The Oil Palm

Strong potential for Malaysian biodiesel exports to US market

Commentators have highlighted the growing competitiveness of Malaysian biodiesel exports, leading to expectations that sustainable Malaysian biodiesel exports into the US market will increase over the coming year.

This could have significant positive environmental impacts. Substituting US fossil fuel consumption with cost effective Malaysian palm oil biodiesel that are shown to emit fewer greenhouse gases can help reduce global GhG emissions.

However, US policy may yet restrict imports of sustainable Malaysian biodiesels, and could threaten the positive environmental effects of substituting fossil fuels with biodiesel imports.

According to recent media reports, the US market appears to offer significant growth potential for Malaysian biodiesel exports. Reuters has reported that a US blending tax credit for alternative fuels has improved the attractiveness of palm biodiesel exports into the United States.

The tax credit, combined with lower palm oil prices, has led to increasing competitiveness of palm oil-derived biodiesel compared with soy oil, the dominant US biodiesel feedstock. The reinstated tax credit in the US also appears to have made palm biodiesel from Southeast Asia competitive with conventional petroleum diesel.

According to Reuters, palm-based biodiesel can be imported into the US at approximately US$1,100 per tonne; cheaper than US soy oil derived biodiesel at about US$1,200 per tonne. Reuters claims that when the US$1 per gallon tax credit is factored in, palm oil-derived biodiesel may become potentially cheaper than the US conventional diesel, which has ranged from US$910 to US$1,020 per tonne in 2013.

Palm oil-based biodiesel appears increasingly attractive to US consumers on a cost basis, but it also results in positive environmental impacts. Palm oil derived biodiesel is an environmentally sustainable fuel option, produced from a renewable resource as opposed to conventional fossil fuels. Palm oil biodiesel has been scientifically assessed and shown to have significant greenhouse gas savings compared to conventional fuels and other biofuel feed stocks.

The EU has traditionally been Malaysia’s key biodiesel export market. However, demand for Malaysian biodiesel is now expected to pick up in the US.

Unfortunately the environmental benefits derived from substituting fossil fuels with Malaysian biodiesel are not guaranteed. There is still a possibility that US policy will restrict Malaysia’s sustainable exports from entering the US market.

The US Environmental Protection Agency (EPA) is reconsidering its ruling to disqualify Southeast Asian palm oil-derived biodiesel from receiving biofuel subsidies under US policy. The current ruling that palm oil is an ineligible feedstock under the Renewable Fuel Standard adds difficulties for Southeast Asian biofuels exports entering the US market. The EPA’s ruling can be reversed. However, if it decides not to, the policy would unfairly penalise growers in developing countries such as Malaysia, and could potentially be challengeable under WTO rules governing free trade.

The EPA’s ruling could also jeopardize the development of a politically significant regional trade agreement. Malaysia and the US are among several parties negotiating a regional trade agreement known as the Trans-Pacific Partnership (TPP).  The Obama administration has made multiple commitments to negotiate a TPP. However, Malaysian access to US markets, including biofuel markets, should be a key part of any agreement signed by Malaysia.

Restricting market access for biofuels entering the US has adverse environmental implications; but it also has consequences for Malaysia’s economic development. Palm oil cultivation is a key driver of rural development and poverty alleviation efforts in Malaysia, with hundreds of thousands of smallholders participating in palm oil cultivation. Similarly, biodiesel production is a value added industry, and creates investment and growth in Malaysian processing and manufacturing sector. This too is under threat by US policy which will could potentially restrict market access and unfairly penalise sustainable biofuel producers.