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"The Finer Points to Note on the EU Resolution to Ban Palm Oil in Biodiesel" by Lee Poh Onn

2018/7, 25 January 2018

On 17 January, EU Parliament proposed a ban of the use of unsustainable sources of palm oil in biofuels as of 2021. According to European parliamentarians, palm oil from such sources has driven deforestation and increased greenhouse gas emissions. Indonesia and Malaysia account for 80 percent of the EU’s imports. If the ban is implemented, Indonesia will experience a shortfall of about 4.37 million tons (17 percent of its palm oil exports) while Malaysia will suffer a shortfall of about 2.09 million tons (13 percent of its palm oil exports). Reportedly, Malaysia could lose as much as RM10 billion in export revenue, as the  EU is the country’s second-largest export market.

Besides a fall in revenues, the following points are worth noting:

First, both governments have tended to place more emphasis on the negative impact of the ban on small holders in their protests to the EU. This may unintentionally mislead the reader into thinking that the smallholdings dominate the industry. In Indonesia, small holders account for 30 percent of total output, whereas, in Malaysia, smallholders account for 40 percent of the total output of palm oil. However, while smallholders do not dominate the palm oil sector in either country, the ban would affect 650,000 smallholders in Malaysia and 17.5 million in Indonesia. The social and political impact on these communities would be hard to ignore.

In reality, 70 percent of the Indonesian output and 60 percent of the Malaysian output originate from plantations. The economic implications of this ban on this sector would be far-reaching. The fall in revenue from the ban will affect the Malaysian government’s coffers as its oil palm industry is dominated by Malaysian government-linked corporations (GLCs) and also private companies (including Chinese Malaysians who have close association with the Malaysian government). This is the same for Indonesia, where there are also reportedly close links between conglomerates and the state.

Second, a closer examination will show that while forest fires reportedly contribute up to 85 percent of Indonesia’s total greenhouse gas emissions (Indonesia is the third largest emitter of carbon dioxide after China and United States), 80 percent of these fires emanate from plantations. Consequently, targeting small holders and conglomerates by EU Parliamentarians with one blanket policy is unfair as plantation companies should take the bulk of the blame.  

Indeed, the ban may not be the best method to halt environmental degradation. Both the Malaysian and Indonesian governments have accused the EU Parliament of promoting protectionism. To a large extent, this accusation holds water because other vegetable oils have not been included in the 2021 ban. Also, European grown vegetable oils will be used to replace the imported palm oil, and existing European crop biofuels will continue to receive support until 2030. Yet, in terms of yield per hectare, these European crops are not as efficient as Southeast Asian palm oil.

Fourth,  demanding that a single certification scheme be developed for the use of palm oil in non-biodiesel products would dismiss the regional efforts put in by the Roundtable on Sustainable Palm Oil (RSPO), Indonesian Sustainable Palm Oil (ISPO), and Malaysian Sustainable Palm Oil (MSPO) standards. Though these endeavours are not perfect, attempts have been made to improve these over time. In addition, these are locally-based initiatives that can and should be placed at the centre of certification efforts, rather than others imposed from outside.

Dr Lee Poh Onn is Senior Fellow at ISEAS – Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.