Indonesia urged to hike UCO export tax to fund SAF goals

A new research brief suggests Indonesia could successfully fund its sustainable aviation fuel ambitions by increasing the export levy on used cooking oil and establishing a dedicated fund to support domestic production.

The report, published by the International Council on Clean Transportation Oct. 15, argues that the country's current policies miss an opportunity to harness a valuable, low-emission resource for its green aviation targets.

Indonesia has a national program that mandates the blending of biofuels into the country's fuel supply, but support for bio-jet fuel has not been widely implemented compared to biodiesel.

The government aims for a 1% blend of SAF in 2027, which will require an estimated 60,000 kiloliters of hydroprocessed esters and fatty acid fuels.

Used cooking oil is considered a prime feedstock for producing this SAF, as it is associated with low greenhouse gas emissions and is an attractive near-term option due to its low production costs.

However, Indonesia's UCO collection is decentralized and poorly regulated, with collection rates estimated to be below 50%.

A significant volume of the UCO collected, averaging over 235,000 metric tons annually between 2019 and 2023, is exported.

Proposed UCO fund

The ICCT brief proposes creating a Used Cooking Oil Fund, modeled after the country's successful Palm Oil Estate Fund, which supports biodiesel production through levies on palm oil exports.

This new fund would be financed by a higher service fee on UCO exports, creating a revenue stream to stimulate domestic SAF production.

The researchers analyzed several hypothetical fee structures, concluding that the current 9.5% service fee is insufficient to support the government's goals. Their analysis indicates that an export service fee above $150/mt of UCO would likely generate enough income to meet the 1% SAF blending mandate by 2027, and could even create a surplus for future years.

The proposed UCOF could support the industry in two primary ways:

• Subsidizing UCO Collection: The fund could cover the cost of purchasing UCO from collectors, currently around Rp 6,000 per liter, which would significantly lower the feedstock cost for SAF producers. This approach would require approximately Rp 605 billion per year to meet the 2027 target.
• Providing Production Incentives: Alternatively, the fund could provide a direct subsidy to HEFA fuel producers to bridge the price gap between UCO-based SAF (est. Rp 22,902/L) and conventional jet fuel (Rp 16,139/L). The ICCT notes this would be the less costly option for the government, requiring about Rp 406 billion annually.

Centralized authority

The report highlights that robust, government-led regulation of UCO is common in other Asian nations.

South Korea and Japan have implemented strict collection schemes and designated UCO as a key feedstock for their biofuel and SAF goals.

The ICCT suggests Indonesia could follow these examples by establishing a centralized authority to oversee UCO collection and management

Indonesia already channels palm oil export levies into its biodiesel program, now moving from B35 to B40 blends.

The finance ministry's May regulation lifted the UCO levy to 9.5% of the monthly crude-palm-oil reference price, but ICCT researchers call that "small" relative to the palm levy and "a missed opportunity" to bankroll aviation decarbonisation.​​

State-owned Pertamina's Cilacap refinery shipped its first UCO-derived SAF batch in August after trial runs using 3% UCO in co-processing mode. The plant can scale SAF output to 1,400 kl/day via the HEFA route, but long-term expansion hinges on reliable, competitively priced feedstock.

Platts, part of S&P Global Energy, assessed Asia SAF-Jet fuel spread at $1,379.5/mt on Oct.17 up $4.14/mt day on day.