Introduction
Indonesia, known for its lush landscapes and rich natural resources, is also the largest producer of palm oil in the world. While palm oil has brought significant economic benefits to the country, it has also led to environmental concerns and a heavy reliance on imported fossil fuels. However, there is a promising solution on the horizon: ethanol blending. This blog will explore the current bio ethanol blending scenario in Indonesia, the challenges faced, and how utilizing empty fruit bunch (EFB) from palm oil production. This can help reduce gasoline imports and contribute to achieving net-zero carbon emissions.
Indonesia’s biofuel initiative was intended to provide significant advantages to small-scale farmers. However, despite a remarkable increase in the country’s biodiesel output, numerous farmers express dissatisfaction. They states that the program has not yielded the anticipated benefits for them. Many continue to face challenges in integrating into the biodiesel supply chain, which is largely controlled by major palm oil corporations. Only potential solution lies in cellulosic ethanol . This type of ethanol is produced from plant fibres, primarily composed of cellulose. As the largest palm oil producer globally, Indonesia generates substantial quantities of agricultural byproducts. This includes palm trunks, empty fruit bunches, and palm press fibre. By employing advanced technologies, these materials can be converted into ethanol suitable for blending with gasoline.
In the previous year, the country’s administration revealed intentions to increase the sugar cultivation area in Indonesia to 700,000 hectares (1.7 million acres). This initiative aims to enhance the development of renewable sugar-based ethanol and reduce the nation’s reliance on excessive petroleum consumption. However, with the restart of E5 blending of ethanol in gasoline with potential to increase this blending rate in the future, 2nd generation cellulosic ethanol provides a viable and clear alternative to achieve such demand.
Understanding Ethanol Blending
Ethanol blending refers to the process of mixing ethanol with gasoline to create a cleaner-burning fuel. Ethanol, a renewable biofuel, can significantly reduce greenhouse gas emissions compared to traditional fossil fuels. In Indonesia, the government has set ambitious targets for increasing the use of bio ethanol . This is to reduce dependence on imported gasoline and lower carbon emissions.
Our recent research on cellulosic ethanol indicates that Indonesia possesses significant potential for industry developmen. With the capability to produce as much as 2 million kiloliters (528 million gallons) annually from palm residues alone. At present, Indonesia exports these residues to nations such as Japan, which relies on palm kernel shells for biomass power generation to fulfil its renewable energy objectives.
While exporting palm waste to international markets may appear advantageous, particularly in the short term, it poses risks in the long run. By concentrating solely on exports, Indonesia may forfeit the chance to cultivate a domestic processing industry. Specially given that “downstreaming” has been a recurring focus of the administration’s economic policy.
Current Ethanol Blending Scenario
As of now, Indonesia has made strides in promoting biofuels. But the ethanol blending rate remains relatively low compared to its potential. The government recently reintroduced an ethanol blending programme for blending of 5% ethanol in gasoline to achieve a blending target of 20% by 2025. However, achieving this goal faces several challenges due to price sensitivity and limited production capacity.
Ethanol Market -Overview
- Indonesia has established a mandate for ethanol at 5%, with an ambitious goal of reaching 20% by the year 2025. In 2018, the estimated consumption of industrial ethanol was around 137 million litres.
- The cost of domestically produced ethanol remains uncompetitive when compared to gasoline and other oxygenates, being approximately double the price of U.S. FOB Gulf ethanol.
- The country is home to six facilities that can produce fuel ethanol, with a combined capacity of 290 million litres. Additionally, there are 14 ethanol production plants dedicated to non-fuel applications, serving the medical sector, cosmetics, and export markets.
- Similarly the production of ethanol primarily utilizes molasses sourced from the local sugar industry.
- It is noteworthy that the majority of government support for biofuels is predominantly directed towards the biodiesel sector.
Trade
The nation exports between 50 and 100 million litres of industrial and potable grade ethanol annually. In 2018, the total exports amounted to 92 million litres, with the Philippines being the primary recipient, while smaller volumes were sent to Japan and Thailand. Currently, Indonesia imports very little ethanol due to its relatively high import tariffs, restrictive policies, and uncertainty regarding the oxygenates utilized in the domestic fuel supply. The import tariff for both denatured and undenatured ethanol stands at 30%.
Market Outlook
The expansion of domestic ethanol production in the near future appears improbable due to limitations in feedstock availability. By 2025, Indonesia is projected to become the sixth largest fuel market. The nation possesses an adequate supply of molasses to generate 355 million litres of ethanol, provided that appropriate incentives are in place.
Supporting Mechanism
In recent years, the Government of Indonesia (GOI) has made several modifications to its export levy scheme to ensure the financial stability of its Crude Palm Oil (CPO) fund amid fluctuations in palm oil prices. In December 2018, the structure of the export levy was revised from a flat-rate system to a progressive price-based model in response to falling CPO prices. As the decline persisted into 2019, the GOI suspended the collection of the CPO levy entirely, resulting in no new revenue for the CPO fund throughout that year. Furthermore, in 2022, the GOI introduced additional categories of palm products subject to levies, including Used Cooking Oil (UCO) and Palm Oil Mill Effluent (POME), both of which are utilized as feedstock for biodiesel production.
Challenges Faced
- Infrastructure Limitations: One of the significant challenges is the lack of infrastructure for ethanol production and distribution. Many regions in Indonesia do not have the facilities needed to produce, store, and transport ethanol efficiently.
- Market Acceptance: There is still a lack of awareness and acceptance among consumers regarding the benefits of ethanol-blended fuels. Many people are accustomed to traditional gasoline and may be hesitant to switch to biofuels.
- Cost Competitiveness: Producing ethanol can be more expensive than importing gasoline, especially if the production process is not optimized. This cost disparity can deter investment in ethanol production facilities.
- Environmental Concerns: While biofuels are generally considered more environmentally friendly, the palm oil industry has faced criticism for deforestation and habitat destruction. Ensuring that ethanol production does not contribute to these issues is crucial.
The Role of Empty Fruit Bunch (EFB)
One of the most promising solutions to overcome these challenges lies in utilizing empty fruit bunch (EFB) as a feedstock for ethanol production. EFB is a biomass byproduct generated during the palm oil extraction process. Instead of being discarded or burned, EFB can be converted into ethanol through fermentation processes.
Why EFB?
- Abundance: As the largest producer of palm oil, Indonesia generates a significant amount of EFB, making it a readily available feedstock for ethanol production. This abundance can help meet the growing demand for biofuels without competing with food crops.
- Waste Reduction: Utilizing EFB for ethanol production not only provides a sustainable energy source but also addresses waste management issues associated with palm oil processing. This can lead to a more circular economy, where waste is minimized, and resources are efficiently used.
- Lower Carbon Footprint: By converting EFB into ethanol, Indonesia can reduce its reliance on fossil fuels and lower greenhouse gas emissions. This aligns with the country’s goals of achieving net-zero carbon emissions and promoting sustainable practices in the palm oil industry.
- Economic Opportunities: Developing an ethanol production industry based on EFB can create jobs and stimulate local economies. It can also attract investment in renewable energy technologies and infrastructure.
Moving Forward: Opportunities for Growth
To capitalize on the potential of EFB for ethanol production, several steps can be taken:
Investment in Infrastructure:
The government and private sector should invest in the necessary infrastructure for ethanol production, storage, and distribution. This includes building processing facilities and transportation networks to ensure efficient supply chains.
Public Awareness Campaigns:
Increasing consumer awareness about the benefits of ethanol-blended fuels is essential. Educational campaigns can help shift public perception and encourage the adoption of biofuels.
Research and Development:
Continued research into optimizing the fermentation processes for converting EFB into ethanol can enhance production efficiency and reduce costs. Collaborations between universities, research institutions, and the industry can drive innovation.
Sustainable Practices:
It is crucial to ensure that EFB utilization does not contribute to environmental degradation. Implementing sustainable practices in palm oil production and EFB processing can help mitigate negative impacts on biodiversity and ecosystems.
Policy Support:
The government should continue to provide policy support and incentives for biofuel production, including tax breaks, subsidies, and favorable regulations that encourage investment in the ethanol sector.
Conclusion
Indonesia’s journey towards increasing ethanol blending presents both challenges and opportunities. By depending on empty fruit bunch from palm oil production, the country can not only reduce its dependence on imported fossil fuels but also contribute to environmental sustainability. With the right investments, public awareness, and sustainable practices, Indonesia can pave the way for a greener future through ethanol blending, ultimately supporting its economic and environmental goals.