ILUC: Europe Tries for Round Three

The European Commission is now underway with preparations for the latest instalment of the saga surrounding Indirect Land Use Change (ILUC) criteria. This time, ILUC is only one part of a wider EU attempt to classify all biofuels, including Palm Oil, according to new ‘risk’ criteria. This will mean some biofuels being classed as “high-risk”, and must be restricted. An immediate freeze would be instituted, followed by a gradual phase-out. Non “high risk” biofuels will be unaffected. Several European Ambassadors have already alluded to the fact earlier this summer, that this new methodology will target Palm Oil – indeed it is a not-very-subtle attempt to introduce a stealth ban on Palm Oil biofuels.

How does ILUC fit into this? ILUC will be one of two primary criteria – the other is High Carbon Stock (HCS) – that the Commission will use to determine what counts as ‘high risk’. The problem for the Commission is that, on ILUC, everyone has seen this movie before. And it doesn’t end well.

In 2013 and 2015, efforts to incorporate ILUC criteria in to the Renewable Energy Directive (RED) were spearheaded and supported by European Greens and NGOs alike. This was a deliberate attempt first introduced by French MEP Corinne Lepage to make it more difficult (or impossible) to export Palm Oil biodiesel to Europe. During the aggressive lobbying effort, Lepage came forward and openly stated Palm Oil would be a main target. This time around, European tactics are expected to be a little less obvious, but with the end objective no different.

This all comes after this summer’s failed attempt by the European Parliament to include a ban on Palm Oil used as biofuels as part of the latest RED revision text. This motion was ultimately defeated and all discriminatory language towards Palm Oil was removed.

Eager to reach a solution – though discriminatory in nature – the Commission will plan the new ILUC and HCS methodology and criteria in the hope of giving victory to the uncompetitive EU oilseeds industry, and the anti-Palm Oil NGOs: both of whom have long hankered after a ban on Palm Oil biofuels.

The core problem is the following: the direct ban on Palm Oil was defeated because it a) is against WTO rules, and probably EU single market laws as well; and b) it would have negatively impacted trade between the EU and fast-growing ASEAN markets. Therefore, any stealth ban has to avoid these two pitfalls. ILUC, though, is so obtuse that – while some may claim it avoids the above pitfalls – it simply cannot be relied upon at all as a basis for sounds regulation.

Among the many problems associated with ILUC methodology is that it has proven time and time again to be unworkable and not based on scientific fact. This is a red flag that has been repeatedly raised by many independent economists, academics, scientists, think-tanks, energy experts, and many more.

In fact, the current ILUC methodology is so insubstantial and implausible academic bodies were compiling their own research that lined up to criticize the situation. Professors Uwe Lahl and Bjorn Pieprzyk found in their own analysis that “the currently used and developed regulation instruments in Europe and the USA are highly speculative and doubtful”.

Likewise, Gernot Pehnelt, Chair of Economic Policy at the Friedrich-Schiller-University of Jena, decided it best to recalculate the default value for Palm Oil, “given the remarkable difference between the calculation of carbon reduction performance of palm oil based biofuel by the EU and a range of scientific studies.” Unsurprisingly, Pehnelt found not only that “the [ILUC methodology] process has been severely lacking in full disclosure of metrics used to achieve the values contained in the Renewable Energy Directive” but concluded “reliability of the Directive to support the EU’s low-carbon ambitions is being undermined, exposing the EU and Commission to charges of trade discrimination and limiting the ability of Member States to achieve their legally binding GHG emission reductions.”

Standing ILUC methodology and criteria standards do not account for the fact that Malaysian land conservation efforts are nationally recognized as a top contender when compared to many developed nations. This was proven by European research consultancy firm Copenhagen Economics.

Furthermore, the agency found that the Commission was treating Palm Oil unfairly, in terms of carbon emissions, in comparison to other oil crop seeds. What was made evident here, was Europe’s transparent attempt to favour its own “home-grown” crop seed for use and export/importation, while discriminating against Malaysian Palm Oil imports. This is clear trade protectionism, and a violation of international trade law set forth by the World Trade Organisation (WTO), which forbids the use of arbitrary “sustainability criteria”. Noted by Fredrik Erixon, the Director of the European Centre for International Political Economy (ECIPE), the desired Palm Oil restriction in the market place would “not hold up in a WTO dispute-settlement case”.

Unfortunately, there will be some who wish to engage with such methodology anyway – in an attempt to prove that one feedstock or another is actually “low risk” according to the EU’s dodgy new methodology. This legitimizes an illegitimate policy proposal and overlooks one key criteria: this “high risk” approach – this whole exercise in Brussels – is not scientific. It is political. It is not about a process, or a methodology, or making calculations. It is about reaching one specific, well-defined end-point: restricting Palm Oil biofuels in Europe. This is not a secret. It is clearly set out by the EU Parliament in their demands and messages in the Trilogue process (which is what led us to this ‘high risk’ issue in the first place). Any engagement with the process would risk legitimizing this new demonisation of Palm Oil.

In some sense, it is easy to feel sympathy for the technocrats at the EU Commission, who have repeatedly been bounced into addressing ILUC by ambitious politicians in the EU Parliament who have no interest in, or respect for, such niceties as scientific rigour or WTO law. Those politicians – who are the driving force behind this whole process – are only interested in the outcome (banning Palm Oil) rather than the process. Most of the technocrats in Brussels know that ILUC is wholly unworkable, but they have been instructed to look into it anyway.

Whatever they come up with, it is likely that it will deliberately discriminate against Palm Oil. That will be unacceptable for Malaysia and Indonesia. EU Parliament elections in spring 2019 means that the political noise level (never in favour of Palm Oil) will be raised even further. Round Three of the ILUC debacle could be even more fractious that the previous two.