HCS 101: What Is HCS?

The revised Renewable Energy Directive (RED) that emerged from the European Union recently has provided some direction on where the European biofuels market will head after 2020: but it also left open the door for further, immediate, policy measures in 2018/19.

Unfortunately, these policy plans pose more questions than answers at this stage.

The core uncertainty is what will define a ‘high risk biofuel’. The RED requires that the EU Commission define a ‘high risk’ biofuel by February 2019.

Sources in Brussels tell POM that rather than using ‘sustainability criteria’ – as per the existing RED – the EU will shift to ‘deforestation criteria’.

This is likely to incorporate two elements: indirect land use change (ILUC) and a new definition for high carbon stock (HCS). This blog concentrates on the latter.

But what is HCS?

In the RED, HCS sets the definition and cutoff for cleared land, and whether biofuels grown on that land can be included in RED targets. The cutoff date in the current RED is January 2008. The EU verifies this through certification. For palm oil, the largest certification schemes are ISCC and RSPO-RED.

The EU definition in this case is “wetland; continuously forested areas; areas with 10-30% canopy cover; and peatland.”

These are reasonably obvious, except for ‘continuously forested areas’, which is defined as: “land spanning more than one hectare with trees higher than five metres and a canopy cover of more than 30%, or trees able to reach those thresholds in situ.”

This definition is a hybrid definition of forest used by the UNFCCC and FAO – although it is more specific. The international definition minimum areas start at 0.05 ha, and its canopy cover limits give a range of 10 – 30 per cent, and a range of heights from 2 to 5m.

Why is the EU definition higher? Because all forests have carbon stock; the ‘high’ part should refer to the upper end.

This definition isn’t ideal in terms of its ability to measure carbon, which is what the RED is attempting to save. There are simply too many uncertainties in measuring carbon stocks in different forest types (boreal, temperate, tropical) for this to be applied in a fair way. Soil disturbance and stored carbon in wood products also need to be counted if any carbon accounting is to be completed accurately.

The EU’s HCS definition is a shortcut. It is prescriptive without being too restrictive; it is supported by international consensus and therefore could not be easily subjected to a WTO challenge; and conceptually it is difficult to argue with.

But the element that is novel in RED II is ‘high risk’. RED II will seek to determine which biofuels are ‘high risk’, i.e. which biofuels have a ‘high risk’ of causing losses to HCS areas, directly or indirectly.

There are other definitions of HCS out there, which also need to be examined. These lean more restrictive.

This commenced in 2010. Greenpeace had attacked Nestle on its palm oil use, particularly palm oil sourced from Golden-Agri Resources (GAR). GAR engaged with Greenpeace and The Forest Trust (TFT) to determine a definition for HCS that would effectively prevent GAR from engaging in any more forest clearing.

The number they came up with was 35 tonnes of carbon per hectare (tC/ha).

At that time, Indonesia’s planning agency, BAPPENAS, considered ‘high carbon’ to be anything over 100 tC/ha. Logged over forests and acacia plantations contain as much as 200 tC/ha; rubber plantations go up to 96 tC/ha – even higher if the soil carbon pool is counted. Palm plantations contain as much as 65 tC/ha.

Greenpeace, GAR and TFT then undertook a context-specific study of carbon content of forests in Kalimantan, Indonesia. The study concluded, in short, that any type of forest – including canopy cover as low as 10 per cent – could be considered high carbon stock. The High Carbon Stock Approach (HCSA) was finalised, with a threshold determined to be between scrub and young regenerating forest.

But in this approach, the focus was not only carbon stock, but also other social and environmental aspects such as forest connectivity. Despite being called ‘HCS Approach’ carbon is not the only criterion.

There were some problems– and these were well noted. First, the study couldn’t account for other forest types or regions within Indonesia, let alone other countries. Second, if smallholders were going to be denied access to HCS lands, they would need to be compensated appropriately.

HCSA developed further in 2015 when its toolkit – i.e. its implementation methodology – was further refined.

The implementation really seeks to conserve large forest areas within areas that have been earmarked for oil palm development and that are under the management of a single firm.

The net result is that HCSA is a way of implementing its approach at the individual company level, rather than at an economy-wide level. It means that HCSA is in a position to ignore smallholders and broader economic impacts, and place its policy focus on carving off conservation areas.

Whether intentional or not, this approach is quite elegant. It takes government planning out of the equation; and it also doesn’t require the use of public funds. And because it is targeted at firm policy, rather than government policy, firms can be targeted individually.

It is also why the HCSA – combined with HCV approaches – will potentially be incorporated into the RSPO Principles and Criteria. This will be voted on at the RSPO General Assembly later this year.

It should be noted that this version of HCS isn’t primarily about determining carbon stocks. It’s about forest conservation. This is why it’s referred to as ‘zero deforestation in practice’.

MEPs lined up behind this approach in the lead up to the RED trilogue negotiations earlier this year, and they will likely push the Commission to have this methodology and its definitions adopted as part of any HCS definition.

There are three things to consider here.

First, the EU is seeking to adopt an economy-wide approach aimed at ‘high risk’ biofuels.  But what will be the ‘high risk’ criteria? The EU can’t discriminate between economies; this runs afoul of global trading rules.  HCSA proponents will be keen to argue that HCSA means the risk of a particular biofuel causing deforestation can be reduced to zero.  HCSA is a detailed and technologically intensive methodology that is primarily aimed at businesses and voluntary markets.

Will this force the EU to again discriminate between biofuels certified to a particular standard? If so, this will undo EU moves to have palm oil considered ‘high risk’ across the board.

Second, HCSA is applicable only for new developments, and only after the 2015 methodology. Non-compliance with this approach for pre-2015 developments is not possible. How will the European Commission reconcile compliance with HCSA and the EU’s existing 2008 cut-off date?

Third, and related to the previous point, HCSA is very much forward-looking. It’s about preventing future deforestation. This is opposed to being able to definitively and empirically state whether a biofuel has been sourced from areas that were deforested after 2008.

One should think that the Commission will be more interested in an empirical rather than predictive approach: remember, the goal is to determine what is or is not a ‘high risk’ biofuel at the present moment. HCSA, no matter the virtue of its outcomes, cannot empirically deliver that determination.

In our next blog, we’ll look at the competing view on HCS from the Sustainable Palm Oil Manifesto (SPOM).