An EU Compromise on Palm Biofuels?
Last week saw the fourth of the EU’s “Trilogue” negotiations on the Renewable Energy Directive: the meeting broke up without an agreement: and a new round of negotiations will now be scheduled for 13th June.
We are told that the European Parliament is digging in and insisting on a ban on palm oil biofuels, despite its infringing WTO rules.
The Council – made up of the more sensible EU governments, who are no doubt concerned about protecting WTO rules, and avoiding trade retaliation – is proposing a compromise deal where the Parliament drops the palm oil ban in return for concessions on other issues. This is pretty standard EU horse-trading. So far, MEPs haven’t accepted the compromise offer.
It’s worth remembering that palm oil is only one part of the Directive: apparently there are multiple other issues on which the Parliament and Council disagree.
In the end, so many EU governments rely on trade with palm oil producing countries, that they must surely continue to oppose the ban. EU jobs and businesses would suffer if MEPs get their way, not to mention it would be another blow against the rules-based international trading system, which is already under serious strain.
The EU pot calling the kettle black
Speaking of which, the EU has come out swinging against new steel tariffs imposed by Washington. EU Trade Commissioner Cecilia Malmstrom issued a statement saying that “We will now trigger a dispute settlement case at the WTO, since these U.S. measures clearly go against agreed international rules … We will also impose rebalancing measures and take any necessary steps to protect the EU market from trade diversion caused by these U.S. restrictions.”
The U.S. measures have spurious reasoning behind them (e.g. the U.S. invoking reasons of ‘national security’ to impose steel tariffs against Canada) — but this is a valuable lesson for Europe.
One country has imposed an unfair and arbitrary measure against imports from a long-term and respected trading partner. Those imports are used as a vital component in many parts of the supply chain, and the action is clearly a protectionist measure designed to support domestic industries rather than the stated purpose.
This describes both the U.S. position on steel – and the EU position on palm oil. The EU is taking action against palm oil from Malaysia, Colombia, etc: the measure has nothing to do with sustainability and everything to do with protectionism.
France and Total: Europe’s real position on palm?
Farm groups and NGOs were dismayed to learn last week that the French Government had given Total the go-ahead for its La Mede biorefinery.
The likely scenario is that Total will import around 300,000 tonnes of CPO, which will make its way into the renewable supply across Europe – and be counted under the existing Renewable Energy Directive rules.
French Oilseed Producers (FOP), Transport and Environment, and Friends of the Earth immediately went on the offensive, condemning the move.
France’s oilseed farmers were concerned at the use of palm rather than rapeseed.
France’s environment minister Nicolas Hulot stated that he had asked Total to reduce their palm oil use going into the future but also that he could not ask them to cease using palm oil completely given their EUR275 million investment.
Hulot also stated that France will eventually stop importing palm oil, though he did not state whether this was because of legislation – such as a revised RED — or customer preferences.
Friends of the Earth claims that the French Government has been actively lobbying against the elimination of palm oil from the revised RED, stating that they had sent a request to MEPs asking them to vote against the RED proposals.
If France is actively lobbying against the MEP proposals on palm, it needs to be asked what the other heavyweight in the EU – i.e. Germany – is doing.
The German biodiesel industry – including German farmers – has laid down a clear marker. They are arguing in many ways for the status quo with additional support for advanced biofuels, but with this caveat: “Particular precautionary measures should be introduced for biomass imports from third countries with demonstrable sustainability problems, in particular relating to illegal land-use changes.”
This does not appear on the surface to be any different from existing sustainability criteria for biofuels. More importantly, they do not specify a crop for special attention; they specify countries. The German coalition government’s position on palm oil in the RED II is not entirely clear. There is no doubt, however, that Germany will be seeking to keep energy costs down in order to bolster exports.
France and Germany seem cognisant of what is at stake: international competitiveness and trade relations (i.e. exports). These two positions stand in clear contrast to the stance taken by the EU’s minnows in the East (see below).
This also begs another question. Does the Franco-German position indicate that the hard position taken by MEPs is a minority view, albeit a noisy one? A good benchmark is the Nutella debate; despite the noises made about palm oil in Nutella in France, sales did not suffer. Instead, there were supermarket brawls earlier this year when Nutella was being sold at a discount.
Getting to the bottom of ‘deforestation free’
Two reports were released last week on ‘deforestation free’ palm oil. One was from Imperial College in London, and another from CIFOR in Indonesia.
The two reports have different objectives. The first looks at whether ‘deforestation free’ palm oil is actually possible. The authors note a range of problems, and most specifically the complexity of the supply chain, particularly when it involves smallholders. Ultimately what this comes down to is the large number of actors in agriculture in developing countries.
Can this be overcome? Economies gradually develop and transition away from agriculture into manufacturing and then services. But this takes time. Until then, the supply chain will remain complex.
The stakeholder group that comes off the worst in the Imperial College study is campaign groups. Lead author Dr Andrew Knight states:
“NGOs have used public shaming to compel companies to make commitments to deforestation-free palm oil … Shaming may not continue to achieve positive outcomes in terms of reduced deforestation if the complex issues impeding implementation are not worked out …A more collaborative and supportive approach to understanding supply chains and the people and companies that comprise them is required.”
The second study from CIFOR looks at a different aspect, ‘deforestation free’ commitments by major producers.
Arguably the most important takeaway is that ‘zero deforestation’ commitments often fail to take into account ‘negative externalities’. More specifically, they mean the idea of large companies preventing access to land by communities to prevent deforestation.
This has and always will be the danger of simplifying environmental problems down to a simple catchphrase or slogan. Campaign groups can make ‘zero deforestation’ sound simple, but as has been documented time and time again, deforestation is dizzyingly complex and highly dependent upon its context.
The simplicity of the ‘zero deforestation’ concept is attractive for groups such as consumers or large consumer goods companies, despite its oversimplifications. But even worse is its attractiveness to policymakers. It has resulted in any number of bad policies being developed – RED II being one of them.
Wilmar’s Uganda Project Gets Underway
Wilmar’s second Ugandan plantation can commence its preparation phase after a ten-year delay. The company has been seeking 6,000ha for what is effectively an expansion of its existing 6,200ha operation.
Wilmar’s operations in Uganda – under the joint venture Bidco – comprise nucleus estates with additional areas farmed by contract growers.
The Bidco operations were scrutinised by NGOs in 2012 and 2015, with mostly claims about a Ugandan land-grab for plantation land.
The original plantation development programs that commenced in Uganda in around 2005 were supported by the International Fund for Agricultural Development, which is part of the UN system. The rationale was to reduce the country’s reliance upon palm oil imports, which come mostly from Malaysia and Indonesia, to the tune of around 200,000 tonnes annually.
African palm oil producers are largely yet to respond to moves by MEPs to have palm oil banned from the EU’s biofuels programs. This is likely to change; MEPs will simply not be satisfied with bans from biofuel programs; they are also likely to pursue moves against palm oil use in other sectors too.
New Trade Agreements Hanging?
A statement was released last week from MITI (Malaysia’s trade ministry) Secretary General Datuk Seri J Jayasiri, who stated that the country’s new government would assess its position in its trade pacts, RCEP (Regional Comprehensive Economic Partnership) and the revised TPP (Trans Pacific Partnership).
Its speculative at this stage, but we’d be very surprised if Malaysia pulled out of RCEP, as its participation is as part of ASEAN, and moreover, negotiations are yet to be completed.
The two largest importers of palm oil in the revised TPP Agreement are Vietnam and Japan; together they swallow more than 6 per cent of Malaysia’s palm exports – more than, say, the Netherlands. But the big change – according to the MPOB – will likely be improved market access into Canada and Mexico. We’d assume that this would be worth pursuing, but that decision would depend on the trade priorities and strategy of the new government in Kuala Lumpur.