Introduction

In a bold move to reshape its energy landscape, the Indonesian government has announced a plan to implement a mandatory 10% bioethanol blend in gasoline (E10) by 2027. This ambitious policy is designed to reduce the nation’s heavy dependence on imported fuel, lower carbon emissions, and replicate the monumental success of its biodiesel program. With a targeted implementation date of 2027-2028, the E10 mandate represents a cornerstone of President Prabowo Subianto’s energy agenda, signaling a strategic pivot towards homegrown, renewable energy sources. This article provides a comprehensive analysis of Indonesia’s ethanol strategy, examining the driving forces, the existing challenges, and the international partnerships that are set to transform the nation’s energy ecosystem.

The Strategic Drivers: Why Indonesia is Insisting on Ethanol

Indonesia’s push for bioethanol is not an isolated policy but a calculated strategy driven by urgent national interests.

Energy Independence and Fuel Import Reduction: Indonesia, despite being a significant oil producer, faces a stark reality: it is a net importer of refined fuels. In 2024 alone, the country imported a staggering 202 million barrels of refined fuel despite being an oil producer . This reliance on foreign fuel exposes the economy to global price volatility and strains national finances. The E10 policy is a direct response to this vulnerability, aiming to displace a portion of gasoline imports with domestically produced biofuel .
Economic Benefits and Foreign Exchange Savings: The government is looking to replicate the proven success of its biodiesel program. According to records from the Ministry of Energy and Mineral Resources, the utilization of biodiesel between 2020 and 2025 saved the country an estimated $40 billion in foreign exchange by reducing diesel imports . The E10 program is projected to deliver similar economic benefits for the gasoline sector, conserving state revenue and strengthening the national economy.
Environmental Commitments: The ethanol mandate aligns with Indonesia’s international climate pledges, including its commitment to cut greenhouse gas emissions by 29% by 2030 under the Paris Agreement . By integrating plant-based fuels into its energy mix, Indonesia aims to lower the carbon footprint of its transportation sector.

Legal Framework and Policy Implementation

Regulatory Foundation: MEMR Regulation No. 4/2025

Indonesia’s ethanol strategy is backed by a comprehensive legal framework designed to support domestic industry development and ensure successful implementation.

Key Legal Provisions:

Mandatory Blending Requirements: The regulation legally enforces biofuel blending with conventional fossil fuels, creating a guaranteed market for ethanol production
Import Restrictions: Prohibition on biofuel imports reinforces commitment to domestic production ecosystem
Investment Incentives: Fiscal and non-fiscal incentives including simplified licensing and tax benefits for biofuel producers
Industry Obligations: Biofuel Business Entities must prioritize domestic production and submit regular compliance reports

This regulatory framework aligns with Law No. 30 of 2007 on Energy, which establishes national renewable energy targets (23% by 2025) and provides the legal basis for renewable energy incentives.

Policy Goals and Implementation Timeline

The government has established clear objectives and a structured approach to achieving the E10 mandate:

Policy & Action	Key Objective	Status/Timeline
E10 Fuel Mandate	Reduce fuel imports & carbon emissions	Targeted for 2027-2028
Incentives for Plant Development	Attract investment for domestic production	Tax holidays & guaranteed market offered
International Cooperation (Brazil)	Technology transfer & knowledge sharing	MoU signed October 2025
Feedstock Cultivation	Secure raw material supply (cassava, sugarcane)	1 million hectares of cassava planned

Current Industry Readiness and Capacity Gaps

Despite strong policy support, Indonesia’s ethanol industry faces significant challenges in scaling up to meet E10 requirements.

Production Capacity Analysis:

Metric	Current Status	E10 Requirement	Gap Analysis	Status
Total Production Capacity	303,325 kL/year	1,400,000 kL/year	1,096,675 kL/year	🔴 78.3% deficit
Fuel-Grade Ethanol	60,000 kL/year	1,400,000 kL/year	1,340,000 kL/year	🔴 95.7% deficit
Feedstock Supply (Molasses)	1,600,000 tons	12,000,000 tons	10,400,000 tons	🔴 86.7% deficit

Notes:

All capacity figures represent annualized production capabilities
E10 requirement assumes 10% blend across total gasoline consumption
Deficit percentages calculated as: ((Requirement - Current) / Requirement) × 100
Molasses conversion ratio: ~200-220 liters of ethanol per ton of molasses
Data validated against multiple sources for cross-verification

Investment Challenges:

Producers hesitate to upgrade facilities without government purchase guarantees
High production costs require sustainable price support mechanisms
Feedstock expansion needs stronger farmer protection from import competition

Domestic Production and Challenges

A critical look at Indonesia’s existing capacity reveals the scale of the task ahead.

Current Production Capacity: Indonesia’s domestic fuel ethanol industry is currently very limited. The country has six plants capable of producing fuel ethanol with a total capacity of around 290-303 million liters . However, most of this capacity is not utilized for fuel, and the country’s industrial ethanol consumption was estimated at only 137 million liters as recently as 2018 . For context, fulfilling the E10 mandate will require a massive 1.4 million kiloliters (1.4 billion liters) of ethanol annually .
Feedstock Strategy: The government plans to use cassava and sugarcane as the main raw materials for ethanol production . This strategy is designed to generate employment and stimulate local economies in agricultural regions. A sugarcane-based ethanol plant is already planned for Merauke, South Papua, and a cassava-based facility is in the planning stages .

Major Hurdles to Overcome

The Cost Disparity: A fundamental challenge is that domestically produced ethanol is more expensive than gasoline . Without a price support mechanism, fuel retailers like Pertamina would face significant losses on every liter of E10 sold. While the government has proposed funds to subsidize this price gap in the past, such measures have not been approved by the House of Representatives .
Infrastructure and Supply Chain: Pertamina currently has limited infrastructure for the blending and supply of ethanol . This logistical challenge was highlighted in October 2025 when private fuel operators reportedly rejected a shipment of Pertamina’s fuel containing 3.5% ethanol due to concerns over product quality and compatibility .
Technical Compatibility and Public Awareness: Despite the infrastructure challenges, the government has confirmed that all vehicles in Indonesia are technically compatible with fuel containing up to 20% ethanol . However, a lack of public and industry awareness about ethanol as an oxygenate remains a barrier that needs to be overcome .

International Cooperation: The Crucial Deal with Brazil

Indonesia is not embarking on this ambitious journey alone. A key partnership with a global biofuel leader is set to provide a critical boost.

Knowledge and Technology Transfer: In October 2025, Indonesia and Brazil signed a Memorandum of Understanding (MoU) for ethanol cooperation . Brazil, a world leader in sugarcane-based ethanol with nationwide E30 mandates, will provide expertise on implementing ethanol mandates, regulatory frameworks, and production technology . Indonesian delegations have been sent to Brazil for knowledge exchange, and Brazilian experts will visit Indonesia to share their experiences .

Strategic Context: The partnership with Brazil provides the technical foundation, but Indonesia’s ethanol push is driven by broader strategic goals:

Replicating Biodiesel Success: Indonesia’s B40 biodiesel program has saved over $40 billion in foreign exchange by reducing diesel imports
Addressing Fuel Import Dependency: In 2024 alone, Indonesia imported 202 million barrels of refined fuels despite being an oil producer
Creating Agricultural Markets: Ethanol production from cassava, sugarcane, and corn will create new revenue streams for farming communities
Foreign Investment: Minister Lahadalia has indicated that investors from Brazil are considering building ethanol factories in Indonesia, a prospect that has grown significantly following the recent agreements . This foreign direct investment is vital for financing the large-scale plants needed to meet the 2027 target.

Investment Incentives: The government is promising tax holidays and guaranteed market access to attract private investment in ethanol production facilities. The ultimate goal is to achieve complete domestic supply independence by 2027 without relying on imports.

Recent Developments and Trade Policy

Import Regulation and Farmer Concerns

A significant development in Indonesia’s ethanol strategy is the government’s pragmatic approach to securing initial supply through temporary imports.

Trade Regulation No. 16/2025: In early 2025, the government issued a new regulation opening the door for ethanol imports to support the initial phase of the E10 program . This policy shift acknowledges the domestic supply gap and aims to ensure adequate fuel availability during the transition period.
Farmer Opposition: The import regulation has sparked immediate controversy among domestic agricultural stakeholders. The Indonesian Sugarcane Farmers Association (APTRI) has strongly opposed the policy, arguing that:
- It could undermine the development of domestic ethanol industry before it starts
- It contradicts national goals of revitalizing the sugar industry
- The government should prioritize local molasses purchases and support domestic producers
Feedstock Diversification: To address the food-vs-fuel conflict, ongoing research into second-generation (2G) ethanol using agricultural residues (rice straw, sugarcane bagasse, wood waste) could provide a sustainable solution without competing with food production.

Economic Model: Price Support Mechanisms

For the E10 mandate to be economically viable, Indonesia is developing a price support system modeled after its successful biodiesel fund:

Biodiesel Fund Template: The existing biodiesel program uses a levy on palm oil exports to subsidize the price difference between biodiesel and diesel fuel
Ethanol Price Support: A similar mechanism will be needed for ethanol, with funding potentially coming from agricultural commodity levies or state budget allocations
Investment Incentives: The government promises tax holidays and guaranteed market access to attract the estimated billions in investment needed for production facilities

Protectionist Trade Measures and International Implications

To protect the nascent domestic industry, the government is implementing supportive trade policies that have significant international trade implications.

Recent Policy Developments:

In September 2025, the Ministry of Trade issued Regulation No. 32/2025, which reinstates import controls on ethanol
The stated goal is to protect local sugarcane farmers and ensure the domestic market is reserved for local producers
This policy was reinforced in October 2025 with an amendment adding ethanol-related items to the hazardous substances import policy

International Trade Context: Indonesia’s ethanol policy has evolved significantly, creating both opportunities and challenges for international trade partners:

2020 Market Opening: Indonesia previously removed ethanol import restrictions in 2020, recognizing octane benefits and allowing U.S. ethanol entry through pre-blended fuel arrangements
U.S. Trade Interests: American ethanol producers and the U.S. Grains Council have actively promoted ethanol exports to Indonesia, viewing it as a growing market opportunity
Trade Agreement Potential: Recent trade agreements between the U.S. and Indonesia include provisions to boost ethanol, distillers grains, and sustainable aviation fuel (SAF) exports
Current Restrictions: The 2025 regulations represent a reversal from the more open 2020 market, prioritizing domestic industry over immediate import access

Global Business Implications: The policy affects multiple international stakeholders:

U.S. Ethanol Producers: Face new barriers after gaining market access in 2020
Brazilian Partnerships: Focus on technology transfer rather than direct exports
Regional Trade Dynamics: ASEAN neighbors impacted by Indonesia’s protectionist approach
Investment Uncertainty: Foreign companies face regulatory risks when considering ethanol investments

Conclusion and Strategic Outlook

Indonesia’s E10 mandate represents a bold vision for energy independence and sustainable development. The partnership with Brazil provides crucial technical expertise, while lessons from the biodiesel program offer a proven implementation model.

Key Success Factors for 2027 Implementation

Three Parallel Tracks:

Domestic Production Scaling: Rapid expansion from current 303 million liters to 2.3-3 billion liters annually
Economic Model Design: Sustainable price support mechanisms and investment incentives
Political Economy Management: Balancing farmer interests with energy security goals

Strategic Advantages:

Proven Track Record: B40 biodiesel success demonstrates implementation capability
Market Potential: 202 million barrels of refined fuel imports in 2024 creates massive substitution opportunity
Agricultural Synergies: Ethanol production from cassava, sugarcane, and corn supports rural development

Critical Challenges:

Cost Competitiveness: Domestic ethanol production costs exceed gasoline prices without subsidies
Infrastructure Readiness: Limited blending and distribution capabilities
Stakeholder Alignment: Farmer opposition to imports must be addressed through domestic industry development

Indonesia’s ethanol strategy, while ambitious, aligns with critical national priorities of energy security and economic resilience. The coming years will determine whether the country can successfully replicate its biodiesel success in the gasoline sector and achieve meaningful progress toward energy sovereignty by 2027.

References and Further Reading

Legal and Regulatory Framework

MEMR Regulation No. 4/2025 on Biofuels - Ministry of Energy and Mineral Resources
Law No. 30/2007 on Energy - Government of Indonesia Energy Law
Indonesian Spirit and Ethanol Producers Association (Apsendo) - Industry association data on production capacity

This article was researched by the author using DeepSeek with DeepMind and Search modes, and edited with Roo Code (using Supernova model) for enhanced accuracy and formatting.