World Crude Oil Prices and Indonesia’s Progressive Biodiesel Policy: Asymmetric and Volatility Response to Malaysian Palm Oil Prices
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Cluster Research Grant, 2024
Abstract
In recent years, there has been a significant surge in the prices of vegetable oils. This can be attributed to their expanded use in both the food and fuel industries, thus leading to an imbalance in the supply and demand situation in the market. This rise has sparked a debate on the relationship between vegetable oils and the energy transition. It is undeniable that vegetable oils serve as a sustainable and renewable energy source, which can help reduce greenhouse gas emissions and combat climate change. However, concerns arise regarding their availability amidst rising demand in both the food and fuel sectors. Historically, fluctuations in energy prices have had an impact on agricultural costs. However, this dynamic has recently been reversed due to the growing utilization of agricultural commodities in biofuel production. For instance, the use of palm oil for biodiesel production in Indonesia has raised worries about uncertainty and price volatility. As Indonesia remains a key player in palm oil production and exportation, Indonesian government initiatives aimed at promoting their domestic biodiesel industry contribute to the volatility of vegetable oil prices, particularly palm oil prices. Motivated by these phenomena, this research seeks to address fundamental questions largely overlooked by previous studies: how changes in one market can ripple throughout others following Indonesia's progressive biodiesel policy implementation. By examining spill over effects before and after the onset of this policy, this study hopes to gain insights into its implications and ensure stability within the global palm oil market.
Project Leader
