Biofuels - At what cost? - Government support for biodiesel in Malaysia

Sep 2008

This report examines the history and status of the biofuel industry in Malaysia, focusing on government support policies. It forms part of a multi-country effort by the Global Subsidies Initiative (GSI) to characterize and quantify (to the extent possible) government subsidies and other support for biofuel production, distribution and consumption, including support provided for the production of key inputs. The environmental and social impacts of biofuel production are also reviewed.
The second section of this report provides a history of the palm oil industry’s development in Malaysia, highlighting its importance to the Malaysian economy and biofuel industry. Government policies and legislation supporting biofuel production and consumption are outlined in section three, as are industry milestones and major recent announcements.
Section four provides an overview of Malaysia’s biofuel industry, together with estimates of production costs for PME biodiesel at varying palm oil costs. Biodiesel production cost estimates are compared with production costs for petroleum diesel at varying crude oil prices, to show when biodiesel is likely to become economically competitive with petroleum diesel. This introductory section provides the reader with the basic information needed to understand the business of producing biofuels in Malaysia as well as a basis for understanding government support figures listed in other sections of this report.
Current forms of government support to the biofuel production chain are discussed in section five, including support for intermediate inputs (such as feedstocks), output-linked support, value-adding factors and research and development. The potential subsidy costs of mandatory consumption requirements are also assessed.
Social and environmental implications for Malaysia of domestic and international biofuel production are addressed in section six. Section seven provides conclusions and recommendations.

By: G. P. Lopez, T. Laan (GSI)

 
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