Abstract
Energy supply and energy security issues have become a crucial problem. With the negative effects of excessive use of fossil fuels brought growing environmental awareness, finding alternative energy as their substitutions to fulfill increasing energy demand is getting important. Compounding these issues, volatile price for fossil fuels are undermining energy security and eroding balances of payments by escalating the cost of energy imports. As part of their response to these convergent trends, many governments across the world are promoting biofuels with characteristic of Carbon Neutral and renewable – namely ethanol derived from plant-based starches and sugars, and biodiesel derived from oil crops and animal fats. The purpose of this study was to investigate whether the execution and implementation of Malaysia's domestic energy policies will affect the relationship between palm oil and crude oil prices. International Malaysia Crude Palm Oil prices with the term of CIF Rotterdam and Malaysia Tapis Crude Oil prices with the term of FOB Malaysia were used as data, data observation start from date April 1, 2000 to March 31, 2015. Johansen Co-integration analysis and Unit Roots Test were adopted in this study, the empirical results show that only Sample Four exist a co-integration between the crude oil and palm oil prices. Empirical results show that Malaysia promulgation and implementation of the new energy policy and the enforcement of "Kyoto Protocol", strengthen the relationship between the prices of palm oil and crude oil prices. Therefore, this study recommend that the Malaysian government should be clearly divided the market demand for palm oil to biomass energy and food processing, and the implementation of policy as a safeguard measure to cope with rising crude oil prices affect the price of food crops.