Malaysia has 2 years to persuade EU on palm oil
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MALAYSIA has two years to get into the European Union’s good books on palm oil, which, despite what the news headlines have proclaimed, won’t be banned, the region’s top envoy to Malaysia Maria Castillo Fernandez said.
Amended EU legislation will come into force in June 2021 to restrict the use of palm oil as biofuel.
“I want to stress that this is not a ban. What it is, is we don’t encourage (palm oil-based biofuels),” Fernandez told The Malaysian Insight recently.
Fernandez said the amended act, European Union Renewable Energy Directive II (EU RED II), simply disqualifies palm oil-based biofuels for financial incentives that will make it more competitive compared with other biofuels.
It does not mean that Malaysia can’t export palm oil to the EU.
What it means is that that it is possible for Malaysian palm oil to regain the financial incentives if it meets certain environmental sustainability standards.
Europe is Malaysia’s second largest customer for palm oil and the amended law has alarmed Putrajaya as well as the Indonesian government ad palm oil producers, who fear loss of access to the lucrative market.
Malaysia is especially worried that the 650,000 palm oil smallholders who produce about 40% of all fresh fruit bunches (FFBs) in the country will lose their incomes. FFBs are processed into crude palm oil (CPO).
Reduced demand from Europe will lead to increased global supply of crude palm oil (CPO) and depress FFB prices at home.
But with the law only coming into effect in June 2021, Malaysia has time to prove to the EU that production of the commodity does not lead to more deforestation and carbon emissions which contribute to climate change.
One of the EU’s criteria for biofuels is that they are sustainability produced, which is calculated by the rate of indirect land usage conversion (ILUC).
ILUC calculates whether a producer releases more CO2 by converting land to cultivate oil palms.
“This issue is not about market access and it is not about limiting any import of biofuels into Europe. Our market remains open. I want that to be very clear to oil palm and palm oil producers,” said Fernandez against claims the EU’s move amounted to declaring a trade war.
Only bio-fuels with low ILUC ratings will qualify for EU financial incentives, which are a form of subsidy that makes the fuels cheaper than competing fuels.
Palm oil is currently classified as a high-ILUC biofuel, due to the producing countries’ practice of cutting down rainforests for planting.
Apart from Malaysia and Indonesia, other countries that produce palm oil are Colombia and several African nations.
In 2015, Indonesia became the fourth largest greenhouse gas emitter in the world due to uncontrolled, intentional fires to raze virgin forests in order to plant oil palm.
The Malaysian Palm Oil Council (MPOC) has argued back that in Malaysia’s case, other types of agricultural activities, such as livestock rearing and planting of other types of oil crops, require far more land to be cleared than palm oil.
Still, it is the practice of various countries to clear large swathes of forests for palm oil plantations and the consequent release of carbon dioxide that have compelled the EU to rethink its renewable energy policies for palm-oil based biofuels.
Fernandez said this was what drove the bloc to amend the law.
For palm oil to lower its ILUC ratings and to receive the EU’s financial incentives for biofuels, palm oil producers can come out with a certification scheme that adopts the EU-recommended criteria, Fernandez said.
If such a certification scheme were to get off the ground in the two years before the act is enforced, the law can be revised to reclassify palm oil as a low ILUC biofuel, she added.
The palm oil industry’s most widely recognised certification scheme, the Roundtable for Sustainable Palm Oil (RSPO), is currently looking at incorporating the ILUC requirement.
Palm oil’s biggest competitor, soy oil, currently has a certification scheme that meets the criteria and this allows soy oil-based biofuels to receive EU incentives, she said.
“It has to be a voluntary meaning initiative, meaning that it must come from the bottom up from producers,” said Fernandez.
“It doesn’t even have to be RSPO it could be MSPO (Malaysian Sustainable Palm Oil) certification, if MSPO contains additional criteria that meets the renewable energy directive.”
In 2017, the EU imported about RM11 billion worth of crude palm oil, the highest volume ever bought by the bloc.
Palm oil products make up 4.4% of total exports from Malaysia to the EU, while palm-oil-based biofuels make up 1.4% of total exports.
Indonesia has responded to the amended law, which was passed on May 21, with a block on the import of spirits from the EU.
Primary Industries Minister Teresa Kok recently ended a cross-country tour of Europe to counter anti-palm sentiments. – July 3, 2019.