EU parliament unfazed by trade fight over palm biofuel phase-out

A European member of parliament says the bloc isn’t concerned about threats by Indonesia and Malaysia to file a trade complaint over an EU policy to phase out palm oil-based biofuels by 2030.

Palm oil plantation in Kalimantan, Indonesia
Land cleared for a palm oil plantation, East Kalimantan, Indonesia. Kalimantan is fast losing its rainforests to palm oil growers. Image: CIFOR, CC BY-NC-ND 2.0

The European Parliament will proceed with phasing out palm oil-based biofuel by 2030 despite threats of retaliatory action by Indonesia and Malaysia, the world’s biggest producers of the ubiquitous vegetable oil.

The policy was adopted earlier this year to curb the use of crops that cause deforestation in transportation fuel, over concerns that their production contributes to global carbon emissions and thus exacerbates climate change. But both Indonesia and Malaysia have warned of restricting European imports and other trade reprisals should the phase-out go ahead.

Bas Eickhout, a Dutch member of the European Parliament, said he’s not worried that Indonesia and Malaysia will take their grievances to the World Trade Organization (WTO).

“To be very honest, bring it on on WTO,” he told reporters at the European Parliament in Brussels. “We have very clear environmental concerns, very clear environmental reasons why we say this [palm oil-based biodiesel] can’t be labeled as renewable.”

Eickhout said he’s confident the WTO would rule in favor of the EU’s meticulously planned palm biofuel phase-out.

“I think if that goes through, Europe will not back track,” he said. “This is a great policy, and the only thing that can challenge it is of course WTO. But as I said, it’s so nuanced draft that we expect WTO will say that it’s allowed in WTO. You are allowed to do specific policies for environmental reasons. We expect WTO will let that happen.”

Eickhout said the policy was aimed at preventing unsustainable palm oil from being labeled as a renewable energy source.

Bring it on on WTO. We have very clear environmental concerns, very clear environmental reasons why we say this [palm oil-based biodiesel] can’t be labeled as renewable.

Bas Eickhout, Dutch member of the European Parliament

“We came to the conclusion that the current palm oil isn’t sustainable,” he said. “So what we’re saying is that palm oil can’t be used to comply as a renewable energy. Still palm oil can be imported, can be used for other purposes, but if you import it for renewable energy, it wouldn’t be counted.”

Nuanced policy

Eickhout said research showed that current palm oil production wasn’t fully sustainable yet because it still caused a lot of deforestation for palm plantations.

“Palm oil is having a huge impact on deforestation, it’s playing a big role,” he said, emphasizing that this was a scientific fact. For a product with such a significant environmental impact, he said, “it’s not good to label that as renewable energy. That doesn’t make any sense.”

To ensure that only unsustainable palm oil is phased out from the European biofuel market, the EU’s Renewable Energy Directive II (RED II) exempts smallholders who produce palm oil in a sustainable way, Eickhout said. By incentivizing these producers, he said, “we can promote the sustainable versions.”

Eickhout said the nuances of the policy were often overlooked in the debate, leading critics to label the EU policy as a ban on palm oil.

“Let me be very clear … there is no ban,” he said. “There is a spin of the government that there is a ban.”

EU member states will still be able to import and use palm oil-based biodiesel, but it will no longer be considered a renewable fuel, hence won’t be for the attendant subsidies. The process will also be gradual. Member states’ maximum share of palm oil-based biodiesel that can be counted toward EU renewable transport targets for national governments (and thus eligible for subsidies) will be capped at 2019 levels until 2023. After that, it will be progressively phased out of renewable targets to zero per cent by 2030.

Other markets

Indonesia and Malaysia, which together supply about 85 per cent of the world’s palm oil, say they will jointly challenge the EU policy through the WTO’s dispute settlement body and other avenues, calling the decision a form of discrimination.

An Indonesian government official recently said they planned to file their complaint with the WTO as soon as early November.

“The Indonesian government must prepare to face RED II since this rule will have a negative impact on the palm oil industry in Indonesia,” Sondang Anggraini, the head of trade advocacy at the Indonesian Ministry of Trade, said as quoted by the Antara news agency. “It is important for us to explore further the preparation and legal position of Indonesia in facing the implementation phase of the EU-RED II.”

As it braces for the phase-out in the EU, its second-biggest market, Indonesia is looking to expand palm oil exports elsewhere, including China, its third-largest market. (India is the biggest buyer of Indonesian palm oil.)

Indonesia is also pushing for increased domestic consumption of biodiesel that contains palm oil. The so-called B20 fuel (a ratio of 20 per cent palm biofuel to 80 per cent diesel) is targeted for nationwide distribution through fuel stations operated by the state-owned oil company.

The government aims to increase the content of palm oil in biodiesel to 30 per cent by early 2020, and to 50 per cent by the end of 2020. It targets all biodiesel sold in the country in three years’ time to be fully palm biofuel, or B100 — one of the most ambitious biofuel transition programs in the world.

Indonesia also aims to steer more production of palm oil into aviation fuel, tapping demand from travelers for lower flight carbon footprints. The U.N.’s International Civil Aviation Authority (ICAO) has proposed increasing the use of biofuels for passenger planes, aiming for half of jet fuel to come from biofuels by 2050.

Indonesia’s environment minister, Siti Nurbaya Bakar, said in an op-ed in the Kompas daily that the country was building refineries to produce “green fuel from living and organic materials to reduce fossil fuel.”

Call for cooperation

Eickhout said he was aware that the EU’s phase-out plan could push Indonesia and Malaysia to seek out other markets China and boost their domestic uses of palm oil. Nevertheless, he said, preventing deforestation and producing palm oil sustainably are in the best interests of everyone.

Indonesia and Malaysia are among the countries that signed up to the Paris climate agreement, he noted, which commits them to “tackle all the impacts of climate change.”

“Deforestation is an important contributor to climate change,” Eickhout said. “I think it’s in all of our best interest to prevent deforestation.”

He added it was important to ensure that palm oil producers’ expected pivot away from the EU market wouldn’t lead to further deforestation or undermine the climate agenda.

“We hope of course with this [phase out], we are getting into a dialogue,” he said. “How can we make sure that that will be done without deforestation? But of course only through dialogue, we can make sure that other countries are following that road [Paris Agreement] as well. That’s what we’re trying to pursue. And we are not having the idea to police the world, that’s not the point.”

He also acknowledged efforts by Indonesia and Malaysia to address environmental concerns over the production of palm oil and improve its global reputation.

Indonesian President Widodo last year declared a moratorium on the issuance of new permits for oil palm plantations, while Malaysia is mulling a cap on the country’s total palm oil estate at 60,000 square kilometers (23,200 square miles), an area just 2.5 per cent larger than currently planted.

“What we see is there are now policies, changes in policies are putting in place,” Eickhout said. “I think that’s a good development. But we still have to look at the fact that there’s still a huge deforestation for palm oil purposes.”

He cited the spate of forest fires currently raging across large swaths of Indonesia, in what’s become the worst fire and haze season since 2015. Much of the fires were started to clear land for plantations, primarily oil palms. The recurring nature of the problem, Eickhout said, showed the vulnerability of Southeast Asia’s forests and the importance of sustainable forest management.

“And it also shows bad management and climate change together are really piling up and making these things happen,” he said. “Not only in Indonesia. We have the same discussion in Brazil, but also in Europe. Now we’re even seeing forest fires in the north.”

He called on Indonesia and Malaysia to work together with the EU, rather than fighting it.

“We need to make sure Indonesia and in Malaysia realize that instead of fighting this, it’s better to join and make sure that we are making our production more sustainable,” he said. “And that’s the only thing that we want to achieve.”

Increased emissions

Achieving more sustainable production of palm oil will require proper land-use plan, according to Brendan Mackey, the director of Griffith University’s Climate Change Response Program.

“Because our land is a finite resource, we have to use it very effectively,” he told Mongabay. “We can no longer waste the land we have. We have to make the best use of it. And that’s difficult because there are many different uses, and valid uses of the land.”

With the expansion of palm oil plantations being one of the primary drivers of deforestation in Indonesia, there’s a possibility that the government’s biodiesel mandate would require palm oil producers to expand across more land and clear more rainforests.

“Growing plants for biofuel is good, but not if it’s at the expense of other things, [such as] primary forests, [and] growing food,” said Mackey, who is also the coordinating lead author of the sixth assessment report of the Intergovernmental Panel on Climate Change (IPCC).

Clearing forests for biofuel will release far more carbon into the atmosphere than would be reduced by replacing fossil fuels. This net increase in emissions would negate the climate purpose of switching to biodiesel.

The B100 program, for instance, could lead to an increase in palm oil demand to 56.98 million tons annually by 2025, which in turn would encourage the clearing of 72,000 square kilometers (27,800 square miles) if land if plantation productivity stays the same, according to a study by the World Resources Institute (WRI).

Another study, by the Indonesia-based think tank Traction Energy Asia, found that carbon emissions from the production of crude palm oil (CPO) for use in biodiesel in Indonesia are higher than from conventional diesel.

“You will just emit the carbon that’s stored in the forests to the atmosphere,” Mackey said. “It will take a long time for forests to really grow and store that carbon. So if you burn the forests for biofuel, you’re not doing any good at all, because it takes a long time, many, many decades, to repay the carbon that’s emitted from the forests.”

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