Greener environment or protectionism?

FACING BARRIERS: Oil palm, despite being the most efficient crop for biofuel, is still considered not as sustainable as other oil crops. A flag bearer for the palm oil industry and an economist tell OOI TEE CHING of protectionist measures in the US and European Union used to block palm oil  imports.

TAN Sri Bernard Dompok stared across the table. The solemn look on his face accentuated the sombre atmosphere in his office.

After what seemed like eternal silence, the Plantation Industries and Commodities Minister leaned forward and said he had recently returned from urging US government officials to accord palm oil biofuels equal trade opportunities with local variants, and not to restrict palm oil imports.

He told Business Times that the US regulatory body Environmental Protection Agency's (EPA) current findings on palm oil carbon footprint is faulty.

In 2007, the US Congress had allowed for refineries there to blend a certain amount of renewable fuel with gasoline and regular diesel. Ethanol and biodiesel qualify, if they are 20 per cent cleaner than fossil fuels.

In January this year, the EPA released a preliminary analysis suggesting that biodiesel made from palm oil does not qualify. This is based on an assumption that wanton deforestation occur in Indonesia and Malaysia when planting oil palms.

Since EPA said palm biodiesel fails to meet that 20 per cent threshold, oil companies in the US cannot use it. This mean they can only use fuels made from soyabeans, animal fat, algal oil, canola oil and used cooking oil.

"It is a blatant disregard of scientific evidence to assume that massive deforestation occur in the planting of oil palms," Dompok said.

"When EPA announced palm biodiesel only has GHG (greenhouse gas) savings of 17 per cent from the usage of regular diesel, it did not take into consideration recent oil palm yield improvements and environmental protection development undertaken by our planters, millers and refiners," he added.

Citing numbers from the Malaysian Palm Oil Board, the minister said the GHG savings of palm biodiesel is around 60 per cent that of petroleum diesel. Furthermore, palm biodiesel's green factor can go as high as 66 per cent when produced with methane captured at the mills.

Dompok said many US officials were misinformed about Malaysia's steadfast commitment to both economic growth and environmental protection.

"We're in the process of harnessing the significant potential for palm biomass. Malaysia is investing into next generation biofuels and bio-chemicals that will satisfy growing domestic and international demand for greener products," he said.

Separately, in a telephone interview from Washington DC, renowned economist Dr Robert Shapiro explained that the determination of GHG savings of various oil crops to fossil fuels is part of EPA's renewable fuel standard (RFS) programme, which aims to promote more green-energy usage, including advanced biofuels.

Shapiro, who is Sonecon LLC chairman, is also a fellow at the Georgetown Center for Business and Public Policy at the McDonough School of Business.

He said the RFS is effective in addressing the US' goals to reduce dependency on fossil fuel, create jobs and lower GHG emissions from the transportation sector.

"In order to meet its mandate of higher green energy usage, America needs to explore all options, and not just domestic sources such as soyabeans and corn," he said. 

The US is the world's biggest producer and exporter of corn. The RFS, introduced in 2005, created government-guaranteed demand for corn, the renewable feedstock to make ethanol.

An update to the RFS approved by the US Congress in 2010 (RFS2) became controversial due to its initial determination that corn ethanol would not meet sustainability standards due to indirect land use change, reflecting the current debate over palm biodiesel.

"We observed that the EPA initially determined that corn ethanol reduced GHG emissions by just between five and 18 per cent, compared to gasoline, far less than EPA's recent determination for palm oil and insufficient for use under the RFS programme.

"This was subsequently revised following a strong response by researchers questioning the EPA's analysis of additional emissions associated with land use change. The Agency, finally, reduced the number by half," he said.

"In fact, the general view of international experts is that the current understanding and projections of emissions from land use changes are highly speculative and therefore, not a reliable basis for policy-making."

Shapiro acknowledged that the increased production of ethanol has a large impact on corn prices. In a free market, if the price of corn goes up, demand will go down, moderating corn prices. But the US federal mandate requires the same amount of ethanol no matter how expensive corn is.

In 2005, when the renewable fuel mandate was first introduced, ethanol production accounted for only five to 10 per cent of the demand for corn in the US. Now it is up to roughly 40 per cent. 

Currently, corn prices on the Chicago Mercantile Exchange is trading at about US$6.50 (RM19.83) per bushel - almost triple the pre-mandate level.

"If palm biodiesel, a very efficient renewable fuel, is to be included into the RFS2, it would lessen corn demand for fuel and possibly lead to cheaper feed for our livestock farmers," Shapiro said.

In Europe, there is a law requiring 10 per cent of all transportation fuel to come from renewable sources by 2020. 

Palm biodiesel exporters from Malaysia and Indonesia have consistently expressed their grave concerns that in the US and European markets, palm oil is being unfairly assessed to protect the US soyabean and European rapeseed farmers.

Incidentally, US soyabean farmers are speaking with the European Union (EU) over their exclusion from the EU biodiesel market due to a similar determination that soya biodiesel fail to meet the European Renewable Energy Directive. 

On a global scale, both palm and soya biodiesel producers have stated that the EU's assessments are inaccurate and violate trade rules at the World Trade Organisation.

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