Analyzing the market conditions and long-term dynamics in the biodiesel industry

Abstract

The Indonesian energy industry is working towards achieving net zero emissions by reducing energy composition between renewables and non-renewables. Based on this background, this study investigates the biodiesel market conditions and its long-term sustainability using monthly data from January 2014 to October 2023. The study applies the 3SLS, Johansen and bound test approach to cointegration for estimations. Findings from the study show that demand for biodiesel in Indonesia is price inelastic, which implies that the response of demand on small price changes is high due to the availability of substitute products. The Walrasian coefficient is negative and statistically significant, suggesting a partial disequilibrium in the biodiesel market. Furthermore, the blending mandatory of biodiesel is found to be sustainable in the long run as shown by the bound f-statistics and Johansens’ trace statistics. The increasing prices of crude palm oil, catalysts, methanol, and glycerin have a devastating effect on biodiesel production. Exchange rate depreciation is also a negative function of biodiesel production. These findings are crucial for industry stakeholders and policymakers to make informed decisions about resource allocation, cost management, and strategies to enhance the sustainability and efficiency of biodiesel production processes.

Keywords:

• Biodiesel
• CPO
• bound test
• 3SLS
• exchange rate

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data for this study is available on request.

Notes

1 Minister of Energy and Mineral Resources (MEMR) Regulation No. 32/2008 regarding the Provision, Utilization, and Trading System of Biofuels as Other Fuels – which was amended by Minister of Energy and Mineral Resources Regulation No. 12 of 2015 regarding the Third Amendment of the Regulation of the Minister of Energy and Mineral Resources Number 32 of 2008.

2 MEMR Decree No. 205.K/EK.05/DJE/2022 regarding the Establishment of Biodiesel Allocation in Period January – December 2023.