Jerome Hamilton (Head of Legal, ChemOne Group) and Jessica Xia (White & Case, Associate, Melbourne) contributed to the development of this publication.
Despite recent challenges facing the renewable energy and alternative fuels sectors, many individual countries, multilateral organizations and industry players remain committed to cutting carbon emissions from aviation in the medium to long term. In this context, sustainable aviation fuel (SAF) has emerged as a potential key tool – SAF can be produced from renewable feedstocks, and then blended with conventional fuel and 'dropped into' existing aviation fuelling systems. Depending on the feedstock and technological production pathway used, SAF's lifetime carbon intensity can be significantly lower than that of conventional jet fuel.
The SAF industry is still relatively nascent, and SAF is more costly than conventional jet fuel (even after the recent elevation in oil prices associated with hostilities in the Middle East), but as the pressure to decarbonise aviation continues to grow, demand for SAF is likely to rise. The global SAF industry was valued at USD$1.8 billion in 2024 and $2.3 billion in 2025, with a historical market growth rate of 52% annually from 2019 to 2024. While forecasts vary considerably, the value of the global SAF market is expected to exhibit an annual growth rate of between 40% and 65% over the next ten years to 2036.
Historically, the bulk of SAF production has been in North America and Europe. In 2025, North America alone accounted for 47.11% of the global SAF market's revenues. However, as the global SAF market grows in the coming years, Southeast Asia (in addition to China) may carve out substantial market share. In particular, Indonesia and Malaysia are well-positioned for success due to three key factors – the greater availability of feedstock, support from domestic government initiatives and demand driven by international requirements and frameworks. Notwithstanding these positive factors, to capitalise upon the opportunity before them, Indonesia and Malaysia will need to improve feedstock diversification and aggregation, strengthen supportive domestic regulations and policies and further align domestic SAF production with facilitative international frameworks.
Greater availability of SAF feedstock
SAF production and profitability are dependent on the cost and availability of relevant feedstocks. The most technologically mature pathway for SAF production, hydroprocessed esters and fatty acids (HEFA), is used for 80-90% of current global SAF output and relies on the processing of agricultural products, waste oils or fats. SAF producers often face considerable challenges in obtaining supply of these feedstocks in sufficient quantities. However, Indonesia and Malaysia, which account for 58% and 25% of global palm oil production, respectively, may have a competitive advantage in producing SAF based on the use of palm oil (including crude palm oil and palm kernel oil) as a feedstock in the HEFA process.
Nevertheless, palm oil is a controversial input, due to its longstanding association with environmental issues such as indirect land use change (ILUC). Consequently, key markets such as the European Union exclude palm oil-based SAF from counting towards regulatory SAF mandates and targets (see the ReFuelEU Aviation Regulations, read in conjunction with RED III), limiting associated demand. Policies that prevent or disincentivize export credit agencies (ECAs) and commercial lenders from supporting palm oil production (for example, CACIB's CSR Sector Policy and OECD member ECAs' adherence to the Common Approaches) further impact such SAF projects' bankability, although recent relaxation of certain environmental policies in the banking sector may increase the availability of financing. In addition, import restrictions such as those proposed under the EU Deforestation-Free Regulation (EUDR) could, upon their implementation, drastically reduce demand for palm oil-based SAF. Less clear under the foregoing regulations and policies is the treatment of SAF produced from palm oil mill effluent (POME), palm fatty acid distillate (PFAD) and other residues and wastes associated with palm oil production.
Although Indonesia currently relies heavily on palm oil for its SAF production, Indonesia's SAF Industry Development Roadmap, which sets out its proposed national SAF strategy over the next several decades to 2060, envisages a strong near-term focus on used cooking oil (UCO) as a feedstock. However, current aggregation systems in Indonesia are lightly regulated and largely decentralised, with aggregators of varying scale collecting UCO from both businesses and households. Only an estimated 23% of the UCO produced domestically is collected. This represents significant untapped potential, which could be unlocked with targeted investment in improving Indonesia's aggregation systems. While estimates vary, Indonesia likely produces 700,000-900,000 tonnes of 'practically and economically collectable' UCO per year. Aggregation of 715,000 tonnes of UCO per year would provide feedstock for the production of 187,000 kiloliters of SAF. Malaysia has similar challenges and potential, with an estimated collectable volume of 158,000 tonnes of UCO per year, and a somewhat higher (albeit still low) collection rate of 30-45%.
Aggregation aside, the availability of UCO as a SAF feedstock in both countries is also impacted by competing uses. In 2024, approximately 95% of Indonesia's collected UCO was exported to other countries. To increase feedstock availability domestically, the Indonesian government has more recently banned the export of both UCO and POME. Malaysia remains one of the world's largest UCO exporters, but has indicated that export restrictions could be implemented in the near future.
In addition to UCO, alternative options for feedstock diversification may exist in both countries to support SAF production. In particular, palm cultivation and palm oil processing produces certain residues and wastes (for example, POME and PFAD) that can also be used as SAF feedstock. Degraded land, previously used for palm oil production or otherwise, potentially could be used to plant certain energy crops without displacing other viable land uses. Both countries could, theoretically, also import SAF feedstocks to supplement domestic supply, although the economics of such arrangements may be challenging, feedstock exports generally are in high demand and domestic regulations may need to be clarified to facilitate such import (for example, any restrictions on the import of waste products into these countries).
Domestic government initiatives to support SAF
Both Indonesia and Malaysia are working towards stronger policy frameworks and clearer signalling of future governmental intent to create environments that are more conducive to investment in SAF production projects.
Government mandates for SAF usage (as implemented elsewhere, such as in the European Union and Singapore – see below) may be a critical lever to drive such investment by ensuring ongoing domestic demand. To this end, Indonesia's SAF Industry Development Roadmap proposes an incrementally increasing SAF blending requirement for all international flights departing from two of the country's major airports (which account for approximately 53% of Indonesia's international flight traffic). The proposal outlines plans to implement SAF blending requirements of 1% by 2027, 2.5% by 2030 and 50% by 2060. Similarly, Malaysia's Aviation Decarbonisation Blueprint envisions a 1% SAF blending mandate coming into effect in 2027 for all outbound international flights from Kuala Lumpur International Airport, followed by incremental increases in blending requirements culminating in 47% by 2050. However, neither of these proposals has fully crystallized into law, limiting investor certainty.
Both countries are also providing significant state support to accelerate the buildout of SAF production capacity. Indonesia aims to increase capacity to over 1.1 million kiloliters per year by 2030, largely through the activities of its national oil company, Pertamina. Indonesia's existing oil and gas infrastructure is proving to be another advantage in the SAF industry, as refineries, pipelines and other facilities may be modified to support SAF production. For example, Indonesia's sole operational SAF production plant is at Pertamina's refinery in Cilacap, which has been modified to allow production of 238,000 kiloliters of SAF annually (approximately 4,100 barrels per day). Further developments are underway – Indonesia's sovereign wealth fund, Danantara, is planning to boost the Cilacap refinery's production capacity to 6,000 barrels of SAF per day, and Pertamina is currently modifying its Dumai and Balongan refineries to process UCO into SAF as well.
Malaysia is targeting a similar increase in SAF production capacity. EcoCeres' 350,000 tonne SAF plant in Johor was successfully commissioned in October 2025, and PETRONAS, Malaysia's national oil company, is currently developing another 650,000 tonne SAF plant in Johor that is to commence operations by 2030 within the Pengerang Integrated Complex (PIC) (both plants are across the border from Singapore). Malaysia also provided early support to this PETRONAS project through an offtake agreement entered into in 2023, under which Malaysian Aviation Group (wholly owned by Malaysia's sovereign wealth fund) is to take delivery of over 230,000 tonnes of SAF beginning in 2027.
To increase investor confidence and promote further private sector investment in SAF production projects in Malaysia, the Malaysian government is also considering ways to facilitate permitting for SAF facilities' construction and SAF production and export. The SAF industry in both Indonesia and Malaysia is likely to benefit from such targeted domestic policy initiatives.
International requirements / frameworks bolstering SAF demand
Although palm-oil based SAF does not count towards regulatory SAF mandates and targets in the European Union and other markets, the implementation of mandatory SAF blending requirements, and the adoption of voluntary commitments by airlines and other companies, continue to drive demand for SAF production globally.
Both Indonesia and Malaysia enjoy close proximity to key SAF markets in Asia. Singapore has imposed a 1% blending requirement on all outbound flights by 2027. South Korea has proposed a similar mandate, and India is currently considering a similar but non-binding target. In Japan, no mandate has been announced, but recent signalling suggests that, by 2030, it may require fuel for all departing flights to consist of a 10% SAF blend, with such SAF to have at least 50% lower lifetime greenhouse gas emissions than conventional jet fuel. China is also expected to be a major SAF consumer, although it is possible that this demand will be primarily supplied by China's own domestic production.
In addition to national-level blending mandates, certain international regulatory frameworks are likely to continue driving global demand for SAF. In 2027, the International Civil Aviation Organisation (ICAO) is to mandate participation in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which will require almost all ICAO member states (covering approximately 85% of the CO2 emitted by global international aviation) to reduce their carbon emissions using CORSIA eligible fuels (including certified types of SAF), or to purchase accredited carbon offsets. Significantly, under CORSIA, SAF produced from by-products, residues and wastes, which may include POME, PFAD and other residues and wastes associated with palm oil production, will, by default, be assigned no additional ILUC emissions. Therefore, more widespread participation in CORSIA may sharply increase demand for SAF produced from feedstocks that are in relatively higher supply in both Indonesia and Malaysia.
Both Indonesia and Malaysia have made some efforts to prepare for such increased participation in CORSIA. For example, in order for any given type of SAF to qualify as a CORSIA eligible fuel, it must be certified under an ICAO Council-approved Sustainability Certification Scheme, such as the International Sustainability & Carbon Certification (ISCC) CORSIA Certification. Pertamina's Cilacap refinery was the first in Southeast Asia to produce ISCC-certified SAF. Since then, PETRONAS has also locally produced ISCC-certified SAF, and delivered it to the Kuala Lumpur International Airport using an existing multi-product pipeline. Further efforts to align domestic SAF production with the standards required by CORSIA and other facilitative international frameworks are likely to benefit the SAF industry in both Indonesia and Malaysia.
Additionally, the 'book and claim' model of decoupling the environmental attributes of the relevant SAF from its physical molecules may allow SAF producers in Indonesia and Malaysia to access SAF markets worldwide without the need for costly logistics to deliver the SAF to foreign buyers. Although there is currently no globally adopted framework to support this model, programs have been launched by major aviation industry players to facilitate its use.
Bottom line
A combination of greater feedstock availability, domestic government initiatives intended to promote SAF production and international requirements and frameworks supporting SAF demand afford both Indonesia and Malaysia a significant opportunity to expand their respective SAF industries. Although both countries will need to continue to manage challenges such as feedstock diversification and aggregation, supportive domestic regulations and policies and alignment with facilitative international frameworks, Indonesia and Malaysia are well-positioned to become more prominent players in the SAF market both in Asia and globally.
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