Palm kernel oil, like other vegetable oils, can be used to create biodiesel for internal combustion engines. Biodiesel has been promoted as a renewable energy source to reduce net emissions of carbon dioxide into the atmosphere. Therefore, biodiesel is seen as a way to decrease the impact of the greenhouse effect and as a way of diversifying energy supplies to assist national energy security plans.
Palm is also used to make biodiesel, as either a simply-processed palm kernel oil mixed with petrodiesel, or processed through transesterification to create a palm kernel oil methyl ester blend, which meets the international EN 14214 specification, with glycerin as a byproduct. The actual process used to make biodiesel around the world varies between countries, and the requirements of different export markets. Next-generation biofuel production processes are also being tested in relatively small trial quantities.
The IEA predicts that biofuels usage in Asian countries will remain modest. But as a major producer of palm kernel oil, the Malaysian government is encouraging the production of biofuel feedstock and the building of biodiesel plants that use palm kernel oil. Domestically, Malaysia is preparing to change from diesel to bio-fuels by 2008, including drafting legislation that will make the switch mandatory. From 2007, all diesel sold in Malaysia must contain 5% oil palm oil. Malaysia is emerging as one of the leading biofuel producers, with 91 plants approved and a handful now in operation, all based on oil palm oil.
On 16 December 2007, Malaysia opened its first biodiesel plant in the state of Pahang, which has an annual capacity of 100,000 tonnes, and also produces byproducts in the form of 4,000 tonnes of palm fatty acid distillate and 12,000 tonnes of pharmaceutical grade glycerine. Neste Oil of Finland plans to produce 800,000 tonnes of biodiesel per year from Malaysian palm oil in a new Singapore refinery from 2010, which will make it the largest biofuel plant in the world, and 170,000 tpa from its first second-generation plant in Finland from 2007-8, which can refine fuel from a variety of sources. Neste and the Finnish government are using this paraffinic fuel in some public buses in the Helsinki area as a small scale pilot.
Regardless of these new innovations, first generation biodiesel production from oil palm is still in demand globally. Oil palm producers are investing heavily in the refineries needed for biodiesel. In Malaysia, companies have been merging, buying others out and forming alliances to obtain the economies of scale needed to handle the high costs caused by increased feedstock prices. New refineries are being built across Asia and Europe.
As the food vs. fuel debate mounts, research direction is turning to biodiesel production from waste. In Malaysia, an estimated 50,000 tonnes of used frying oils, both vegetable oils and animal fats, are disposed of yearly without treatment as wastes. In a 2006 study, researchers found used frying oil (mainly palm olein), after pretreatment with silica gel, is a suitable feedstock for conversion to methyl esters by catalytic reaction using sodium hydroxide. The methyl esters produced have fuel properties comparable to those of petroleum diesel, and can be used in unmodified diesel engines.