The Global Subsidies Initiative—the producers of this newsletter—published a report in September on subsidies to biodiesel in Malaysia, one of a number of country studies that document and analyze government intervention in the biofuel market.

As the report explains, the biodiesel industry has failed to take off in recent years, and the government has restrained from implementing policies that would trigger an increase in biodiesel production. For instance, a mandate to replace 5% of domestic diesel consumption with palm-based biofuel (B5), has failed to materialize, due in large part to the fact that the price of palm oil—the main source of biodiesel in Malaysia —has risen sharply, making a B5 mandate extremely expensive. 

The high cost of palm oil has also meant that the biodiesel industry has not expanded to the degree that had been forecasted a few years ago. Of the 92 biodiesel projects that had been approved in Malaysia during 2006-2007, a survey in September 2008 revealed that there were only 14 functional biodiesel plants, eight of which had produced biodiesel this year. The remainder had cancelled plans or suspended operations due to high feedstock prices and a further four had closed.

While the stunted industry could be used as an argument in favour of government intervention, the GSI concludes that there are limited economic, social and environmental benefits of promoting biodiesel in Malaysia through government subsidies and fuel-blending mandates. Rather, the GSI argues that the biofuel industry should be allowed to function in response to market signals—consistent with environmental and social standards—so that the industry establishes itself on a sustainable rather than a government-dependent basis.

To download a copy of “Biofuels at what cost? Government support for biodiesel in Malaysia”, see: http://www.globalsubsidies.org/en/research/biofuel-subsidies-malaysia