The Oil Palm

Beware cascading effects of EU energy directive

MAJOR palm oil producing countries such as Malaysia and Indonesia must be watchful for the “cascading” effects of the proposed European Union’s (EU) Renewable Energy Directive (RED) next year, warned a visiting European economist.

The EU may be the first to start on a technical regulation and methodology like its RED to address climate change, but the move, if left unchecked, could lead to similar actions by other countries.

Fredrik Erixon, who is with Brussels-based European Centre for International Political Economy (ECIPE) – a trade policy think-tank, said the RED faces the risk of running afoul of Europe’s obligations in the agreements of the World Trade Organisation (WTO).

“If the EU goes ahead and is not legally challenged by the WTO, then there would be others like the US which would also proceed with similar legislation for biofuel producers … because no one has the guts to take action,” he told Business Times in an interview in Kuala Lumpur.

European leaders are committed to a binding EU-wide target to source 20 per cent of their energy needs from renewables including biomass, hydro, wind and solar power by 2020.

Europe’s tariffs on biofuels vary. Ethanol is protected with tariff equivalents of between 39 per cent and 63 per cent. Biodiesel is less protected by tariffs as vegetable oils for biodiesel production have tariffs at 3.2 per cent.

Although the policy is targeted to reduce the use of fossil fuels and reduce emissions of greenhouse gases, it will affect the production costs as well as the trading system, he said.

“The RED effectively cuts off market access for foreign competitors of European rapeseed oil like palm oil for biofuel use in Europe,” Erixon said.

It directs the EU to adopt technical regulations and so-called process and production method standards and producers which do not meet those standards will not qualify for the excise-tax exemption or the national targets that EU member states should comply with.

Erixon said the RED is inconsistent with several articles of the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, including that any advantage given to one product must also be given to like products.

A sustainability criteria used in the RED’s technical regulation says that the greenhouse gas saving from a new entity of biofuels entering into the EU market should be at least 35 per cent to qualify for the target and tax preference.

According to the EU’s calculation, the use of palm oil-based biodiesel from Malaysia failed the requirement as it achieved only 19 per cent, preventing it from qualifying for the incentives.

Malaysian stakeholders in the palm oil industry have urged the EU not to discriminate against palm oil.

Both Malaysia and Indonesia have expressed their intention to initiate action against the EU when it implements the directive next year.

Erixon said most countries are hesitant to bring about a dispute against the EU, which is a sizeably large market with 27-member states.

“It’s a valid point that you will upset a major client but one needs to demystify and depoliticise what a dispute in the WTO is. It can be done on the basis of legal obligations and in a fair and open manner with no retaliation of trade wars.”

In almost 600 of the disputes brought up in the WTO, he said, almost all of them were solved in a good manner and policies adjusted.

Although the EU is currently undertaking bilateral free trade agreements with several Southeast Asian economies like Malaysia, he said, they would not be a right platform as the issue could upset the entire negotiation.

Aggrieved parties can constantly bring up their grouses about the RED to the Technical Barriers to Trade meetings in the WTO before moving to the next course of action.

The Oil Palm

Malaysia’s Contribution to Low-Cost, Sustainable Energy in Hawaii

In February, the Hawaiian Electric Company (HECO) announced that it had successfully tested burning palm oil biodiesel at its Kahe Power Plant. This has been an effort nearly three years in the making, with close collaboration with Malaysian palm oil producer, Sime Darby. Unfortunately, the exercise has not been without its detractors, particularly among international environmental pressure groups that see any and all use of palm oil as an environmental existential threat.

But the success of the test at the Kahe Power Plant illustrates the importance of palm oil in its numerous applications, and its role as a low cost vegetable oil.

Palm oil was selected for use at HECO’s power plant for two reasons  it is price competitive relative to other vegetable oils, and is inherently sustainable. Nevertheless, environmental opposition has persisted, as illustrated by the defamatory claims by Rainforest Rescue, a German non-governmental organization (NGO) which is single minded in its opposition to agriculture development an d palm oil specifically.

In response to opposition from environmentalists, an editorial was published in Hawaii Reporter highlighting the importance of maintaining an overall perspective on sustainability. The editorial addressed the concerns of sustainability in the context of three pillars: People, Planet and Profits (the three Ps). Sustainability, as the definition implies, requires that all three pillars be addressed with equal weight, so environmental sustainability does not override economic and social sustainability, or vice versa.

This reflects the Malaysian Palm Oil Council’s position, a position that has been much assailed within the environmental salons of the West. However, as independent research and industry experience illustrates, palm oil is crucial to ensuring sustainable development throughout not only the developing world, but the developed as well.

When considering these three pillars, environmentalists illustrate a clear and present danger to global sustainability. The policy of no land conversion that has been a championing cause of environmentalists and is becoming enshrined in World Bank policy is a current example of putting Planet above People and Profit.

Sustainable development is a driving principle behind palm oil development. Development of the industry has assured prosperity for millions, and ensures food security for millions more. Meanwhile, expansion of the industry ensures that global demand for vegetable oils is satisfied by the most efficient oilseed available.

Opposition to the industry is misguided, and can only ensure that less sustainable vegetable oil sources replace demand for palm oil. Environmentalists should consider this fact when opposing the sourcing of palm oil. Doing so will mean not only failing to account for People and Profit, but will fail the Planet as well.

The Oil Palm

EU lawmakers to look into palm oil discrimination claims

European Union (EU) lawmakers are increasingly convinced that Malaysia is on the same path as the EU on the sustainability of palm oil production, but would need more scientific data to support Malaysia’s case.

Dan Jorgensen, who is the vice-chair of the environment, public health and food safety committee in the European Parliament, has promised to bring Malaysia’s case on its discrimination versus other oils in the Renewable Energy Directive (RED).

“We don’t want any discrimination at all of the palm oil sector, and we promised the industry here to help have discussions with the EU on this,” he said.

Jorgensen, who was in Malaysia last week with two other Members of the European Parliament (MEPs) Martin J. Callanan and Ole K. Christensen, were impressed with the work undertaken by the government and the palm oil industry and the sustainability efforts.

“People there don’t know how efficient an oil it (palm oil) is. I wasn’t aware myself how much oil you can get per hectare compared with other oils – in that way it is discriminated against,” he added.

Oil palms on the average produce 2.5 times more oil per ha than rapeseed.

According to the RED which will come into force in December this year, biofuels must have greenhouse gas savings of at least 35 per cent and according to EU’s calculation, the use of palm oil-based biodiesel failed the requirement as it achieved only 19 per cent.

“We promise to look into the discrimination (claim) and, if there is, we’ll do anything in our powers to change it. The numbers would need to be accurate and based on scientific data,” said Jorgensen.

A social democrat MEP who hails from Denmark, Jorgensen said the EU is committed to the sustainability criteria as it helps mitigate problems of greenhouse gases, climate change, global warming and also biodiversity.

“We’re happy to hear that the industry acknowledges and respects it. They have been discussing how it can become more competitive on the sustainability criteria.”

Jorgensen also suggested that the palm oil industry considers making entrapment of methane gas mandatory to increase the energy efficiency of Malaysia.
Palm oil mills are currently encouraged to trap methane gas from palm oil mill effluent.

“We are convinced that the industry has been doing a lot and we expect it will proceed to become more sustainable because palm oil is important for biofuel as well as oil for food,” he said.

The parliamentarians recognised that palm oil has been the largest contributor of wealth in the country and lends bigger potential compared to the other edible oils.

Christensen also lauded the Malaysian government and the industry for their achievements in bringing the people out of the poverty bracket and also providing employment, especially in the Felda smallholder schemes.

“Palm oil is not a bad thing as is being perceived by many people in Europe. We are gratified that Malaysia has strict laws in place to make sure no more rainforests are destroyed and expansion is on agriculture land,” said Callanan.

Callanan also does not expect Malaysia to be affected by the RED in the short term as the use of palm oil for biofuel is still very small.

Malaysia’s ambassador to the EU, Hussein Haniff, who also attended the meeting in Kuala Lumpur, said more outreach programmes were necessary to enable the EU lawmakers to be convinced that Malaysia is not clearing rainforests to grow oil palm.

There is also the tendency to lump both Malaysia and Indonesia, the top two producers of palm oil, together.

“We want an equal playing field and they are willing to take up on the verification of scientific data. From what we know, they have outdated data.

“In the process of review, if they find the default value is not 19 per cent, then it will be good for us to be on par with the other oils,” said Hussein.

The Oil Palm

EU MP’s Impressed With Palm Oil Industry’s Contribution To Malaysia’s Wealth And Economic Growth

KUALA LUMPUR, May 30 (Bernama) — European Union (EU) Members of Parliament (MPs) are impressed with the palm oil industry’s contribution towards creating wealth and economic growth for Malaysia.

Danish MP Dan Jorgensen, who is Vice-Chairman of the Environment Committee and Member of the Group of Progressive Alliance of Socialists and Democrats in the European Parliament said: “We think palm oil has contributed towards creating wealth and the growth of the country.

“As a whole, I think, it has helped take people out of poverty, which is a very positive thing.

“The challenge now is the sustainability of the commodity. Even though progress has been made, there is still the possibility of becoming better in this area,” he said after a Stakeholder Roundtable Discussion on Issues Related to Biodiversity and the Sustainability of Malaysian Palm Oil here last Friday.

Jorgensen was on a week-long visit to Malaysia together with two other EU MPs, Martin J. Callanan (Committee on the Environment, Public Health and Food Safety) and Ole K Christensen (Member of the ACP-EU Committee).

Also present at the roundtable was Malaysia’s Ambassador to the EU Datuk Hussein Haniff and Malaysian Palm Oil Council (MPOC) Chief Executive Officer Tan Sri Dr Yusof Basiron.

Jorgensen said the next decade would continue to see an increase in the focus on sustainability, as a competition criteria on the global stage, whether for fuel food or any other commodity.

“We also think that from the sustainability point of view, palm oil has great potential compared to other oils,” he added.

Many have voiced concerned concern over the new sustainability criteria in the European Union (EU) Renewable Energy Directive (RED), due to come into force from Dec 5 this year and its impact on palm oil exporting countries like Malaysia.

On that matter, Jorgensen expressed the willingness of MPs to assist Malaysia in ensuring there is no discrimination against the country’s palm oil export to the region.

“Firstly, we do not want any discrimination at all of the palm oil sector. We have promised our friends in the industry here to help them in discussions that we have in the EU on different criteria.

“If there has been any discrimination, we will do everthing possible to change it.

“Secondly, we are at the same time, very committed to the sustainability criteria,” he explained.

The sustainability criteria is related to two issues, the lifecycle greenhouse gas emissions of biofuels and the land used to produce the biofuels.

During their stay in Malaysia, the MPs had the opportunity to visit the Felda Trolak land scheme.

According to Jorgensen, the Malaysian palm oil industry can help itself by making the issues surrounding it irrelevant, by starting to trap the methane in the mills.

“It is already being done in some mills. If it was done in general and there was legislation for this, it would help. But this is just a recommendation,” he said.

Christensen also noted that in many parts of western Europe, there was the perception that palm oil is a bad thing because rainforests’ are being destroyed in order to make way for plantations.

“That’s what many people believe. So, we are very gratified to get assurances here, that Malaysia has very strict laws in place to ensure no more forests are destroyed,” he said.

He also said that it was a challenge to get this point of view across to a lot of western audiences.

When asked whether if the RED would affect Malaysian palm oil exports to the EU, Callanan said in the short term, the new directive would not.

He said this was because the amount of Malaysian palm oil used for biofuel is very small.

Callanan said only 18 per cent of Malaysia’s palm oil exports actually go to the EU.

“Obviously, we understand your concerns that the EU legislation might spread to other countries that Malaysia exports to.But only two per cent of palm oil is used for biofuels,” he added.