Abstract
With an increasing concern over world population, energy security, volatile fuel prices and rising in greenhouse gas emissions, many countries are considering to a more friendly alternative fossil fuels. United States and also the European Union has already introduce of legislation mandating the use of biofuels in the energy mix. This action has stimulated the demand for vegetable oils. Malaysia is currently the largest palm oil exporter and the second largest producer after Indonesia has launched her palm-based biodiesel blending mandate of 5 percent (B5) in year 2011. However the mandate has not been implemented nationwide. Thus, this study, therefore seeks to contribute to our understanding of the impacts of various blend mandates specifically B5, blending mandate of 7 percent (B7) and blending mandate of 10 percent (B10) on the Malaysian crude palm oil market stock and price. A system dynamics model was developed for the Malaysian palm oil industry which provides a framework to understand the feedback structure and how changes in various blend mandates impact the behaviour of the crude palm oil stock and price. This research suggests that increasing the blending rate is not a favourable policy, although it managed to decrease the crude palm oil stock to the targeted level but it does not contribute to palm-based biodiesel industry production due to loss in terms of profitability because of high crude palm oil prices.
Highlights
Malaysia’s palm oil industry has succeeded to be a powerful force in the global oils and fats economy over a few decades of year
The model is simulated in three different scenarios with various blending rates to analyse the impact it has on the Malaysian palm oil industry dynamics
Biodiesel can be considered as an infant industry in Malaysia which has recently ventured by the palm oil industry in order to diversify the use of palm oil through the National Biofuel Policy
Summary
Malaysia’s palm oil industry has succeeded to be a powerful force in the global oils and fats economy over a few decades of year. Malaysia is the largest exporter and second producer of palm oil after Indonesia with an annual export value accounting to RM63.4 billion in year 2014 (MPOB, 2014). Palm oil is widely demanded by various industries like food, cosmetic, pharmaceutical, and recently has ventured into the energy sector as a feedstock for biodiesel. The continuous volatility and the prospect of depletion of supply in the future of world crude oil, have forced energy dependence economy in the advanced countries to seek for alternative energy, in the form of biofuel such as ethanol and biodiesel. The Kyoto Protocol is another push-factor towards biofuel demand. The protocol sets targets for industrialized countries and the European Community to reduce the greenhouse gasses (GHG) emissions.
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