Incentive Strategy to Strengthen the Domestic UCO Market in Efforts to Support the National Sustainable Aviation Fuel (SAF) Industry

Used cooking oil (UCO) is a low-emission raw material with strategic potential to support the production of Sustainable Aviation Fuel (SAF) in Indonesia. However, the high price disparity between export and domestic markets, along with the absence of a supportive trade ecosystem, results in most UCO being sold abroad. Reforming the UCO trade system is crucial to creating a circular economy ecosystem that supports energy transition while enhancing domestic value addition. This study indicates that fiscal incentives, green financing, and regulatory mechanisms can add value to UCO prices up to IDR 13,393/liter, allowing the domestic purchase price of UCO to reach IDR 19,393/liter, depending on the readiness of incentive instruments and the level of pass-through implemented. A SAF blend mandate, when combined with a surcharge and incentives such as tax incentives, green bonds, green loans, and carbon credits, can create stable demand and attract business participation. Graphical visualization shows that with a phased approach and multi-instrument activation, domestic UCO prices can be significantly increased, approaching export prices, without direct subsidies. Therefore, the policy strategy is structured in three phases: (1) demand creation through SAF mandates and regulatory harmonization; (2) activation of market incentives to strengthen UCO absorption; and (3) market stabilization through the establishment of a base price based on environmental value. With strong institutional support and cross-sector coordination facilitated by the Coordinating Ministry for Economic Affairs, this policy will create a sustainable incentive system and support the achievement of national decarbonization targets. Download here