Indonesia, an OPEC member with a population of 245 million, currently consumes around 41 billion liters of diesel and gasoline per year.
These targets are ambitious, to say the least. Even the U.S., which began developing biofuel much earlier than Indonesia, produced only about 280 million liters of biodiesel blends last year. American biofuel consumption, including ethanol, so far accounts for a mere 3 percent of the country's total fuel demand.
Purnomo himself admitted that the blueprint for biofuel development, which was discussed by President Susilo Bambang Yudhoyono and several Cabinet ministers in Magelang, Central Java, over the weekend, has yet to be finalized.
All agree that biofuel is the best alternative fuel source to help Indonesia reduce its fossil fuel consumption. Biofuels are renewable and based on such crops as castor-oil plants, oil palms, cassava and sugarcane, which can all be grown in the country. And, most importantly, biofuel production is highly labor intensive and this renewable fuel is cleaner burning.
However, the experiences of other countries such as Brazil, the U.S., Germany and China, which have developed biofuel industries much earlier than Indonesia, demonstrate that biofuel development should be part of a comprehensive energy diversification and conservation program. And as a nascent industry, biofuel production should be supported with tax breaks, subsidies and, at least initially, regulatory infrastructure to make the use of biofuel compulsory.
Hence, the blueprint on the development of the biofuel industry should contain clear directives on how the industry should be developed, what fiscal incentives and funding facilities will be granted, and what regulatory infrastructure will be established to push biofuel production and use.
Such clear directives are needed by investors considering taking the plunge into this young industry. Manufacturers of vehicles and farm equipment that will use biodiesel blends or ethanol also need to know the future direction of biofuel development, because they will have to make additional investments to modify their engines to make them biofuel compatible. Automobiles, for example, need to be fitted with flex-fuel engines so they can run on biodiesel or any ethanol-petrol blend.
Biofuel development also needs the support of an adequate pricing mechanism. It is not yet clear at what oil price biofuel is still competitive with fossil fuels, or how the different kinds of biofuels -- biodiesel, bioethanol, biogas -- will compete with each other.
Judging from the government's announcement earlier this week, biofuel development in the country will emphasize the production of biodiesel blends based on castor oil, apparently because there are large tracts of land suitable for castor-oil plantations.
An adequate market pricing mechanism is necessary to protect investors from the impact of highly volatile oil prices. Brazil, the world leader in biofuel development, started the production of ethanol based on sugarcane and the manufacture of cars fully adapted to run on pure ethanol in the mid-1970s, after global oil prices quadrupled. However, the industry virtually collapsed in the late 1980s when oil prices fell sharply and sugar prices rose markedly, making ethanol production much less commercially attractive. Brazil's ethanol industry only recovered after strong government intervention in the form of monetary measures and regulatory infrastructure.
Encouraging energy diversification through integrated energy planning and the increased use of renewable energy sources is clearly urgent for Indonesia. But this effort must be integrated into the country's overall energy conservation efforts.
The government has at its disposal a variety of instruments such as tax credits or subsidized or low-interest loans through which biofuel development and fuel conservation can be promoted. It also can take such fiscal measures as slapping higher luxury sales taxes on gasoline-guzzling cars or a progressive car registration tax on people who own more than one car to force fuel efficiency.
The Jakarta Post: "The Biofuel Era Has Arrived".
Indonesia's Ministry of Energy and Mining: "Tahun Ini Pemerintah Rencanakan Bangun 11 pabrik Biodiesel".
Indonesian Government Portal: "Cabinet discussed about bioenergy in Grabag".