's success is not enough to just compare import savings with the amount of subsidy, but must also include the opportunity cost of forgone exports.