EXPOSED: ILUC MAKES A COMEBACK

In our first instalment of the EU Palm Oil Gate, we released internal documents that confirmed Europe knowingly moved against palm oil in violation of WTO rules. The blowback from Europe’s most vital trading partner in South East Asia is underway with Indonesia’s Vice Minister for Foreign Affairs, Mahendra Siregar, writing in a letter to his European counterpart that the disclosure has “confirmed that the intention of the EU is to discriminate against palm oil exports” and as a result, has jeopardised the CEPA negotiations and the ASEAN-EU strategic partnership.

As the European Commission’s RED Working Group led by Paula Abreu Marques and Bernd Kuepker of DG ENER embarks on a ‘road show’ of palm oil producing countries to sell the concept of ILUC, our second EU Palm Oil Gate piece looks at how the scientifically bogus concept known as “Indirect Land Use Change” (ILUC) was taken off the RED table, but swiftly put back in by domestic European interests and the European Union Institutions in order to keep palm oil out of the RED and out of the EU market.

Our latest batch of EU Palm Oil files paints a picture – through letters, memos and other EU documents – of how the EU’s internal politics, and external lobbying, directed the Commission’s thinking on ILUC over the past seven years. The document show in particular:

The end result?

The Commission’s Delegated Act introduces ILUC into the RED calculations, but protects EU oilseeds (rapeseed, sunflower) and also US soy. Palm oil, as specifically requested by the EU Parliament, is black-balled – despite advice from senior EU officials that this plan was against WTO rules, as revealed in the previous EU Palm Files documents.

For the full story, we need to begin at the beginning.

ILUC has been broadly criticised by most scientists and economists, over many years and for many reasons. But the simplest is as follows: ILUC can only be modelled, but can’t be observed directly. This makes measuring ILUC impossible. It also makes for very bad policy decisions.

But what is ILUC?

ILUC is a theory that if demand for a crop is increased for one particular use, there will be an additional supply response, and that this supply response results in further land-use change and further emissions.

The theory was used to argue that crop-based biofuels have much larger greenhouse emissions than those that can be considered tied directly to their production.

As a result, it has been favoured heavily by NGOs that dislike biofuels such as European Union-funded Transport & Environment, but generally objected to by crop growers around the world – including both palm growers from Asia, and European oilseed growers.

Where was ILUC in the RED negotiations?

The documents that we have uncovered show that ILUC was generally out of favour with all European agricultural producers and biofuels producers. The question is how, then, was it brought back into the RED via the recent Delegated Act?

The documents tell the story. As far back as 2012, the European Biodiesel Board – a strident opponent of palm oil – was writing directly to European Commission officials and calling for ILUC to be dropped from any iteration of European energy proposal. They stated:

If approved the [ILUC] proposal… would definitively cause the death of the whole EU biodiesel industrial sector closing hundreds of production sites worth many billions euros of recent investments and driving to the immediate loss of 50.000 direct and 400.000 indirect employments in the EU biodiesel production chain.

COPA-COGECA, the EU’s strongest farm lobbying group wrote in similar terms:

The EU farmers arid biofuels industries remains steadfastly opposed to the European Commission’s proposal to limit biofuels made from certain arable crops and to add indirect land use change( ILUC) to the renewable energy and fuel quality directives… [It] would destroy the biofuels industries and related sectors.

The heavy lobbying by the European farm sector over various iterations of RED – which can be clearly seen in these lobbying documents – effectively kept ILUC off the table.

Five years later, things had not changed significantly for the RED revision. COPA COGECA wrote to Energy Commissioner Miguel Arias Canete stating that targets for biofuels and the inclusion of ILUC could have ‘extremely negative repercussions’.

So, despite this opposition, how did ILUC make a comeback?

It was clear that the European farm sector needed ILUC off the table. This was very clearly expressed in the Revised Renewable Energy Directive – as agreed to by the Commission, Council and Parliament in June 2018.

But it was also readily apparent that the European Parliament would not agree to anything that permitted the continued use of imported feedstocks – especially palm oil – in the RED.

And this is where the concept of ‘High Risk’ or ‘Low Risk’ indirect land use change risk was born.

Rather than taking a clear decision, the Trilogue kicked responsibility for keeping imported feedstocks out down to a Delegated Act – an implementing instrument.

This would be relatively simple. EU-based crops in an environment with low levels of recent deforestation would be considered low-risk crops under this new ILUC system. Imported crops – palm and soybean – would be designated as ‘High Risk’. So far, so simple.

But there was a problem. In September 2018 EU Commission President Jean-Claude Juncker had agreed to fast-tracking US soybean sustainability and had committed to large soybean purchases. This was done in order to keep President Trump appeased, so that tariffs would not be imposed on European exports, mainly cars and steel.

The trick now would be finding a solution that would allow soybean in, but keep palm oil out.

The lobbying by US companies was plain. Our EU Palm Oil files shows that internal minutes from the EU Commission’s meetings with large US soybean processors prove that soybean exporters to the EU were concerned about RED compliance:

On the importance of RED compliance, they said that imports of soy are protein driven, not oil driven (oil is a useful by-product), they were interested in the progress made by the Soy Export Council/RED compliance and the prospects/timeline for the COM implementation act … From our side, we asked them to come back with economic data/an assessment of the financial/trade consequences of RED compliance for US soy exporters.

For anyone who has dealt with government consultations, this is code for a request for supporting information. In other words: ‘Give us a defensible reason to give you a green light, and we will give it to you.”

There was one final hurdle to jump over. The EU had to generate a scientific report justifying its decision on soybean and palm oil. In order to do this, it did not contract out the work. It passed the study to the EU’s own Joint Research Centre; this can hardly be considered independent, nor transparent. Research conducted during the original RED debate demonstrated the weakness of the JRC’s calculations related to palm oil – so this can hardly be considered a reliable path.

This is more than double the palm expansion area the EU is attributing to palm oil on an annualised basis between 2008 and 2015.

Our EU Palm files demonstrate that the controversy over ILUC is not new – and had in fact been bubbling away for years. One of the complaints that EU groups made about the original ILUC studies is that they were completely opaque. COPA COGCA wrote to DG Energy Dominique Ristori in 2015 that the EU:

will  publish  a  study  –  funded  and  supported  by  the  European Commission – with findings which will not be peer reviewed prior to publication, but which  are  going  to  be  presented  to  the  public  as  the  result  of  objective,  scientific  research  likely  to  be promoted by the European Commission as basis for policy decisions.

This indeed ended up being the case with ILUC. At the time, the Commission responded by saying:

The Commission agrees that a scientific peer review – not to be confused with stakeholder consultation – would be desirable. Unfortunately it seems that if the ILUC model structure cannot be disclosed, such a review cannot meet the quality standards set by academic rules

In other words, the EU conceded that its original ILUC modelling has not met academic standards.

But worse, now it has simply established a new set of ‘ILUC risks’ that are still not meeting those standards – and it is clear that a political decision was made and the science was shaped to fit around it.

The old ILUC model attracted the ire of European industry – the new ILUC model is attracting the ire of the importers against whom it is so clearly biased. As previously revealed by Palm Oil Monitor, a  letter received by Cecilia Malmstrom, the EU’s outgoing Commissioner for Trade, from the Indonesian Vice Minister for Foreign Affairs, states that “the intention of the EU is to discriminate against palm oil exports by resorting to scientifically-flawed findings on high ILUC in favour of home-produced rapeseed” and goes on to request that EU officials “desist in portraying EU actions as non-discriminatory” given the obviously discriminatory ILUC approach pursued under the RED.

EU officials have more recently been undertaken outreach activities in Malaysia and Indonesia. These have been a naked attempt to influence stakeholders in exporting countries. We have it on good authority from sources in Brussels that the EU’s counsellor in Jakarta has been telling smallholders that the Indonesian WTO case will fail, in part because the definition for smallholder exceptions in the RED is an international standard. This is far from true; there is no consensus on what a ‘small’ farm is.

As the FAO states on in this study from 2015 that was itself used by EU officials in justifying its smallholder definition:The 2 hectares threshold does not provide any meaningful information for an analysis across countries.”

It’s worth reminding at this point that deforestation in certain countries for certain crops is not a straightforward path. The EU is using the period of 2008 to 2015 as its key time of study, when soybean expanded its footprint five times more than palm oil. And since then, deforestation in the Amazon – much of which can be attributed to Chinese soybean demand – has exploded. According to the IUCN:

Deforestation of the Amazon rainforest reached recently, in 2018, its highest level in a decade. Satellite images for the 12 months through the end of July 2018 showed that 7,900 square kilometers of forest were cleared in the Amazon. That was a 13.7% increase from the same period in 2017.

Data released in June 2018 by the federal government regarding deforestation in the Cerrado show that between 2016 and 2017, Brazil’s second largest biome lost 14,185 km2 of native vegetation, or 6,777 km2 in the first year and 7,408 km2 in the second.

So, how has ILUC made a comeback?

Because the opaque methodologies that the EU used in the first place have not been tested in legislation. Now those same methodologies will only apply to palm oil – with European and North American crops effectively exempted – and will be challenged by Indonesia at the WTO. Given the EU’s acknowledgement that the original work does not meet academic standards – and the evidence from last week’s EU Palm Gate release that the EU is aware it’s infringing WTO – the Commission should be prepared for a bruising encounter in Geneva.

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