NATIONAL AGRICOMMODITY POLICY (2021-2030)

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3
Value Creation: Accelerate innovation
and technology adoption

Increase R&D and adoption of technology (IoT, IR 4.0, data analytics) in planting management,
downstream processing, and marketing (digital marketing and e-commerce)

Investments in modern technology will enable the industry to be more productive, generate better
yield and produce higher quality outputs. In addition, there will be other downstream benefits
in product and market developments. The Government will provide R&D incentives to increase
adoption of technologies such as the use of Unmanned Aerial Vehicle (UAV) for pest and disease
control, field management and also in developing engineered building products, e.g., industrialised
building system (IBS) panels. IR4.0 technologies will enable the industry to think creatively in
improving the entire value chain from manufacturing to distribution and delivering better customer
services.

Form strategic partnerships to create new high-value-added kenaf/fibre-based products

Targeted partnerships will be forged with firms that have specific industry knowledge and
technology that can rapidly accelerate the development of the kenaf industry. The Government will
work with relevant parties and networks to promote fibre use in related sectors, such as in building
materials and construction, wood-based products, high tech textiles, etc. Strategic partnerships
will be forged with manufacturers that use natural fibres to make components for industrial
applications. Additional initiatives will be taken to identify products that can be manufactured from
kenaf material with an existing market base and manufacturing technologies.

Conduct market research and techno-economic study to find the best commercial uses for
plant-based fibres

The fibre market has much potential in global markets. Knowing the fibre characteristics and
understanding their commercial applications will provide much-needed knowledge for the
development of the entire value chain. The Government will invest in market research and techno-
economic studies to help provide this important information to the industry, much in the same
way that it has done for the other Agricommodity industries. Therefore, the research focus will
be emphasis on product development, manufacturing, branding, marketing, and distribution
strategies.

196 National Agricommodity Policy 2021-2030 (DAKN2030)

4
Market Development: Foster
partnerships and international
collaboration

Expand industry-led strategic partnerships to increase market access and expand into
new markets

Moving forward, the involvement of the private sector is one of the most crucial elements in the
development of the kenaf industry. The Government aims to support and assist private sector
leadership of the industry through strategic partnerships and other initiatives. The hand-in-hand
collaboration between the Government and the private sector is a key ingredient in achieving the
target of a RM1 billion industry value for the kenaf industry by 2030.

The policy to commercialise natural fibre-based products will be put in place, with the aim of
creating higher value biofibres. For example, mechanical fibres from kenaf have a huge potential
application in composite materials, IBS building materials, pulp and paper as well as biodegradable
utensils. Therefore, the Government will seek close collaboration with the private sector and will look
into the improvement of the mechanical fibres quality and price competitiveness.

Target foreign-local collaboration

To reach its full potential, active collaboration with international players in the kenaf/fibre industry is
key to keeping abreast with advancements in the industry. Collaboration can take place at different
levels. The strengthening of collaboration between foreign and local kenaf manufacturers will be
undertaken to facilitate the transfer of technological know-how and sharing of knowledge through
R&D. Foreign fibre firms with access to international markets would give a head start to local firms
that want to export but lack market outreach.

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5
Inclusiveness: Increase Bumiputera
participation in the kenaf industry

Enhance entrepreneur development via an infant industry programme for Bumiputera
and MSMEs

To increase Bumiputera participation, a kenaf MSME development programme will be started
for midstream and downstream value-added activities. As a nascent industry, MSME investors
and entrepreneurs will be assisted in developing market opportunity via business matching and
allocated a share in the captive market, as a headstart of an infant industry programme. In addition,
the Government will set up a “nucleus entity” to foster Bumiputera collaboration with the private
sector for access to technical and commercial technology in processing and manufacturing
capabilities.

Develop Smallholder Cooperatives to achieve economies of scale through mechanisation and
other initiatives

The Government will introduce a pilot scheme of cooperative farming clusters that will feature
collaboration between smallholders and the private sector. The cooperative development scheme
will target commercial-scale kenaf production that will prioritise mechanisation and productivity
to achieve economies of scale. This strategy will also aim to attract investment to complete the
development of the kenaf value chain. The aim of business collaboration between smallholders and
the private sector is also targeted at the development of cooperatives.

198 National Agricommodity Policy 2021-2030 (DAKN2030)

ENABLERS NEEDED

Two enablers are outlined to ensure effective implementation of the strategies to drive the kenaf
industry’s development in particular, and plant-based fibres in general.

Investment Facilitation

The Government provide investment facilitation support for the private sector to venture into the
kenaf industry. New investment is essential for building up the manufacturing infrastructure,
expanding the growth of upstream production, and to capitalise on the latest research and know-
how on kenaf technology for commercialisation.

Human Capital Management and Development

The Government will prioritise the development of skilled human capital to manage all the
segments of kenaf operations in Malaysia. At the upstream and midstream levels, skilled labour
is required to run operations at kenaf plantations and operate machinery. Meanwhile, at the
downstream level, skilled human capital is needed to foster kenaf entrepreneurs and establish a
strong foothold in the kenaf industry. Appropriate human capital development will drive the growth
and development of kenaf and other plant-based fibres domestically and globally.

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Chapter

Scaling Up The Circular
Economy Through

Agricommodity Biomass

9

202 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 203

Preliminary
Way Forward 2021-2030

10 15

Indicators Strategies
& Targets

1 2 4 5

SUSTAINABILITY PRODUCTIVITY MARKET DEVELOPMENT INCLUSIVENESS
Promote the circular Develop an industry Position Malaysia as a Create
economy concept in the Leading Agricomodity
Agricomodity sector ecosystem that Biomass Hub income-generation
• Enhance the utilisation optimises costs, opportunities for
efficiency and • Encourage local Smallholders,
of biomass in current adoption of
Agricomodity value technology Agricomodity biomass Bumiputera and MSMEs
chains • Invest in R&D&C to solutions • Develop the capacity of
• Develop certification
standard for the improve efficiency and • Ensure MSMEs to utilise,
agricomodity biomass tecnology adoption export-readimess by manufacture and
industry • Fully utilise and complying with certify higher-value
develop infrastructure technical specifications biomass products
and logistics networks and global • Encourage smallholder
sustainability standards participation in the
circular economy
• Increase export • Promote entry of
promotion of entrepreneurs into
processed products ancillary services

• Capture opportunities
across the circular
economy

3

VALUE-CREATION
Facilitate financially viable ventures into high-value biomass industries
• Set up collection centres and establish transparent data
• Devise fair pricing mechanisms to unlock consistent supply of feedstock
• Mainstream the use of OPT as timber raw material
• Incentivise industry to invest in the production of high-value products

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1 CURRENT
STATUS

Agricommodity biomass could provide large quantities of alternative raw materials which would
otherwise be discarded as waste. This provides an opportunity for the Agricommodity sector to
transition from a linear economy to a circular economy by reducing, reusing and recycling resources
(the 3R concept) in the production and manufacturing cycle while limiting waste. Systematic
capturing and processing of Agricommodity biomass – long considered as waste ‒ into products
with commercial value will help to scale up the circular economy. These efforts will also increase
efficiency of the Agricommodity sector through reduced dependence on natural resources while
promoting sustainable production and consumption. In addition, there will be new opportunities for
value creation through innovation in line with and green growth principles.

The DAKN2030 focuses on Biomass from the by-products, residue or waste material generated from
the production of primary Agricommodity products. Two main sources of biomass are covered to
start with:

Oil palm biomass, the largest source of Agricommodity feedstock - estimated availability of 92
million tonnes dry weight per year (based on 2019 data)83; includes oil palm trunks (OPT), oil palm
fronds, empty fruit bunches (EFB), mesocarp fibres and palm kernel shells (PKS)

Timber and Wood-based Biomass - estimated availability of 7.8 million cubic metres (m3) in
201984; covers residue from processing logs, sawn timber, plywood, veneer and mouldings.

Biomass from primary crops such as kenaf is covered in the Plant-based fibres chapter (Chapter 8),
while bioenergy from Palm Oil Mill Effluent (POME) Biogas and Bio-CNG are covered in the Biofuels
chapter (Chapter 10), as is biodiesel.

The development of economic opportunities
from biomass gained momentum in the early
2010s

In the early 2010s, Agensi Inovasi Malaysia (AIM)85 was tasked to kickstart the biomass industry with
the implementation of the National Biomass Strategy 2020. The Malaysian Industry-Government
Group for High Technology (MIGHT) complemented this effort by producing the Biomass Industrial
Action Plan 2020. Several opportunities were identified for products and applications in bio-energy,
bio-fertilisers, bio-composites and bio-chemicals, as shown in Exhibit 9.1.

83 Introduction to Oil Palm Biomass (Presentation), MPOB (2020)
84 NOTE: Data is computed by MTIB.
85 Agensi Inovasi Malaysia ceased to exist in December 2020 with the expiry of the AIM Act 2010. The biomass function has been absorbed

into MIDA - the Circular Economy, Biomass and Renewables Unit under Manufacturing Development (Resource)

Policy Document 205
Exhibit 9.1: Opportunities for Biomass Product Development

These initial efforts were supported by optimism for the industry’s potential. In 2013, it was estimated
that Gross National Income (GNI) from the biomass industry could reach RM 30-34 billion by 2020,
along with the creation of 66,000 incremental jobs86. In addition, it was expected that biomass
utilisation would help Malaysia meet its renewable energy targets, lower greenhouse gas (GHG)
emissions and reduce dependence on non-renewable and non-sustainable sources of energy.

Significant progress has been made

The efforts towards ecosystem-building over the last seven years have resulted in several pioneering
projects spearheaded by both the Government and the private sector. This involved engagement to
increase awareness of feedstock owners and industry players on the potential of biomass and viable
project development opportunities together with the private sector and investors. Enablers were
also put in place, including the development of strategic plans, R&D&C towards commercialisation
of products, and incentives to encourage investments and exports. While the targeted GNI and job
creation impact targets to 2020 were not achieved, significant outcomes have been delivered, as
highlighted in the table below.

86 National Biomass Strategy 2020, AIM

206 National Agricommodity Policy 2021-2030 (DAKN2030)

Table 9.1: Examples of Outcomes Delivered in the Biomass Industry

Organisation Highlights of Outcomes Delivered (Not exhaustive)

National Biomass Strategy Driving overall ecosystem development and connecting stakeholders across the
Delivery Unit, Agensi value chain, for example:
Inovasi Malaysia (AIM) Two strategic documents to guide industry development:
National Biomass Strategy 2020
Sabah and Sarawak Biomass Industry Development Plan
Three Biohub Projects in progress:
Johor 2G Sugar Biorefinery and BioHub
Sabah Commercial BioHub and Bioport
Sarawak BioHub port and Industrial Estate
Organised the International Biomass Conference Malaysia to highlight biomass
industry opportunities in Malaysia

Malaysian Palm Oil Board Successful commercialisation of oil palm biomass technologies, for example:
(MPOB) Bio-chemicals - microcrystalline cellulose (MCC) from oil palm fibres, bioethanol
and biobutanol
Bio-composites - automotive upholstery and OPT-derived wood products
Solid biofuels - briquettes and low-ash EFB pellets
Bio-fertilisers
Biochar and activated carbon

Malaysian Timber Industry Facilitating the growth of wood-based/bio-composite companies through
Board R&D&C, promotion and capacity building programmes, for example:
(MTIB) Wood-plastic composites
OPT veneer and plywood
OPT sawn timber

Bioeconomy Corporation Facilitating the growth of biotechnology companies (including 30 biomass-
related projects) through funding and capacity building programmes, for
example:
BioNexus Status (BNX) – a status awarded to companies utilising biotechnology
to obtain corporate tax exemption
Bioeconomy Transformation Programme (BTP) – funding projects that apply
technologies for bio-based feedstock
Bioeconomy Community Development Programme (BCDP) – capacity building
for BioNexus companies and/or BTP projects via the contract farming concept

Malaysian Industry- Encouraging industry-led R&D&C, and project development within the biomass
Government Group for industry, for example:
High Technology (MIGHT) Developed the Malaysian Biomass Industry Action Plan (MBIAP) 2020
EU-Malaysia Biomass Sustainable Production Initiative (Biomass-SP) – Driving
Micro, Small and Medium Enterprises (MSME) towards economic growth via
sustainable production
Malaysian Biomass Initiative – Propelling Malaysia as a market leader in high-
value green chemicals/material (HVGC)

These efforts have stimulated private sector investment. In 2019 alone, fourteen projects on oil palm
biomass were approved by MIDA, with investments amounting to RM1.14 billion. Several Malaysian
MSMEs are successfully developing, commercialising and exporting biomass products and
developing bio-engineering solutions. Two projects implementing the BioHub concept that utilise
wood-based and oil palm biomass are currently in progress in Sabah and Sarawak. These projects
have attracted investments from global industry players, with the participation of local companies as
co-development partners and are elaborated in the box article below.

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BIOHUB DEVELOPMENT IN SABAH AND SARAWAK

Agensi Inovasi Malaysia (AIM) through the National Biomass Strategy Delivery Unit started the BioHub
Concept with a vision to create an Integrated BioHub Complex with multiple plug-and-play biorefineries and
biochemical plants. The first wave of this BioHub development in Malaysia focuses on three states: Johor,
Sabah, and Sarawak, which account for about 80% of available biomass resources. As a start, the Sabah
and Sarawak Biomass Industry Development Plan (SBIDP) will spur and expedite the growth of this industry
in Malaysia.

Sarawak BioHub Port
The BioHub Port and Industrial Estate located between Bintulu and Samalaju has been identified to spur
highly localised and value-added downstream biomass activities. It contains enabling infrastructure such
as integrated R&D and innovation, and technology-based business opportunities for local and international
investors. The project targets local industries and communities to run their own basic biomass collection,
aggregation and preparation mills as part of the larger supply pipeline for major processing plants and
export markets. The development of the Sarawak BioHub port aims to capture about RM4.8 billion in
additional revenue per year, create more than 35,000 new Green jobs and generate approximately RM18
billion in investments. Initial works for the development are expected to commence in the first quarter of
2021.

BioHub Development in Sabah
This project is a wood biomass-based Biorefinery with a Circular Economy Model that is aligned with the
BioHub development model. The project is expected to create approximately 2,500 direct jobs in the area of
Sipitang in the West of Sabah, and aims to attract around RM15 billion in investments.

Source: Agensi Inovasi Malaysia (AIM) / MIDA - Circular Economy, Biomass and Renewables Unit

208 National Agricommodity Policy 2021-2030 (DAKN2030)

Agricommodity biomass opportunities are
being developed by MPOB and MTIB

As the primary research agency for the palm oil industry, MPOB has ventured into developing
technologies for oil palm biomass as part of its circular economy development efforts. To date,
various production technologies and products have been successfully patented and commercialised.
In the future, the potential for high-value products lies in the extraction of lignin and fermentable
sugars into fine chemicals.

The Malaysian Timber Industry Board (MTIB) is also driving the research, development and
commercialisation of technologies for biomass-derived wood-based products. Oil Palm Trunks
(OPT) have shown exciting potential for the production of palm plywood and sawn timber,
making it a sustainable alternative raw material for the construction and furniture industry. MTIB
has encouraged and promoted the processing of OPT. Examples of products developed and
commercialised by MPOB and MTIB are highlighted below.

Table 9.2: Examples of Agricommodity Biomass products

Product Commercial Applications

Bio-fertiliser

Mulch Oil palm trunk and fronds used directly in plantations

Compost Windrow and industrial composting systems, commercialised by mills and
fertiliser producers

Bio-energy

Heat and Power Empty Fruit Bunches (EFB), Palm Kernel Shells and Mesocarp Fibres used as
boiler fuel in mills

Solid, liquid and gas Briquettes and low ash EFB pellets
biofuels

Bio-composites and Bio-products

Medium Density Fibreboard MDF production from oil palm trunk and fronds - successful

(MDF) commercialisation with a Korea-based company

Plywood Palmwood veneer and high-density palm plyboard production from oil palm
trunk, high-quality palm plywood for furniture and construction developed
and patented by MTIB

Wood-Plastic Composites Production of metal-reinforced WPC from saw dust, developed and patented
(WPC) by MTIB and Perceptive Profile Sdn Bhd

Sawn timber Production from oil palm trunk, developed by MTIB

Automotive Upholstery Fibre-reinforced plastic composite, patented by MPOB and Proton

Bio-char Produced from Palm Kernel Shells – used for soil amendment as it can help
improve yield and reduce nutrient leaching

Activated carbon Household items such as carbon cloth, charcoal soap, tablets and in wood
vinegar, produced from Palm Kernel Shells

Bio-chemicals

Cellulose and Derivatives Microcrystalline cellulose (MCC) from EFB Fibres

Policy Document 209

From Left to Right: Plywood, Automotive upholstery, Paper products, Briquettes
From Left to Right: Oil Palm Trunk, Palm Sawntimber, Palm Dining Set, Lounge Chair. Source: MPOB; MTIB

210 National Agricommodity Policy 2021-2030 (DAKN2030)

2 KEY
ISSUES

Two key issues need to be resolved to maximise the potential of Agricommodity biomass - securing
feedstock at fair prices and addressing barriers to investment to shift towards high-value product
development.

Securing consistent feedstock is challenging

Agricommodity biomass feedstock such as oil palm biomass needs to be collected and transported
to processing facilities. Doing this at scale remains a challenge due to the remote locations of oil
palm plantations and mills, and palm oil price volatility which makes plantations and smallholders
reluctant to commit to high volume, long term supply at fixed prices.

Various issues raised in the early 2010s remain unresolved, including competing applications of
biomass for in situ use (e.g., mulching and composting at oil palm plantations, input for boilers in
timber mills); concerns over the impact of biomass removal on crop yields; as well as the constraints
of collecting and utilising EFB from independent mills. Furthermore, feedstock supply consistency
and technical standards have yet to be developed, resulting in uncertainty when it comes to
pricing87.

Another significant consideration is the different priorities and needs of downstream and upstream
players. Downstream players require long-term feedstock supply at high volumes and very low fixed
costs to justify their high investments in processing facilities and to meet export commitments. This
is only really practical for large oil palm plantations that have their own processing facilities. Most
upstream players find it unviable to commit high volumes at low prices due to high transportation
and storage costs, especially given their remote locations. This scenario has resulted in low actual
availability and accessibility despite a theoretical abundance of feedstock.

High barriers to investment deter the
development of higher-value products

Today, the bulk of biomass products produced by micro, small and medium enterprises (MSMEs)
are low-value products that have low barriers to entry such as solid fuels, fertilisers, fibre boards,
and sound dampening sheets. Basic cellulose products such as carboxymethyl cellulose (CMC) are
produced too88. Limited access to institutional financing has slowed the transition to high-value
products which require long-term, large-scale investments that are beyond the financial capacities
of MSMEs.

87 Malaysian Biomass Industrial Action Plan 2020 (MIGHT, 2013)
88 Introduction to Oil Palm Biomass (Presentation), MPOB (2020)

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Unfortunately, many early projects did not succeed, potentially due to a lack of technical knowledge
and limited implementation capabilities. The highly technical nature of biomass projects, combined
with this poor track record makes it difficult for bankers and financiers to favourably assess the
viability of higher-value projects. As a result, the majority of approved funding ends up being for
perceived safer investments which tend to be lower-value products such as biomass pellets and
biogas plant projects.

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3 WAY FORWARD
FOR BIOMASS

Unlocking the full potential of the circular economy through Agricommodity biomass will involve
a wide range of stakeholders. It will require cooperation and collaboration across Government,
independent smallholders, independent mills, large plantations, timber processing companies,
and MSMEsall have a role to play. The Government aims for the Agricommodity biomass industry
to develop and grow sustainably to drive the growth of the circular economy while ensuring
inclusiveness - all players across the value chain must be treated fairly. The immediate focus is
to streamline delivery to ensure the implementation of measures needed to further strengthen
the industry ecosystem. MPIC will coordinate the development of Agricommodity biomass at the
Ministry-level while MPOB and MTIB will continue to focus on R&D&C and driving implementation in
partnership with industry players for their respective industries.

The first step towards unlocking the full potential of Agricommodity biomass will be the completion
of the Agricommodity Biomass Strategy 2030 - a holistic stocktake and development plan for the
industry. This strategic plan will detail out the implementation of the proposed strategies and define
suitable targets for the indicators below.

AGRICOMMODITY BIOMASS: INDICATORS, PRELIMINARY
2020 BASELINE FIGURES AND BROADPRELIMINARY
STRATEGIES 2021-2030

Policy Thrust Indicators Preliminary Baseline 2020 Broad Strategies – to be refined as part
of the National Biomass Action Plan
SUSTAINABILITY 1. Biomass utilised Oil Palm Wood-Based
Promoting the for Bioenergy Enhance the utilisation of biomass in
circular economy 5% 100% current Agricommodity value chains
concept in the 2. Greenhouse Gas
Agricommodity (GHG) emissions 19.68 kgCO2/kg N/A Develop a certification standard for the
sector reduced through total biomass Agricommodity biomass industry
biomass utilisation (CO2 saving)
PRODUCTIVITY Invest in R&D&C to improve efficiency
Developing 3. Number of palm 10% N/A and technology adoption
an industry oil mills fully
ecosystem that utilising biomass Fully utilise and develop infrastructure
optimises costs, and logistics networks to optimise
efficiency and 4. Transfer/ 10% 50% production and distribution costs
technology licensing and
commercialisation
rate of new R&D
technologies

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Policy Thrust Indicators Preliminary Baseline 2020 Broad Strategies – to be refined as part
of the National Biomass Action Plan
5. Contribution to Oil Palm Wood-Based
GDP (RM) Set up collection centres and establish
RM 30 billion RM 32.4 million transparent data to support the supply
(Revenue from and acquisition of Agricommodity
OPT plywood biomass resources

only) Devise fair pricing mechanisms for
upstream and downstream players to
VALUE-CREATION 3 million 5,000 m3 unlock consistent supply of feedstock
Facilitating tonnes (based (20% of OPT
f inancially on EFB Fibres Mainstream the use of OPT as timber
viable ventures plywood raw material
into high- export) production)
value biomass Incentivise industry to invest in the
industries RM 10 billion RM 6 million production of high-value products, e.g.,
bio-polymers and bio-composites
6. Total Exports 20% (domestic) N/A
(Tonnes/m3) 90% (foreign Encourage local adoption of
investment) Agricommodity biomass solutions
MARKET 7. Total Exports (RM)
DEVELOPMENT Ensure export-readiness by complying
Position Malaysia 8. Increase in with technical specifications and global
as a leading investment sustainability standards
Agricommodity
biomass hub Increase export promotion of processed
products through strategic G2G and B2B
engagements

Capture opportunities across the circular
economy

9. Number of MSMEs N/A 8 (4 OPT Develop the capacity of MSMEs to utilise,
involved in the plywood manufacture and certify higher-value
biomass industry biomass products
companies, 4
INCLUSIVENESS 10. Average increase Wood-Plastic Encourage smallholder participation in
Create income- in smallholder the circular economy industry by linking
generation incomes from the composite with downstream players for oil palm
opportunities sale of biomass companies) biomass feedstock (e.g., oil palm Trunk,
for Smallholders, Fronds) at fair prices
Bumiputera and RM10/OPT
MSMEs Promote entry of entrepreneurs into
ancillary services (e.g., collection,
inspection, logistics)

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BROADPRELIMINARY STRATEGIES

TO MAXIMISE THE
POTENTIAL OF

AGRICOMMODITY BIOMASS

Fifteenpreliminary strategies are proposed across the five policy thrusts to maximise Agricommodity
biomass utilisation and encourage expansion into high-value bioproducts. These broadpreliminary
strategies are subject to refinementchange , pending validation as part of the National Biomass
Action PlanAgricommodity Biomass Strategy 2030 which will be developed in 20221.

1
Sustainability: Promoting the
circular economy concept in the
Agricommodity sector

Enhance the utilisation of biomass in current Agricommodity value chains

The mass utilisation of biomass will turn waste into wealth and create a circular economy for
Agricommodity industries. The palm oil industry will lead the way through the establishment of the
Agricommodity Biomass Strategy, driving the widespread downstream usage of oil palm biomass.
Subsequently, downstream industries will be further encouraged to utilise Agricommodity biomass
through increased awareness of its potential applications, and support provided through technical
guidance and financial incentives.

Develop a certification standard for the Agricommodity biomass industry

Robust regulatory mechanisms are needed to ensure sustainable development and reduce the
risk of increased environmental pollution or social inequalities. A certification standard for oil palm
biomass products will be developed through the Chain-of-Custody (CoC) concept, ensuring biomass
products are traceable. In future, other feedstock sourced from Agricommodity crops with existing
certification standards could also be certified through mutual recognition. The introduction of this
certification standard will be complemented by efforts to educate the industry on the need to certify
and also the mechanisms made available for certification.

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2
Productivity: Developing an industry
ecosystem that optimises costs,
efficiency and technology

Invest in R&D&C to improve production efficiency and technology adoption

Local technological and industrial expertise can be built up by continuous and increased investment
in R&D&C to improve the efficiency of existing production processes. This will involve encouraging
the transfer of technologies from Government Research Institutes (GRI) and facilitating quality
Foreign Direct Investments (FDI) from countries with mature technologies, including through joint-
venture agreements for technology transfer with local companies to encourage Domestic Direct
Investments (DDI) as well. Joint collaborative studies and demonstration projects will be engaged
at the Government-to-Government (G2G) level to design, innovate and develop future technologies
suited to utilise local biomass feedstock.

Fully utilise and develop infrastructure and logistics networks to optimise production and
distribution costs

Having the right physical and digital infrastructure in place is an essential component for achieving
high productivity, allowing firms to optimise production and distribution costs. To unlock maximum
available feedstock, logistics networks from remote plantations and mills will be further developed,
and the capacity of mills to fully capture and separate by-products, residues and waste will be
improved through capital investment incentives. Additionally, regional downstream industries will
be strategically located based on the type and availability of feedstock within each surrounding
region to minimise transportation and logistical costs.

216 National Agricommodity Policy 2021-2030 (DAKN2030)

3
Value-creation: Facilitating financially
viable ventures into high-value
biomass industries

Set up biomass collection centres and establish transparent data to support the supply and
acquisition of Agricommodity biomass resources

Up-to-date industry-wide data will be made available to support the supply and acquisition of
biomass resources and inform investment decision-making from the private sector. The first step
will be to set up both physical and virtual consolidated collection centres for biomass, enabling
greater linkages between feedstock owners and downstream industries.

Devise fair pricing mechanisms for upstream and downstream players to unlock consistent
supply of feedstock

To address the mismatch in prices among upstream and downstream players, the feasibility of
various pricing mechanisms will be considered, for example, devising auction or negotiation
channels, or mandating regulated supply of feedstock. Gaps in the value chain will be bridged to
facilitate financially viable ventures into the industry by local firms and MSMEs that are independent
of grants and incentives. This will assure potential investors or financial institutions of the long-
term sustainability of the biomass industry, increasing their confidence to support downstream
production.

Mainstream the use of OPT as timber raw material

Significant R&D has been carried out by both MPOB and MTIB to enable the production of veneer,
plywood and lumber from Oil Palm Trunks (OPT). The use of OPT as a new source of raw material will
be scaled up to help address the current raw material shortage in the timber industry.

Incentivise industry to invest in the production of high-value products, e.g., bio-polymers and
bio-composites

Another important step in ensuring the long-term growth of Agricommodity biomass is to
incentivise industry to shift from low-value pellet production to develop high-value bio-chemicals
and bioproducts. Access to institutional financing will be facilitated by collaborating with industry to
improve the technical knowledge of financial institutions in evaluating high-value biomass projects
and reduce the perceived risk associated with nascent biomass projects. Increasing the number of
loans approved will also allow MSMEs to raise the capital needed to kickstart investment into higher-
value ventures.

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4
Market Development: Position
Malaysia as a leading Agricommodity
biomass hub

Encourage local adoption of Agricommodity biomass solutions

Awareness campaigns and inter-ministry engagement will be conducted to increase the application
of Agricommodity biomass in the domestic market. For example, increasing the use of bio-fertilisers
derived from biomass as a sustainable agricultural input for the domestic agricultural sector will
support the growth of the domestic Agricommodity biomass industry.

Ensure export-readiness by complying with technical specifications and global
sustainability standards

Industry players will be encouraged to ensure that all Agricommodity biomass products are export-
ready by complying with global sustainability standards and technical specifications. This will create
opportunities to enter new markets with more stringent requirements.

Increase export promotion of processed products through strategic G2G and
B2B engagements

The export promotion of processed products will be intensified through strategic (Government-to-
Government) G2G and (Business-to-Business) B2B engagements to increase the regional visibility of
Malaysia’s Agricommodity biomass products and related services.

Capture opportunities across all Agricommoditybiomassthe circular economy

In the long term, the Government will encourage industry players to capture opportunities
to diversify Agricommodity biomass feedstock beyond oil palm and wood-based biomass.
Opportunities will be explored to capture the potential of other Agricommodity biomass such as
rubber, cocoa, pepper and plant-based fibres.

218 National Agricommodity Policy 2021-2030 (DAKN2030)

5
Inclusiveness: Create income-
generation opportunities for
Smallholders, Bumiputera and MSMEs

Develop the capacity of MSMEs to utilise, manufacture and certify higher-value
biomass products

Current efforts to develop MSMEs will be extended to those participating in the biomass industry
through institutional funding and capacity building, increasing their ability to utilise, manufacture
and certify their products to compete at higher value markets.

Encourage smallholder participation in the circular economy industry by linking with
downstream players for oil palm biomass feedstock (e.g., OPT, Fronds) at fair prices

To support the shared prosperity agenda, smallholders will be encouraged to capture this additional
income-generation opportunity and monetise their oil palm trunks and fronds. They will be
linked with downstream players to supply their biomass feedstock at fair prices. This strategy will
be implemented in tandem with a regulated replanting programme for oil palm trees, providing
smallholders with an opportunity to generate income while increasing the productivity for their
main economic activity.

Promote entry of entrepreneurs into ancillary services (e.g., collection, inspection, logistics)

When biomass is traded on a large scale, there will be greater demand for ancillary services, such
as in the collection, inspection and transport of raw materials and processed products to support
more value-adding activities. This will create additional jobs for low and medium-skilled workers to
participate in the industry. Entrepreneur development schemes will be implemented to this end.

Policy Document 219

FLAGSHIP PROGRAMME 10: AGRICOMMODITY CIRCULAR
ECONOMY (ACE)

Background

Biomass is a strategic, high-impact industry for economic growth in the Twelfth Malaysia
Plan (RMKe-12) due to its potential in creating significant additional value in line with circular
economy principles. Biomass plays a key role in scaling up the adoption of circular economy
approaches in the agricommodity sector. Building on ecosystem development efforts over
the past decade, a comprehensive approach will be taken to unlock the utilisation of existing
oil palm feedstock and timber waste, including incentivising the development and uptake
(market acceptance) of higher value-added products and services among industry players.

Several initiatives are in the pipeline, mainly for oil palm and wood-based biomass, for example:

National Biomass Action Plan formulation to define a detailed development roadmap and
implementation plan for the Biomass industry

Up-to-date feedstock database to identify sources of supply, and facilitate large-scale
acquisition of biomass resources

Oil Palm Trunk (OPT) for furniture and wood-based products
Biogas for energy to reduce Greenhouse Gas (GHG) emissions at palm oil mills
Premium poultry feed substitute made from Palm Kernel Cake (PKC)
R&D&C&I for high-value applications from biochemical and bio products
Study on the establishment of biomass hub in the southern peninsula

In the medium to long term, similar opportunities will be explored and expanded for other
Agricommodity biomass feedstock available in the rubber, cocoa, pepper and plant-based
fibres industries.

Objectives

Unlock greater utilisation of existing Agricommodity biomass feedstock
Stimulate innovation and value creation in Agricommodity biomass industries to promote

high value-added biomass products

Target Segments

Agricommodity biomass feedstock owners
MSMEs and large corporations manufacturing high-value products from biomass

220 National Agricommodity Policy 2021-2030 (DAKN2030)

Lead Agency and Relevant Stakeholders

Lead Agency: MPIC – BBA, MPOB, MTIB
Relevant Stakeholders: Agricommodity biomass feedstock owners, biomass industry

players

Expected Outcomes
Reduced waste and carbon footprint in the Agricommodity sector, in line with circular

economy approaches
New products and business opportunities created in Agricommodity biomass, increasing

value creation and generating more jobs for skilled workers

any high-quality pictures (if available)

Policy Document 221

ENABLERS NEEDED

Two enablers are needed to support the implementation of the above strategies. These too will be
validated and finalised in the development of the Agricommodity Biomass Strategy in 2021.

Investment Facilitation

The visibility of available investment incentives currently offered towards the Agricommodity
biomass industry will be increased, with awareness-building geared towards industry players and
financial institutions. These incentives will be refined periodically to best meet industry needs,
including to ensure access for local MSMEs.

Human Capital Management and Development

Fostering the continued growth and development of the Agricommodity biomass will require
dedicated, consistent knowledge within the civil service. As the ministry responsible for developing
the Agricommodity biomass industry, MPIC will develop the skilled human capital needed within
the ministry to grow and set the right direction for the biomass industry. This will include learning
engagements with countries that have a thriving biomass industry to obtain knowledge and
insights on policy coordination, supply chain models, sustainable certification standards and
industry best practices. Engagement with industry will also be formalised to ensure consistent
interactions to better understand their needs and facilitate capacity building, investment attraction
and implementation of projects.

1

Chapter

Promoting Biofuels As A
Source Of Clean Energy

10

224 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 225

Biodiesel
Way Forward 2021-2030

10 7

Indicators Strategies
& Targets

1 2 4

SUSTAINABILITY PRODUCTIVITY MARKET DEVELOPMENT
Encourage certification Increase biodiesel Protect existing

and build consumer utilisation markets and explore
support S3. Increase biodiesel plant new opportunities

S1. Encourage the use of capacity utilisation S6. Address existing
certified sustainable market barriers that
feedstock and limit palm biodiesel
certification of output exports

S2. Build consumer S7. Explore and break into
support for biodiesel as new export markets
a source of clean
energy through
fact-based
communication

3

VALUE-CREATION
Drive development and testing of new applications
S4. Maritime: Drive development and testing of maritime

biodiesels – tests with auxiliary engine OEMs; field
trials on board ships
S5. Aviation: Develop and pilot solutions for biojet fuel

226 National Agricommodity Policy 2021-2030 (DAKN2030)

Biogas
Way Forward 2021-2030

6 7

Indicators Strategies
& Targets

1 5

SUSTAINABILITY INCLUSIVENESS
Biogas capture facilities Supporting rural

in all mills electrification
S1. Continue educating S7. Include biogas as part

and encouraging mills of the solution in rural
to install biogas electrification schemes
capture facilities

2

PRODUCTIVITY
Invest in R&D&C to
increase feasibility of

grid connection
S2. Invest in R&D&C, i.e.,

database, feasibility
study and technical
evaluation on grid
connection

3

VALUE-CREATION
Tap into the potential from biogas capture
S3. Promote power generation where feasible
S4. Facilitate mills to convert biogas to bio-CNG
S5. Introduce a bio-CNG blending mandate
S6. Develop mill cluster schemes

Policy Document 227

Agricommodity Biofuels in the DAKN2030
context are palm oil-based

Biofuels refers to fuels derived from renewable and sustainable biological sources, often as part of
‘waste to wealth’ efforts in the circular economy. Increasingly, they are seen as complements or
substitutes for fossil fuels, which are non-renewable and seen as unsustainable in the long run. Raw
materials for plant-based biofuels can be from:

Oils from commodity crops for example, soybean oil, rapeseed oil, corn oil and palm oil
Crop residues from the cultivation and production of the Agricommodity
Waste products or their treatment, resulting from the processing of the crop

For the purposes of DAKN2030, Biofuels covers:

Palm Biodiesel – palm methyl esters that use palm oil as the feedstock
Renewable Hydrocarbon Fuel - palm oil-based hydro-treated vegetable oil (HVO) and

sustainable aviation fuel (SAF)
Palm Oil Mill Effluent (POME) biogas–produced during the treatment of liquid effluent

Solid biofuels from other Agricommodity sources are covered in other chapters, i.e.,

Biomass: empty fruit bunches, palm kernel shells, sawn wood dust and other crop residues
Plant-based fibres: woody biomass from primary crops such as kenaf

UNDERSTANDING PALM OIL-BASED BIOFUELS

The major liquid fuel using palm oil feedstock is palm methyl esters (PME), commonly known as palm
biodiesel. The simplest and cheapest process to produce palm biodiesel is by transesterification of oils and
fats with methanol. The resulting fatty acid methyl esters (FAME) have similar fuel properties to petroleum
diesel, and can be used as a substitute, or blended with petroleum diesel in various proportions. These are
used in:

diesel internal combustion engines in the transportation (land and maritime) sector;
generator sets and the power generation sector;
boilers that produce steam; and
machinery in the industrial sector.

The other liquid fuel derived using palm oil as a feedstock is hydro-treated vegetable oil (HVO) which is a
hydrocarbon and has identical physico-chemical properties to petroleum diesel. HVO can be used as a direct
substitute for petroleum diesel, or blended with petroleum diesel or palm biodiesel. Sustainable aviation
fuel (SAF) can be blended with fossil-based aviation jet fuel or Jet A1 to varying degrees to produce biojet
fuels.

228 National Agricommodity Policy 2021-2030 (DAKN2030)

Biogas is produced when crop residue and organic waste undergo a natural process of fermentation and
biodegradation by microorganisms. In the Agricommodity sector, the major source of biogas is in the
treatment of palm oil mill effluent (POME), before it is discharged into the environment. Biogas contains
65% methane, a gaseous fuel and can be used in gas engines to generate electricity, or in boilers to generate
combined heat and power (CHP).

Installation of biogas capture facilities has clear environmental benefits - methane emissions have 25
times the greenhouse gas (GHG) effect compared with equivalent carbon dioxide. The combustion of biogas
(methane) generates energy and results in the emission of carbon dioxide instead. This reduces the GHG
effect from biogas-methane by about 16 times.

Palm Oil is one of the most efficient sources of
biofuels

Palm oil requires much less planted area compared to other sources of vegetable oils. Only 0.26 ha of
planted area of oil palm is needed to extract one tonne of palm oil compared to rapeseed oil (1.25 ha),
sunflower oil (1.43 ha), and soybean oil (2 ha).

Exhibit 10.1: Land area required to produce 1 tonne of vegetable oil

Policy Document 229
In this context, the use of palm oil as feedstock for biofuels is an efficient alternative. Planting oil
palms for biofuels saves valuable fertile land for the cultivation of food crops, and could reduce the
need for deforestation – an important factor in addressing climate change.
Palm oil is also the most-produced vegetable oil globally, at 72 million tonnes per year - slightly over
30% of total global oils and fats produced (230 million tonnes per year)89. Palm oil is also
the cheapest among the major vegetable oils90 making it most suitable as feedstock for the
production of biofuels on a large scale.

89 Oil World Annual 2020
90 ibid

230 National Agricommodity Policy 2021-2030 (DAKN2030) PALM
BIODIESEL
1 CURRENT
STATUS

The global demand for biodiesels is expected
to decrease

Global demand for biodiesels is expected to decrease from 49 billion litres per annum to 46 billion
litres per annum through to 2029. Demand has been driven by developed countries thus far, but
this is expected to decrease steadily over the next few years. Demand from developing countries,
conversely, is expected to increase, driven by policies favouring more sustainable sources of energy
and fuel.

Exhibit 10.2: Forecast of global biodiesel consumption (2020 – 2029)

Policy Document 231

Fast-growing developing countries are expected to drive demand for palm biodiesel over the next 10
years, driven by countries such as Brazil, China and Indonesia.

Exhibit 10.3: Forecast of Biodiesel consumption in 2029 among developing countries

232 National Agricommodity Policy 2021-2030 (DAKN2030)

Malaysia produced 906,153 tonnes of palm
biodiesel in 2020

Palm biodiesel production in Malaysia has increased rapidly since 2011. In 2019, Malaysia’s output of
1.42 million tonnes accounted for 3.5% of global biodiesel production. Production decreased in 2020
to 906,153 tonnes due to significantly reduced demand as a result of the fall in global crude oil prices
and the COVID-19 pandemic. Of this amount, domestic consumption constituted 68% at 614,975
tonnes – mainly for land transport and industry.

Exhibit 10.4: Palm Biodiesel Production (2011 - 2020)

Total palm biodiesel exports in 2020 were 378,582 tonnes91. The EU has long been a key buyer of
Malaysian biodiesel, taking up almost 78% of total exports in 2020. Primary export destinations were
Spain and the Netherlands92.

91 Palm biodiesel exports include palm methyl esters, used cooking oil (UCO) and sludge oil and are based on MPOB’s records
92 DOSM (2020)

Policy Document 233

2 KEY
ISSUES

The key issues for palm biodiesel revolve around price competitiveness relative to gas oil (fossil fuel
sources), low utilisation of existing production capacity and increasing sustainability requirements
from core markets.

Palm biodiesel is not cost competitive versus
gas oil

The actual cost of producing biodiesel is largely dependent on the price gap between crude palm
oil (CPO) and gas oil (petroleum diesel) - known as the POGO spread. The POGO spread fluctuates
– there are times when palm oil prices can be cheaper than petroleum diesel prices and vice versa.
For instance, with the onset of COVID-19 in 2020, petroleum diesel prices have collapsed while palm
oil prices increased due to lower production, resulting in palm oil being much more expensive than
petroleum diesel.

Current output is only 41% of total capacity

As at December 2020, 19 biodiesel plants were in operation with the capacity to produce 2.2 million
tonnes of biodiesel. However, only 906,153 tonnes were produced in 2020, with only 41% of capacity
utilised.

Exhibit 10.5: Biodiesel Production Capacity (2020)

234 National Agricommodity Policy 2021-2030 (DAKN2030)

Exports of palm biodiesel to the EU will face
restrictions

Currently, imports of palm biodiesel into the EU are required to be certified sustainable under the
International Sustainability and Carbon Certification (ISCC) scheme. The EU’s Renewable Energy
Directive II (RED II) imposes two additional restrictions through the RED II Delegated Act which was
passed in 2018:

consumption of crop-based biofuels, to reduce the consumption of food crops for fuel; and
crop-based biofuels with a high risk of indirect land-use change (ILUC).

Biodiesel using palm oil as feedstock is classified as a crop-based biofuel, along with other major
vegetable oil feedstocks, such as rapeseed, soybean and sunflower oils. However, the use of palm
oil as feedstock for biofuels is additionally classified as a high-risk indirect land-use change (ILUC)
biofuel under RED II.

This classification limits the use of palm biodiesel in the EU’s renewable energy targets (2021 to 2023)
to 2019 consumption levels. This target will be reviewed in 2023 and is expected to be reduced to 0%
by 2030. This is a big concern for Malaysia as 80% of biodiesel is exported to the EU.

Expanding The Usage Of Palm Oil As Biofuel

Land Transport and Industry

The domestic biodiesel programme started with land transport use

In recognition of biodiesel’s environmental and economic benefits, Malaysia has mandated
biodiesel use through regulations on land transport and industry. The biodiesel programme was
implemented in phases, starting with the B5 biodiesel programme (blends of 5% palm biodiesel
with 95% petroleum diesel) for the land transportation sector in June 2011. The programme was
later upgraded to B7 and implemented across the country in December 2014, followed by the B10
biodiesel programme in 2019.

Targeted B20 biodiesel programme implementation started in 2020, with phased nationwide rollout
planned subject to infrastructure readiness. In July 2019, mandatory B7 blending was introduced for
the industrial sector, with exemptions for the power generation, maritime and bunkering sectors.
The B30 biodiesel programme is planned for implementation by 2030. However, the B30 biodiesel
programme rollout could start earlier if sufficient technical data has been acquired. Beyond the
B30 biodiesel programme, renewable hydrocarbon fuel or palm-based HVO could be introduced in
future.

Policy Document 235

BIODIESEL DEVELOPMENT IN MALAYSIA STARTED IN THE 1980s

Year Milestone
1981-1983 Palm biodiesel project inspired by Palm Oil Research Institute Malaysia (PORIM) and initiated at
laboratory scale; Palm Biodiesel Steering Committee established
1984 Initial field tests on 7 taxis using palm biodiesel
1986-1989 Comprehensive Field Test (Phase I) involving 31 public vehicles
1990-1994 Comprehensive Field Test (Phase II) by Mercedes Benz-AG, involving 36 public buses
Transfer of Palm Methyl Esters (PME) production technology to industry
1995 Research on Winter grade Palm Biodiesel initiated
2001 Use of B5 by all diesel vehicles owned by the Malaysian Palm Oil Board (MPOB)
2004 Testing of 100 tonnes of palm oil biodiesel on ARRIVA train in Germany
2005 First commercial integrated normal and winter grade palm biodiesel plant established in Malaysia
using MPOB’s technology
2006 Voluntary use of B5 by various ministries and agencies including MPIC, MPOB, and Kuala Lumpur
City Hall (Dewan Bandaraya Kuala Lumpur, DBKL)
2007 Introduction of National Biofuel Policy 2006
2011-2014 Gazettement of the Malaysian Biofuel Industry Act (Act 666)
Staged implementation of mandatory B5 Biodiesel Programme – starting with Central region,
2014 followed by Southern, Eastern and Northern Regions
2015 B10 biodiesel trial programme by DBKL involving a total of 50 vehicles in phases
2019 Mandatory implementation of B7 (Transport) Biodiesel Programme nationwide
2020 Mandatory implementation of B10 (Transport) and B7 (Industrial) Biodiesel Programme nationwide
2021-2022 Implementation of B20 (Transport) Biodiesel Programme in Langkawi, Labuan, and Sarawak
Planned implementation of B20 (Transport) Biodiesel Programme in Sabah and the rest of
Peninsular Malaysia

Domestic adoption has been driven by mandates

The growth in domestic biodiesel consumption throughout the country has been driven by
government mandate and support as shown in Exhibit 10.6. The biodiesel distribution network is
essential to ensure take-up by industry and the land transport sector. Credible technical data is
needed to convince the automotive sector to support higher blending mandates due to concerns
over engine performance and durability, although the National Automotive Policy 2020 supports the
implementation of biodiesel as a fuel source. A positive recent development is the endorsement of
the Japanese Automobile Manufacturers Association (JAMA) on the use of B20 palm biodiesel.

236 National Agricommodity Policy 2021-2030 (DAKN2030)

Exhibit 10.6: Palm Biodiesel Utilisation (2011-2020)

Maritime

The use of palm biodiesel blends can be extended to the maritime sector which uses various grades
of diesel and fuels oils for propulsion power and electricity on board ships.
Restrictions on fossil fuels in the maritime sector
The fuels used in maritime vessels are diesel, marine gas oil (MGO), marine diesel oil (MDO) or heavy
fuel oil (HFO). Smaller maritime vessels that operate near the coastline use MGO or diesel to propel
their vessels.
The majority of large commercial ocean-going vessels currently rely on HFO – the cheapest fuel oil.
These fuels pollute the environment due to their high sulphur content. As a result, when nearing
ports and mooring, these ocean-going vessels are required to switch to diesel due to the standard
operating procedure at ports and to reduce pollution. Diesel is also used in their auxiliary generator
sets and boilers.
Testing and field trials are needed
Currently, the maritime and bunkering sectors are exempted from the B7 Biodiesel Programme due
to insufficient technical data and lack of infrastructure. Future planning includes driving R&D and
field trials on the usage of biodiesel blending with secondary engines, auxiliary generator sets and
boilers on ocean-going vessels and ocean liners.

Policy Document 237

In the longer term, the International Maritime Organisation (IMO) could further extend regulations
to increase sustainability practices in the shipping industry. This will lead to further reductions in
the use of fossil fuels, especially HFO, MGO and MDO – and create opportunities for increased use of
biodiesel. In preparation for this, R&D and field trials will be carried out to stress-test and strengthen
technologies for blending palm biodiesel with fossil fuel-based maritime fuels.

Aviation

Sustainable aviation fuel (SAF) derived from any vegetable oil as feedstock can be used as aviation
fuel. Palm-based biojet fuel is a type of SAF that can be blended with fossil-based aviation fuel. It is a
hydrocarbon and has identical physico-chemical properties to fossil fuel-based aviation fuel.

Demand for more sustainable aviation fuel is increasing

SAF has been on the radar of the aviation industry for many years now, with test flights as early
as 2008 proving that SAF can be safe and at least as efficient as conventional jet fuels. The global
aviation industry recognises its responsibility to reduce carbon emissions, and set targets towards
this end, including a 50% reduction in carbon emissions by 2050 compared to 2005 levels93.

Many airlines in developed economies have committed to carbon reduction targets, and more than
40 airlines have had experience with SAF94 to date. Countries such as the United Kingdom have even
developed their own SAF roadmap.

Technologies exist but cost is a barrier

SAF that is certified under the American Society for Testing and Materials (ASTM) D7566 standards
by various pathways can be blended into fossil-based aviation fuel up to 50%. This has been the
subject of research and trials globally. However, global SAF production quantities are not significant
as the cost of production is much higher than current fossil-based aviation fuel.

Developing SAF will be a priority in the coming years

The International Civil Aviation Organisation (ICAO) has set up a market-based mechanism for
reducing aviation carbon footprint, the Carbon Offsetting and Reduction Scheme for International
Aviation (CORSIA). The pilot phase will start in 2021, where participation by member states is
voluntary. Malaysia is one of the 88 states that have agreed to participate on a voluntary basis in the
pilot phase.

Up to seven technical pathways have been approved for commercial use by IATA. The most
appropriate technology and solutions in the Malaysian context will be researched, evaluated, tested,
and developed during this policy period.

93 IATA Sustainable Aviation Fuel Roadmap 1st Edition (2015)
94 IATA (https://www.iata.org/en/programs/environment/sustainable-aviation-fuels/) Accessed DEC2020

238 National Agricommodity Policy 2021-2030 (DAKN2030)

PREPARING TO PRODUCE SAF

Sustainable Aviation Fuel (SAF) describes a non-conventional aviation fuel produced from alternative
feedstock. Feedstocks for SAF are varied; ranging from used cooking oil, vegetable oils, municipal solid
waste, waste gases, and agricultural residues – to name a few. The chemical and physical characteristics
of SAF are almost identical to those of conventional jet fuel and they can be safely mixed with the latter to
varying degrees, use the same supply infrastructure and do not require the adaptation of aircraft or engines.

The Ministry through MPOB is planning to conduct R&D to produce palm-based SAF that is in line with the
Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a global scheme developed
by the International Civil Aviation Organisation (ICAO) with goals to reduce emissions from international
aviation and to meet carbon-neutral growth goals.

CORSIA will be implemented gradually:

Pilot (2021-2023) & Phase 1 (2024-2026): Voluntary Participation involving 88 states that represent
almost 77% of all global international aviation activity, including Malaysia.

Phase 2 (2027 onwards): Mandatory for all member states with more than 0.5% individual share of
international aviation activities. States classified as “Least Developed”, “Small Island Developing” or
“Landlocked Developing” are exempted.

Source: ICAO

Policy Document 239

3 WAY FORWARD
FOR BIODIESEL

The Government will take a three-pronged approach to maximise available biodiesel production
capacity and consumption for the land transport and industrial sector: grow domestic demand,
expand exports, and increase competitiveness. In parallel, R&D will be undertaken, and pilot
programmes will be implemented to develop solutions for maritime and aviation biofuels. Indicators,
targets, and strategies for palm biodiesel are highlighted below, covering four out of the five
policy thrusts: Sustainability, Productivity, Value-creation and Market Development. Inclusiveness
is not covered as palm biodiesel requires large players to drive R&D, product development and
commercialisation due to the high costs involved.

PALM BIODIESEL: INDICATORS, TARGETS
AND STRATEGIES 2021-2030

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
70% 90% 100%
SUSTAINABILITY 1. % Biodiesel Encourage the use of
Encourage sourced from (B10 Transport (B20 Transport (B30 Transport certified sustainable
certification and certif ied / B7 Industry) / B7 Industry) / B10 Industry) feedstock and
build consumer sustainable certification of output
support palm oil for local 420 1,181 1,181
mandate Build consumer
PRODUCTIVITY 1,590 3,540 support for biodiesel
Increase biodiesel 2. Volume of CPO for as a source of clean
utilisation Biodiesel sourced 41% 60% energy through fact-
from certified based communication
sources (‘000 760 1,165
tonnes) 3,540

3. Annual reduction 90% Increase biodiesel plant
in GHG emissions capacity utilisation
from biodiesel
usage (‘000 tonnes 1,920
CO2 equivalent)

4. % of biodiesel
production
capacity utilised
(2.5 million tonnes
capacity in 2020)

5. Domestic
consumption of
biodiesel (‘000
tonnes)

240 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
5% 50% 100%
VALUE-CREATION 6. R&D on alternative Maritime: Drive
Drive fuel for low 20% 40% 60% development and
development and sulphur maritime 10% 80% 100% testing for biodiesels
testing of new application 300 360 – such as tests with
applications (percentage N//A 20% auxiliary engine OEMs;
completion of field trials on board
MARKET R&D) ships
DEVELOPMENT
Protect existing 7. Biofuel testing Aviation: Develop and
markets and with auxiliary pilot solutions for biojet
explore new engine OEMs fuel
opportunities
8. R&D on palm- 420 Address existing
based biojet fuel 40% market barriers that
and flight test limit palm biodiesel
exports
9. Export Volume
(‘000 tonnes) Explore and break into
new export markets
10. % of export volume
to new markets

Policy Document 241

STRATEGIES TO ACHIEVE

PALM BIODIESEL
TARGETS

Seven strategies have been identified to increase take-up of palm biodiesel, diversify product range
and expand into higher value-added on palm-based biofuel products.

1
Sustainability: Encourage certification
and build consumer support

Encourage the use of certified sustainable feedstock and certify output

The Government will encourage all biodiesel plants to use certified sustainable feedstock (e.g.,
MSPO, RSPO, ISCC) in biodiesel production (end-to-end value chain). This is important to provide
assurance that production is based on responsibly sourced, sustainable feedstock. Producers will
also be encouraged to seek certification for the palm biodiesel produced, for example, ISCC or any
other internationally-recognised certification. Going forward, the traceability of palm biodiesel will
be prioritised, leveraging technologies such as blockchain. All these efforts will support the national
sustainability agenda while increasing the credibility of Malaysian palm biodiesel.

Build consumer support for biodiesel as a source of clean energy through
fact-based communication

Consumer awareness and demand is an important factor in driving the sustainability agenda
globally. The Government will promote recognition of palm biodiesel as a productive and efficient
source of clean energy through fact-based and engaging communication to the public. Key
messages include the need to reduce carbon emissions and mitigate the impact of climate change
by reducing fossil fuel consumption, and the contribution of palm biodiesel towards energy security.

242 National Agricommodity Policy 2021-2030 (DAKN2030)

2
Productivity: Increase biodiesel
utilisation

Increase biodiesel plant capacity utilisation

Biodiesel plant capacity utilisation will only increase when there is sufficient demand for palm
biodiesel, and supply to market is cost-effective. The primary levers to stimulate demand are to
increase domestic consumption and expand export markets (covered under market development
below).

To increase domestic consumption, staged increases in blending mandates will continue, with
the goal of implementing the B20 Biodiesel Programme and subsequently the B30 Biodiesel
programme nationwide. Expansion of biodiesel to other land transportation modes will also be
implemented, for example for use on trains. Mandates will be set for industry to shift from B7 to B10.

High impact projects will be identified to collect technical data for the B30 biodiesel programme
such as fleet trial and engine testing with vehicle manufacturers, government agencies,
transportation companies and related stakeholders.

FLAGSHIP PROGRAMME 11: B20/B30 BIODIESEL

Background

The nationwide rollout of the B20 programme is ongoing and currently planned for
implementation in phases subject to infrastructure readiness. Plans are currently being put
in place to increase biodiesel blending in phases to B30 by 2030 for land transport and other
subsidised sectors. However, the programme rollout could proceed earlier depending on
infrastructure readiness, technical verification by vehicle manufacturers, development of B30
biodiesel standards and engagement with various stakeholders.

Estimated Crude Palm Oil Consumption Estimated GHG Avoidance for the
for the National Biodiesel Programme National Biodiesel Programme
(Tonnes/Year) (CO2 eq Tonnes/Year)

Biodiesel B10 Programme for the Transportation Sector

533,589 1,602,000

Biodiesel B20 Programme for the Transportation Sector

1,067,178 3,202,000

Biodiesel B30 Programme for the Transportation Sector

1,600,767 4,802,301

Policy Document 243

Objectives

Expand the usage of palm oil downstream products, as well as a mechanism to manage
crude palm oil (CPO) stock and stabilise CPO prices

Reduce the rate of greenhouse gas (GHG) emissions in line with the aim to reduce GHG
emission intensity of Gross Domestic Product (GDP) by 45% by 2030 (relative to 2005 rates)

Help to reduce the country’s dependence on fossil fuels as part of national energy security
efforts, while scaling up the circular economy

Target Segments

Land transportation and other subsidised sectors
Users of diesel vehicles

Lead Agency and Relevant Stakeholders

Lead Agencies: MPIC and MPOB
Relevant Stakeholders: Petroleum companies and storage depots; biodiesel production

companies; automotive manufacturers

Expected Outcomes

Supporting economic growth based on green energy
Reducing the intensity of carbon emissions from the transportation sector
Encouraging the production of Palm Methyl Ester (PME)

3
Value-creation: Drive development and
testing of new applications

Maritime Sector: Drive development and testing for biodiesels

R&D and field trials on ships, boats and vessels using biodiesel blended with petroleum diesel in
different proportions will be carried out in collaboration with engine manufacturers and end-users.
Two areas will be explored and tested to gauge the effect of biodiesel blends on diesel engines and
build the confidence of the maritime industry:

smaller ships, tugboats, ferries and other vessels that operate near the coastline; and
ocean-going vessels utilising diesel in auxiliary engines and boilers

244 National Agricommodity Policy 2021-2030 (DAKN2030)

Aviation Sector: Develop and pilot solutions for biojet fuel

Partnerships between the Government and private parties will be formed for end-to-end biojet fuel
development, R&D of other SAF, pilot plant production of SAF, and flight tests with commercial
airlines. R&D into SAF will also be undertaken.

Currently, the acceptable palm-based feedstock for the production of SAF are palm fatty acid
distillate (PFAD), palm biomass and used cooking oil (UCO). PFAD is a by-product from the refining
of CPO, hence cheaper than CPO. However, the production of PFAD is limited to 5% of the CPO
processed - about 1 million tonnes in Malaysia (2020) – and there is high demand for it in the animal
feed and oleo-chemical industries.

The setting up of a pilot SAF plant will be encouraged to produce sufficient quantities of palm-based
SAF for blending with fossil-based aviation fuel for test flights. The Government will facilitate test
flights using palm-based SAF to demonstrate the feasibility of using SAF on commercial jets.

4
Market Development: Protect
existing markets and explore new
opportunities

Address existing market barriers that limit palm biodiesel exports

The Government will continue engaging with the EU and other potential markets with independent,
fact-based analysis in response to issues raised. Industry players will also play a role in continuing
to improve practices, respect land-use restrictions and invest in better planting materials and
techniques to increase yield and reduce depletion of natural resources.

Explore and break into new export markets

The Government will take the opportunity to promote exports of Malaysian biodiesel as more
countries adopt carbon-neutral aspirations and uphold commitments on greenhouse gas (GHG)
emissions reduction targets under the Paris Agreement of the United Nations Framework
Convention on Climate Change (UNFCCC). Opportunities include forming G2G arrangements
with other emerging economies that have made commitments on these targets. This includes
the development of second-generation biofuels as mentioned above, to meet future market
requirements.