The mechanism in one line
Indonesia sets a minimum share of biodiesel that must be blended into domestic diesel, expressed as a B-number: B30 means 30 percent biodiesel by volume, B35 means 35 percent, and so on. Because the biodiesel is made overwhelmingly from palm fatty acid distillate and crude palm oil (CPO), each upward step in the B-number mechanically absorbs additional CPO into the domestic fuel pool instead of the export pool.
Where the money comes from
The blend is typically sold at the same pump price as conventional diesel. The gap between the mandated biodiesel price and the diesel reference price is covered by a subsidy drawn from a levy on palm oil exports. So the programme is largely self-financing: export volumes fund the mandate that displaces export volumes. When the levy rate or the subsidy payout changes, the effective cost of the mandate changes, and that feeds back into how aggressively the B-number can be raised.
What each step change actually does
The arithmetic is not linear in practice. Moving from B30 to B35 does not simply remove 5 percent of exports, because:
- The biodiesel pool is not pure CPO; it includes PFAD and other palm derivatives, so the CPO-equivalent draw varies.
- Domestic diesel demand itself moves with economic activity, so the same B-number absorbs more or less CPO in different years.
- Export availability is what remains after domestic food, oleochemical and fuel demand are met, so the B-number competes with those uses, not just with exports.
The mistake practitioners most often make
The common error is treating the B-number as a fixed, one-time subtraction from export supply. In reality it is a policy variable: the government can adjust the levy, the subsidy payout, the blend specification or the timeline. A trader who models B40 as a permanent 40-percent tax on exports will misprice the marginal barrel, because the mandate can be paused, accelerated or re-funded. The mistake persists because the B-number is easy to quote and the subsidy mechanism is opaque, so the headline ratio becomes the mental model.
What a buyer should watch
- The export levy rate and how the subsidy payout is calculated: this is the funding valve.
- The biodiesel specification and feedstock mix: PFAD versus CPO changes the CPO-equivalent draw.
- Domestic diesel demand and any change to the blend timeline.
- Whether the mandate is being enforced at the pump or only on paper.
For a procurement manager, the practical point is that landed cost is exposed less to the B-number itself than to the levy-and-subsidy loop that makes the B-number affordable. Watch the loop, not just the label. ---
*This article reflects the position as of 15 September 2026. Duty structures, levies and mandates change often, sometimes at short notice. Please verify the current position, and any changes made after this date, before relying on it.*