RED: A week on the edge
The situation on the Renewable Energy Directive (RED) in Brussels last week reached something of a fever pitch.
As noted in last week’s edition, there is significant tension within Brussels as to how to deal with the Delegated Act – the implementing regulation for the RED.
The tension is between the narrow desire of the European Commission to fulfil the mandate given to it by the Parliament, Council and Commission in the form of the ‘RED Compromise’ of last year, and the broader understanding among the EU’s wiser heads that discriminating against trusted trading partners will have bigger consequences for the EU’s trade and foreign policy agenda.
Here’s how it unfolded:
January 21 – A briefing for the MEPs on the RED Delegated Act is cancelled. This briefing was supposed to unveil the Delegated Act to MEPs. As we noted last week, one of the reasons it wasn’t completed was because Commissioner Canete and Director-General Dominique Ristori (DG ENER) were at odds over the Act’s objectives and conflicts with trade policy and WTO compliance.
February 1 – Commissioner Canete hosts a ‘crisis cabinet meeting’ over the Delegated Act. One week later and the crisis isn’t resolved. Commissioner Canete held a cabinet meeting of his top advisors in an attempt to resolve the impasse.
February 4 – Juncker chairs an internal Commission meeting. The lack of resolution prompts the involvement of Commission President Jean-Claude Juncker, but with no result.
February 6 – College of Commissioners meeting. The College comprises all 28 Commissioners, one from each country and each with a different portfolio. Again, on the RED there is no resolution and no result. According to news reports, some Commissioners considered the regulation ‘too light’.
However, the College has a next step: An Inter-Services Consultation.
This is a four-week process in which all Commissioners provide their input on the Delegated Act. It starts immediately.
The Commission published a draft version of the Delegated Act before the weekend for consultation. We’ll have our analysis in the coming days.
What does this mean?
At the very least, it means the process will drag further. It also means that European lobbies – agricultural, environmental, transport – will be doing their best to get their input into the process, whether via their portfolios or national representatives. COPA-COGECA, the EU’s largest agricultural lobby group, is already on the front foot, calling for tougher rules on imported feedstocks, specifically soy and palm.
For exporters of palm oil – or even Argentinean soy-based biodiesel – this is a critical window for making representations to Commissioners, particularly Trade Commissioner Cecilia Malmstrom, and Commissioner for Foreign Affairs Federica Mogherini. The consultation process concludes at the beginning of March.
Malmstrom has previously been sympathetic to keeping trade open. Green NGOs are publicly calling her out, stating that she doesn’t want this to be an issue in trade negotiations – they’re probably right.
Again, this prompts questions about the EU’s overall trade strategy. The EU – particularly Germany – needs to find new export markets, and ASEAN has great potential. But are the bloc’s bureaucrats prepared to sacrifice that strategy in order to keep a small number of European farmers happy? Malaysia and Indonesia vetoed an EU strategic cooperation announcement last month because of palm oil; they will be prepared to do much more.
For those with an eye on the calendar, the next WTO Technical Barriers to Trade meeting is on March 6, the next round of Indonesia-EU negotiations is scheduled for March 11 (in Brussels) and the next Mercosur-EU round hasn’t been scheduled.
Where is the sustainability lobby?
A notable absence from the RED debate has been the ‘sustainability lobby’ in both Europe and elsewhere. This has been noticeable since the debate stepped up around 12 months ago, but the ‘sustainability alliances’ in Europe have generally remained silent on RED through its history.
This changed last week, with the EPOA tweeting: “Calling for a ban on palm oil won’t stop deforestation and won’t help to improve livelihoods of farmers. We in Europe, as 2nd largest global importer of palm oil, need to be ensuring 100% of the palm oil in the products is sustainable.”
Although the sentiments are absolutely correct, it’s increasingly likely they misread what is happening in Brussels.
Here’s why.
EPOA is an advocacy group for uptake of certified sustainable palm oil. Certification is, at its heart, a business-to-business arrangement. Producers and purchasers (and their stakeholders) are all working towards the same goal: the purchase of palm oil that they consider to be sustainable. Achieving that goal depends upon mutually determining what sustainability is, and requires an agreement between those parties. Both sides have leverage.
RED and the political processes around it are fundamentally different. RED is a political arrangement. The arrangement is one of politicians (Brussels) giving financial support to their constituents (farmers). RED’s original political goal was support for European farmers. RED II follows that same goal but now that support depends upon removing support for imported feedstocks. In this setting, ‘sustainability’ becomes arbitrary. The leverage is between politicians and their constituents.
The problem for the Alliances in the RED debate is twofold.
First, they have little leverage. Private certification is good for commercial arrangements. But when it comes to RED II, politicians and their constituents are seeking to regulate biofuels in a way that makes private certification irrelevant: ‘indirect land use change means palm oil bad, even when it’s certified.’ There is no compromise position here. This is one reason some European Parliamentarians have concentrated on the failings of certification.
Second, this idea is contagious and will spread beyond biofuels. The argument will be as follows: If no palm oil is good enough for biofuels, no palm oil should be good enough for our food.
The EPOA and other like-minded groups have been reluctant to defend palm oil as a whole. This is understandable; it’s not their job. Their job is to support palm certification and uptake of certified palm oil. But if those certifications do not assist with RED compliance – or newer regulations – their broader relevance in the European market is under threat.
RED has produced a new environment where regulation of palm oil may not distinguish between certified and uncertified palm oil. Let’s see what happens.
Palm becomes an election issue across ASEAN
Forthcoming elections in Indonesia and Thailand are likely to make palm oil and agriculture a major policy issue across ASEAN’s two largest economies.
The Indonesian elections are set for April. A setback for President Jokowi thus far has been the slow progress in the country’s palm replanting scheme. The scheme aimed to replant around 20 per cent of the country’s smallholder area, but only 15,000 ha has been planted so far.
Jokowi’s current main challenger at the election is Prabowo Subianto. Prabowo is running on a populist platform, with tax cuts and reform as its main policy push. However, Prabowo is also seeking to cut the country’s reliance on palm for biofuels, and instead increase areas for ethanol production. This is a sop to the country’s agriculture sector. The sugar industry in Indonesia has been opened up over the past 12 months, which has resulted in soaring imports and plummeting local prices.
Thailand’s elections are set for late March. General Prayuth, leader of the military junta, plans to introduce handouts for the country’s oil palm farmers. According to one report, Prayuth is establishing a $32 million fund to stabilize palm oil prices and hand out cash to 14.5 million Thai farmers.
This will be welcome news for Thailand’s palm farmers, who have lower productivity and higher production costs than their counterparts across ASEAN. The government also sets a floor price for FFBs and a maximum price for refined oil, which protect the industry – at a cost to the economy.
Neither case will likely have a significant impact on global prices. However, they do indicate that agriculture and palm oil remain a political driver across the region.
The big question for many observers is whether the EU trade spat will eventually become an election issue in the Indonesian campaign – and to a lesser extent, Thailand’s.
RSPO’s recognition problem
A new article in Environmental Research Letters points out a glaring problem with RSPO: few people know what it is. The article surveyed around 1,700 UK consumers and their awareness of ecolabelling. Around 77 per cent of consumers knew what palm oil was; around 41 per cent considered it to be ‘environmentally unfriendly.’ But just 5 per cent knew what RSPO was. This compares with 90 per cent recognition for FairTrade and 54 per cent recognition for the Forest Stewardship Council (FSC).
While it is reasonable to attribute some low recognition to palm oil being an invisible and specialised agreement, the broad lack of recognition should be of concern. If 41 per cent of consumers consider palm oil as ‘bad’, but only 5 per cent know that sustainable palm oil production is possible, this is a clear signal that the negative campaign has been winning what has been an ugly and protracted war.
Although RSPO can be commended in some respects, it has some questions to answer, too. The first of these is simple: why did it tolerate the absolute denigration of palm oil from its own members for so long?
CIFOR: “Much is uncertain” on palm and deforestation
CIFOR has given deforestation researchers a solid lesson when it comes to drawing conclusions on deforestation drivers. A new paper from the organisation’s veteran researchers closely examined deforestation – i.e. natural forest loss – patterns between 2001 and 2017 across Malaysian and Indonesian Borneo.
There were two key takeaways.
First, conversion from forest cover areas to plantations has been falling in Malaysian Borneo since 2008, and in Indonesia since 2012. Second, forest conversion to plantations is not the sole driver of deforestation.
But the key thing to note is that when attempting to explain the changes in dynamics, the researchers don’t try to pinpoint it on a single cause.
Much remains uncertain. The overall impact of past initiatives to regulate expansion of plantations into forests are unknown. For example, although comparative studies indicate that RSPO obligations have had little impact in certified concessions—these concessions tend to be older with little forest and we don’t know how these company obligations have influenced the development of new concessions. Similarly, though No Deforestation commitments have had little obvious effect so far—the proportion of plantation expansion that involves direct conversion of forest has not noticeably declined—they may influence longer term investment choices.
More importantly, the researchers really point to the government policy environment – rather than the role of the private sector – as a key driver.
Regulations and commitments are necessary but insufficient to halt forest loss. Companies alone cannot prevent all significant losses such as that due to fires and smallholder expansion that arise inside, let alone outside, their concessions. Good policies and strong enforcement remain crucial.
One of the connections researchers tried to pick up on was any correlation between palm prices and deforestation rates. There was a link, but it wasn’t necessarily conclusive. This isn’t at all surprising. It has been documented that the Asian Financial Crisis of the late 90s resulted in higher rates of deforestation and illegal logging. Farmers and families – in difficult financial situations – deforested and grew crops in order to improve their situation.
This report has not been picked up on international media. Its assertions are well founded, but they point to many factors, not just one. Compare this with the furore around the comparison of the palm industry to the tobacco industry, which was based on close to nothing.
What does this mean? Probably that anti-palm oil stories, no matter how extreme, are clickbait. Good research, on the other hand, goes unnoticed.