Indonesia’s abundant agricultural resources present a pivotal opportunity to transition from fossil fuels to bioethanol, a cleaner and renewable energy alternative. While the country has made strides in biodiesel, where a 35 percent blend mandate is already in place, bioethanol development lags significantly behind. Presidential Regulation No. 40/2023 includes a road map targeting 1.2 million kiloliters of bioethanol by 2030, yet the current bioethanol supply supports only limited availability of E5 (gasoline with 5 percent ethanol content) in Java, falling short of national aspirations. The regulation also sets ambitious goals to boost sugarcane production, improve farmer welfare and support bioethanol expansion, yet significant barriers remain unresolved.
Gasoline consumption in the country is projected to reach around 41.3 million kl by 2030, according to a recent study by ERIA on road transportation biofuels in Indonesia. If Indonesia meets its target of producing 1.2 million kl of bioethanol by that year, as set in the presidential regulation, the national blending rate would average just 2.9 percent, almost equivalent to an E3 (3 percent ethanol content) program. Around one-fifth of this production target should be contributed by the government’s national strategic project of opening 2 million hectares of sugarcane plantation in Merauke, Papua but this project should align with Indonesia’s commitment to stopping deforestation and mitigating its environmentally and socially negative impacts.
One primary bottleneck is the price disparity between bioethanol and gasoline. Intense market competition for bioethanol feedstock, particularly molasses, has driven prices up. According to data from the Energy and Mineral Resources Ministry, the average market ceiling price for molasses rose 60 percent between 2018 and 2024, pushing bioethanol prices up by around 40 percent during that period, while the gasoline price increase was only 30 percent.
Competition for molasses remains a significant challenge for local bioethanol producers, as molasses are also used in food processing, monosodium glutamate production and exports. Between 2018 and 2021, Indonesia’s molasses production grew at an average annual rate of 3.6 percent. While export volumes modestly increased by 3.9 percent, export value climbed 22 percent, reflecting molasses’ rising international appeal.
Domestically, the molasses price is highly volatile due to sudden shifts in market demand. For example, the average price jumped by more than 45 percent between June and August 2020, driving a nearly 30 percent uptick in the bioethanol market ceiling price during the same period, the highest price since the 2016 bioethanol decree issuance. This surge during the early phase of the COVID-19 pandemic was likely related to the urgent demand for bioethanol for sanitizer production.
