A Big Week in Brussels
Last week was particularly busy for anyone dealing with the politics of palm oil in Brussels. Here’s an overview.
The RED Delegated Act consultation closed
The open consultation process for the RED Delegated Act closed. At last count, there were more than 60,000 submissions made in the process. Around 52,000 of these submissions were pre-formatted copy-and-paste letters submitted via the ‘Not in my Tank’ portal put together by Transport and Environment and other NGOs.
There were not a significant number of responses from outside of the EU that objected to the methodology used by the European Union.
Both Indonesia and Malaysia were engaged in consultations directly with the EU on the RED. According to news reports, Malaysia said that:
The draft delegated regulation has been found to be lacking in transparency, scientific credibility and many of the assumptions therein fail to reflect the actual sustainable practices in the industry … Furthermore, it is biased against palm oil biofuels compared with the other crop-based biofuels. We therefore concluded that overall, palm oil has been unfairly labeled as a high ILUC risk among the eight feedstocks cited in the draft regulation
A Delegation of Malaysian officials was in Brussels this week to meet with EU officials ahead of the final adoption of the Delegated Act.
EU Commission Expert Group Meeting
This past Wednesday, the European Commission organised a stakeholder listening session. The European Commission announced the final Delegated Act will be submitted on March 14, 2019 to the European Parliament and Council of the EU who will then have up to 2 months to either accept or to object to it.
There has been a steady uptick in demands from the European Parliament and NGOs that MEPs should object to the Delegated Act. This could force the Commission to withdraw it, replace it, or junk the idea entirely.
Focus Switches to MEPs and Member States
The Commission’s expert meeting this past week really served as a final roll of the dice for DG Energy: once the Delegated Act is published it is then sent to the EU Parliament and to the Council. The buck will be passed, and the final decision on whether to proceed with the Delegated Act lies with MEPs and with the Member State representatives.
Our sources in Brussels say there remain serious discussions in the EU Parliament’s Environment Committee (ENVI), and that it’s possible the Committee could formally object to the Delegated Act. However, with elections in the offing and the chance to restrict palm oil imports, the smart money surely is on MEPs swallowing their pride and settling for the text as it is.
A more interesting question concerns the Council. Why? Because the governments in Paris, London, Berlin, etc, will understand the consequences of allowing the Delegated Act to proceed. Indonesia, Malaysia, and others have made repeated statements about WTO action and potential trade retaliation. For a period of time, Member States have been able to hide behind the Commission when it comes to the Delegated Act’s provisions against palm oil. No longer. If the Council chooses to approve the Delegated Act then the Member States themselves will be responsible for the decision, and the potential consequences. It’s probably no coincidence that reports suggest Indonesia and Malaysia will be sending Ministerial representatives to European capitals in the coming weeks.
A final point worth noting is the trade narrative emerging in some sections of the European press & political world. MEPs have accused palm oil producing countries of issuing aggressive trade threats, and European media has dutifully reported this as fact. Brussels in fact needs to take a step back and realise that neither Indonesia nor Malaysia has implemented a Delegated Act that bans European products … in other words, the EU is the aggressor here in trade terms and the producers are simply responding.
A TBT Meeting at WTO
A Technical Barriers to Trade meeting took place at the WTO in Geneva. This was the first formal meeting of the TBT Committee since the EU published its draft RED Delegated Act, and the first since France decided to remove tax benefits for palm-based biofuels in its finance bill.
The last time the Committee met, Indonesia, Malaysia and other palm oil producing countries took the EU to task for not releasing details of the RED sooner, and for singling out palm oil at various points in its legislative processes.
EU-Indonesia FTA negotiations
On March 11, the EU and Indonesia also had planned to commence the 7th Round of FTA negotiations in Brussels. Rumours from Jakarta was that the agreement was effectively on hold because of the palm oil issue. But it should be noted that this is likely to be in the context of the agreement – not because of the TBT discussion.
Norway’s ‘Circle of Virtue’
Norwegian officials visited Malaysia this week, with direct visits to both Trade Minister Darrell Leiking and Minister of Primary Industries Minister Teresa Kok.
The meetings were notable because of a statement from Norway’s Trade Minister Torbjorn Isaksen, who said, “There has never been a proposition either from the Norwegian government or the Norwegian parliament to ban palm oil.”
To recap, Norway’s parliament called on the government to ban palm oil from accessing its renewables programs. Isaksen’s language is precisely the same as the EU’s when its parliament called for a renewables ban.
According to news reports, Norway is looking for a trade deal that will include sustainable palm oil. Will this mean that MSPO gets recognition under the deal? Could that be a template for other palm oil producing countries as well, to secure recognition for their own sustainability efforts?
The following day it was reported that Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, had divested from several companies due to deforestation concerns – three because of palm oil. Rainforest Foundation Norway (RFN) cheered the move against Sime Darby, Olam, Sipef and Halcyon Agri. Olam and Sime Darby have been the targets of RFN for some time; RFN has called for GPFG to divest from companies associated with palm oil.
RFN, for its part, receives considerable financial support from the Norwegian Government’s development agency, Norad. In 2015, it received more than USD10 million in funding.
Given all of the above, it’s unclear exactly how the Norwegian government can claim to be pro-palm oil. Or, more importantly, it’s unclear why anyone in a producing country would believe that claim.
Indofood Exits RSPO
Indofood, Indonesia’s largest food producer (and the world’s largest maker of instant noodles), and RSPO have parted ways. Indofood withdrew from the organisation in late January; their formal expulsion letter was sent from RSPO at the end of February.
The complaint against the Indofood division – London Sumatra Plantations — that sparked the withdrawal took place in mid-2016. It was launched by the US-based Rainforest Action Network. Its target was Pepsi, and specifically its joint venture with Indofood.
The complaint was protracted. Despite verification audits and meeting complainant expectations, RAN continued to appeal, place quite unreasonable demands on the company and effectively refuse to settle. One example: RAN refused to reveal the locations of the rule breaches for several months.
This placed a considerable financial and resource burden on the company. Our understanding from talking to people familiar with the matter was that it was simply not worth Indofood’s time to maintain its RSPO membership and compliance.
This should be an eye-opener for RSPO. For voluntary schemes such as RSPO, part of the sales pitch is that certification – not just better practices, but compliance and certification – gives value to companies. If that becomes a burden rather than a benefit, the business case is gone.
It’s worth noting that Indofood’s plantations division has been under some financial pressure, posting a loss last quarter. But does this also mean that some companies will see certification as an unaffordable extra when times are tough?
Add to this the elephant in the room for Europe: around 26 per cent of palm oil going into the EU remains uncertified, according to a new report by IDH. This is despite a commitment by a number of EU countries to make their supply chain 100 per cent sustainable by 2020.
IDH noted that there was little demand for certified products in Italy, Spain and Poland. IDH stated that “To meet the 100-per cent target by 2020 is going to be very difficult because now we move into these markets where there is no consumer pressure or awareness.”