Indonesia’s president sets 20% ethanol-blending target in two years
The Iran war energy shock has accelerated a shift that was already underway. Researchers at Chatham House, a U.K. think tank, estimated that meeting governments’ current biofuel-blending targets would require devoting an additional 139,000 square miles to biofuel crops — roughly the area of Montana. The estimate reflects the cumulative land impact if all current targets are realized.
Even before the conflict, several governments were raising biofuel targets. Indonesian President Prabowo Subianto last week set a target of a 20% ethanol blend in gasoline within two years — doubling and bringing forward the country’s existing mandate. Indonesia plans to grow more sugar cane for ethanol production while blending more palm-oil-derived biodiesel. Several other countries have agreed to buy American biofuels under recent trade deals.
U.S. trade has followed the demand. Vietnam imported eight times more U.S. ethanol in the first half of 2026 than in all of 2025, according to the U.S. Agriculture Department, which last week announced a new plan to boost biofuel exports.
For U.S. biodiesel producers, the economics are improving. Biodiesel made from soybean oil costs more to produce than regular diesel and is profitable only because of subsidies and rules requiring refiners to blend it with conventional fuel. The recent surge in the cost of regular diesel has shrunk that premium — a margin boost for producers.
One measure of biodiesel economics is the BOHO spread — the gap between soybean-oil and ultra-low-sulfur-diesel prices. Normally soybean oil costs more than the finished fuel. That gap nearly vanished last week, and the spread briefly flipped negative for the first time since 2019, according to Dow Jones Energy data.
Even a less dramatic escalation in biofuel demand would raise risks for food prices. The cost of crops and vegetable oils is already climbing because of more expensive inputs such as diesel and fertilizer, and there is concern that El Niño will disrupt global harvests.
“These biofuel mandates are being put in place because the governments want to protect their people against oil-price shocks at the pump. If it translates into a food-price shock five months down the line, that would prove counterproductive,” said Subhra Bhattacharjee, director general of the Forest Stewardship Council, a nonprofit that funded the Chatham House research.
Deforestation is the other concern, and it can arrive indirectly. Using land for fuel in one country can raise crop prices and spur forest clearing in another, negating the climate benefit of displacing fossil fuels. Direct clearing, such as felling rainforest for palm-oil plantations, can produce the same result.
Biofuels do not have to drive deforestation. They can be produced on already-degraded land or made from waste products such as used cooking oil. But the accounting techniques used to track land-use ripple effects have run into political resistance.
The Trump administration abandoned a Biden-era plan to reduce subsidies for biofuels deemed to be indirectly linked to deforestation. In July, EU lawmakers — operating under some of the world’s most stringent biofuel standards — voted to overturn a plan to phase out soybean-derived biofuel because of its land-use impact. Policymakers preoccupied with near-term fuel supplies may find it easier to tune out the sound of chainsaws.
U.S. biofuels policy dates to the 1970s oil shock, beginning with support for corn-based ethanol blended into gasoline. Production has steadily grown since, helped in no small part by lobbying from the agriculture industry.