Economic Effect of Biodiesel Downstream Industry: An Analysis Based on a Dynamic CGE Model

Abstract

The palm oil commodity is a key export and a major source of foreign exchange for Indonesia. Additionally, processed palm oil plays a crucial role as a domestic source of food (cooking oil) and renewable energy (biodiesel). The biodiesel industry, which processes Crude Palm Oil (CPO) derivatives into biofuel, holds significant potential for development to meet both domestic consumption and export demands. However, the diversification of CPO products and biodiesel downstream production impacts the availability of domestic cooking oil and CPO export supplies, with Indonesia being the largest exporter globally. The downstream industry, including agro-based industries like biodiesel, is a strategic policy outlined by the government as a primary driver of national economic growth. This research aims to analyze the economic impact of downstreaming in CPO-based biodiesel. The primary data used is the 2016 Indonesia Input-Output Table, updated to 2023. The model is based on a Dynamic CGE Model of Orani-F and the Wayang model. The result shows that biodiesel downstream policy will stimulate economy growth, investment, and national export in the long run. Following biodiesel upstream policy is needed in order to support the development of energy security and food security simultaneously.