HCS 101 PART 3: Can HCS Be Changed?

The first two blogs in this series looked at how the ‘high carbon stock’ idea has been introduced into both European regulation (under the Renewable Energy Directive) and into private sector (the High Carbon Stock Approach and the Sustainable Palm Oil Manifesto).

This piece will look at how and whether the various approaches to HCS can be incorporated within the EU’s revised Renewable Energy Directive framework.

First, we’ll look at the rationale for the inclusion of the HCS definition itself. Second, we’ll look at different scenarios for changing that definition.

Why HCS?

To recap, the European Commission, Parliament and Council have agreed on an approach to the sourcing of biofuels and whether they can be counted towards the EU’s renewable energy targets. They have stated that in February 2019, the Commission will define criteria for acceptable biofuels. This will be based on whether biofuels can be considered ‘high risk’ or ‘low risk’ for indirect land use change in ‘high carbon stock’ areas.

As we’ve pointed out, the existing HCS definition is broadly in line with international definitions of forested areas, leaning towards the upper limit of carbon stock thresholds.

The big question is if, whether or how the Commission will alter its definition of HCS areas.

The rationale behind the use of HCS as an original ‘threshold’ appears to be because it is very difficult to accurately measure emissions from land-use change , and it’s also difficult to generalise. Consider that the variation in aboveground carbon stock is dependent upon forest type (e.g. tropical dry or wet), latitude, rainfall and temperature change, among other things.

Belowground carbon and soil disturbance for clearing makes things even more complicated. Soils – as a source of greenhouse gas emissions – are poorly understood. Different soil types emit different gases at different rates under different conditions – and it’s not intuitive. For example, CO2 emissions from soil used for growing wheat in temperate climates are significantly higher than emissions from soil for sugarcane in tropical climates.

Combined, the IPCC tallies that for forests, averages for above and below ground carbon are about 400 t C ha- in boreal forests, 150 t C ha-1 in temperate forests, and 250 t C ha-1 in tropical forests.

Therefore, the European Commission narrowing the definition of ‘high carbon stock’ to ‘continually forested areas and wetlands’ suited the EU’s political purpose. It should also be remembered that tropical forest areas were simply not on the EU’s radar when the regulations were written. This was very much about: i) supporting domestic agriculture; and ii) greening the image of diesel as a transport fuel.

But the question is whether the use of a ‘high carbon stock’ threshold is actually meaningful for greenhouse gases and biodiversity.

One of the key points that has been made by European analysts throughout the first iterations of the RED was that land use change emissions because of palm oil – caused by indirect land use change in forests and peatland  – were high, and therefore palm oil should be excluded from the RED. But some studies showed that even with this incorporation of HCS thresholds into ILUC calculations, the emissions from palm were lower or equivalent to rapeseed and other crops.

Why is this the case? Because in modelled scenarios when palm gets excluded from the RED based on either greenhouse gas ‘savings’ or because of peatland expansion, the demand for EU-based vegetable oils increases in the EU for other uses. This shortfall has to be replaced somehow, and palm oil’s versatility makes it the first choice.

The other point is on biodiversity. One European researcher states the following:

The impacts on biodiversity in terms of species diversity from occupation and transformation of land in Europe may be as significant as from occupation and transformation of land in rainforest regions e.g. Malaysia and Indonesia. Two factors contribute to this surprising characteristic: 1) The yields in the tropics are often higher than in the temperate regions leading to a smaller affected area in the tropics, and 2) since a smaller share of the original nature in Europe is left than in Malaysia and Indonesia, the ecosystems in Europe are also more sensitive to further occupation and transformation.

What this demonstrates is that the HCS threshold – as a means to achieving a particular environmental outcome – is somewhat arbitrary. This is because it applied to a market designed by the EU that was really only supposed to operate internally.

This question of the EU’s HCS thresholds leads into bigger questions about whether an alternative threshold or definition could deliver a better outcome.

Can HCS be changed?

Let’s consider some scenarios.

First, let’s consider the existing regime, using the most extreme definition : Greenpeace’s HCS definition.

It wouldn’t be politically palatable to bring the cutoff date forward to 2019. Pushing it further back, i.e. retrospective regulation, would also not be possible. However, changing the rules to tighten the definition of expansion into any forest type – including young regenerating forest – would satisfy European Greens, particularly if combined with the existing 2008 cutoff date.

Under this scenario, fuels from any expansion areas that went into any forest would need to be re-certified under RED certification. This would limit the number of suppliers going into Europe, but it would not stop them. Many Malaysian suppliers would still qualify, as would incumbents in Indonesia. The bigger question would be whether data is available for certification.

In our view, this would significantly change the market.

Second, let’s consider the new regime, where biofuel feedstocks are assessed for whether they are at risk of causing indirect land use change in HCS areas.

For the sake of clarity, let’s assume the EU finds a way to ‘prove’ that ILUC is significant for palm oil – and palm oil alone — and that it is possible to determine whether the expansion has been on all forest types, tightening the HCS definition.

As previous EU reports have demonstrated (and outlined above), the demand for rapeseed and other oils in the EU market would go up, increasing price and lowering supply. Demand for palm would rise as a consequence for non-fuel uses, and no indirect land-use change would be prevented. It may actually increase.

Another problem might be that rapeseed, too, has impinged upon young regenerating forest that wasn’t classified as forest.

The only way for the EU to prevent any land-use change would be to apply the same conditions to rapeseed. This is, of course, politically unacceptable.

However, the combination of land-use change risk vagaries and a tighter definition for HCS will likely give the EU the answer it wants.

In the WTO, this probably won’t be acceptable under different WTO agreements.

If the EU is seeking to prevent greenhouse gas emissions and/or deforestation via a technical regulation, the method it chooses should “not be more trade restrictive than necessary to fulfil a legitimate objective.”

Similarly, the WTO allows for countries to introduce trade measures related to the conservation of natural resources. But a policy must be ‘primarily aimed at’ the conservation of exhaustible natural resources and any implementation must be ‘reasonably related’ to that objective. The Directive is about renewable energy and greenhouse gases. It’s a world away from indirect land use change in developing countries.

In other words, if the EU wants to stop deforestation, there are easier ways to do it than by tightening the HCS definition.