THE country's solution to rising fossil fuel prices, worsening air pollution and the depletion of its petroleum reserves is grown on trees - oil palm trees, that is.
All it takes is just to blend processed liquid palm oil with petroleum diesel and, lo and behold, we have palm biofuel.
The cocktail is cheap, particularly as world oil prices rise, produces less carbon monoxide and is renewable. Really, the technology involved is not much more complex than getting the mix right.
In fact, the first diesel engine created by Rudolf Diesel in 1897 ran on peanut oil.
Diesel-powered vehicles can switch to palm biofuel without any modifications to the engine and any deterioration in performance. If the National Biofuel Policy, to be unveiled next year, goes according to plan, users can fill up their vehicles with palm biofuel at petrol kiosks in 2007.
Once implemented, Malay-sia is expected to reduce diesel imports by 500,000 tonnes a year based on current usage.
"Depending on the price, the country is going to save millions of ringgit on subsidies. The Government has spent some RM16 billion on petrol and diesel subsidies," says Plantation Industries and Commodities Minister Datuk Peter Chin. At about RM1,400 per tonne, palm oil is also cheaper than imported diesel which costs between RM1,700 and RM2,000 per tonne.
Besides cleaner emissions and renewability, the use of palm biofuel can help support the price of crude palm oil, of which Malaysia is the world's biggest producer.
Malaysian Palm Oil Association chairman Datuk Sabri Ahmad says biodiesel is the "safety valve" for crude palm oil, which until recently has been dogged by fluctuating prices.
After the recent interest generated by biofuel, CPO prices bounced from RM1,350 early this year to nearly RM1,450.
The case for using biodiesel also gains currency against the backdrop of the country's fast-depleting petroleum reserves. At last count, these reserves amount to 4.8 billion barrels, which can last another 16 years unless new discoveries are made.
But while it makes economic sense to introduce palm biofuel at the pumps, it is at the global level that the commodity can gain a reputation as renewable liquid gold.
Many signatory countries to the Kyoto Protocol are rushing to reduce their greenhouse gas emissions by 2012.
In the European Union, the diesel consumed must consist of 5.75 per cent biodegradable oil by 2010, up from the 2.5 per cent now.
All these could spell an upswing in demand for palm biofuel, especially since production of other agricultural oils like rapeseed and soyabean has been stretched.
"If Malaysia can export 750,000 metric tonnes of biodiesel per year, we can earn RM1.7 billion," says Sabri, who is also group chief executive of Golden Hope Plantations Bhd.
Palm oil is also highly competitive. Sabri says one hectare of oil palm can produce five tonnes of oil, compared to soyabean and rapeseed, which can only produce half a tonne.
The production costs of palm oil is also about 40 per cent lower than other biofuel sources.
The Malaysian Palm Oil Board wants a share of this lucrative pie. It is setting up joint-ventures to build two biodiesel plants in Port Klang and one in Pasir Gudang - presumably for easy access to the two ports.
The first major overseas supply deal, with German-based train operator Prignitzer Eisenbahn (PE) Arriva to fuel its locomotives, is being negotiated.
But Malaysia still has a long way to go to become the Saudi Arabia of biofuel.
Even at the local level, palm biofuel is not yet attractive to vehicle owners despite its environmental-friendly properties for one reason: price.
Right now, palm biofuel costs more than subsidised diesel at the pumps.
Pan Malaysia Bus Operators' Association president Datuk Ashfar Ali says unless there is a significant price difference, vehicle owners have no compelling reason to switch.
"But if the Government reduces its subsidy for diesel and makes biofuel relatively cheaper, then it's a different story. For many businesses, it is about the bottom line.
"But there is also the question of availability. Look at what happened to NGV (natural gas for vehicles). It is only largely available in the Klang Valley and that, too, only at selected kiosks. That is why buses are not using NGV now."
Tariff structures in the EU countries, Japan and the United States are also putting palm biofuel at a disadvantage.
Last August, TSH Resources group managing director Datuk Kelvin Tan had pointed out that palm oil-based biofuel was not enjoying the same tax rebates as rapeseed, soyabean or sunflower.
Palm oil has also been the target of consumer campaigns in the West. The last one, which started in the United Kingdom, blamed rising demand for palm oil for the loss of the orang utan's natural habitat.
Lobby groups in the developed countries have a knack for making their Governments cave in to pressure and the graphic portrayal of maimed orang utans is but one such attempt.
M.R. Chandran of Oilpalmworld Sdn Bhd, which runs a business-to-business palm oil exchange, says that sometimes it feels like a Catch-22 situation. On the one hand, palm biofuel is considered an environmental-friendly product, but on the other, there is a perception that increased demand causes the destruction of natural resources.
Chin, however, allays fears that more forests will be cleared and hillslopes slashed to make way for oil palm plantations and export earnings.
He adds that Malaysia will focus on improving farm management, adopting good husbandry practices and increasing processing efficiency.
Despite the mounting opposition, the EU is not expected to keep palm biofuel at arm's length for long.
With rapeseed and soyabean oils unable to meet demand and World Trade Organisation (WTO) rulings prohibiting unfair tariffs, it is only a matter of time before palm oil competes on a level playing field with its traditional rivals.
But will Malaysian vehicles make a beeline for biofuel in 2007 or, for that matter, will petrol companies want to sell what is now a more expensive product than conventional diesel?
"We are drafting several legislations, including the Biodiesel Bill. Issues like price, proportion of blending involved and whether to compel petrol companies to sell the blend will be addressed," says Chin.
He declines to say to what extent the Government is prepared to make palm biofuel more competitive by reducing diesel subsidies.
"The biggest challenge is to convince consumers to accept biofuel. The ministry will undertake a major public relations exercise to educate the public on this," says Chin.
For now, he says, the Government wants to focus on laying the groundwork for the country to capture a big slice of the biofuel market, in and especially outside the country.
"It is a big thing. Demand will increase in the future and we do not want to lose out."