- EU agriculture groups make spurious claims in UK consultation
- German farmers can’t compete against waste oil from Asia
- RED case drags on; palm exporters shouldn’t compromise on RED
Claims on ‘laundered’ palm don’t stack up
Over the past two weeks, the UK media has been hit with stories about palm oil making its way into the UK’s aviation fuel supply.
This is an obscure angle at best: so, what’s the driver?
The UK commenced a consultation on its sustainable aviation fuel strategy. This comes just as the EU has agreed on its sustainable aviation fuels targets.
Never wanting to miss a good opportunity to take a swing at palm oil, anti-palm campaign group and supporter of EU agriculture, Transport and Environment, has briefed the press on the ‘threat’ to the EU aviation supply.
At its heart is the oft-repeated but unverifiable claim that palm oil is being imported as used cooking oil (UCO) and ‘laundered’ to gain access to EU transport fuel markets.
To understand the motivating factors here, it’s worth looking at a piece from 2019, when Farm Europe stated on the subject of UCO imports:
“In simple economic terms it is the European farmers, feed processors and protein sectors that suffer.”
Germany’s rapeseed farmers are similarly finding themselves displaced by UCO imports.
The claim that the supply is being ‘laundered’ in China and Malaysia hinges on general ignorance of the ability of Asian markets to collect and process used cooking oil.
Vegetable oil and oil prices both spiked because of the pandemic and the war; fossil fuel companies are less willing to undertake significant capex on account of decarbonisation. This, alongside incentives, particularly the Renewable Energy Directive, changed the economics of used cooking oil collection and refining: UCO became more lucrative.
Per capita consumption of vegetable oil in China is significantly higher than in Europe, as is UCO collection, which approached 5 million tonnes in 2019. China is now exporting significant quantities to the US. Similarly, Malaysia has established itself as a regional UCO collection hub.
What NGOs apparently can’t fathom is that this used oil didn’t simply appear; it has always been a part of economies in China and Asia. As S&P Global Ratings notes:
“Interest in Chinese UCO started picking up in 2018 with a total of 573,653 mt in exports, according to China’s customs data. [The] majority of the exports went to Europe, with packaging was initially done mostly in flexibag containers. In 2021, the market shifted toward bulk shipment as major players ramped up storage capacities across the mainland to facilitate transportation. By 2021, China’s UCO exports have jumped to over 1 million mt.”
Sinopec commenced investment in sustainable aviation fuel in 2017 in anticipation of the EU’s shift. Finnish company Neste even went to lengths to invest in a hub at Singapore. Why? Because it’s one of the world’s fuel shipping hubs. It’s also investing elsewhere.
In addition, what EU commentators can’t quite grasp is that although waste oil is waste, the collection and refining of UCO still costs money – and both Chinese and Malaysian refiners have a cost advantage.
Europe has tried this angle before with trade, arguing that imported timber and fishing products are illegal. But if European farmers can’t even compete with recycled oil, which is literally municipal waste, isn’t that a concern? The pattern here is simple: any time a European industry can’t compete, it puts up a trade barrier.
The WTO RED Case: Indonesia, Malaysia Should Not Compromise
Although palm producers have been preoccupied with the EU Deforestation Regulation – which received its approval from the Council of the EU this week – the decision on Indonesia’s case against the EU Renewable Energy Directive is yet to be published by the WTO.
The recent EU discussions over the latest iteration of the RED – RED III – give some clue to the hold up. Europe’s parliamentarians were pushing for an immediate phase out of palm-based biofuels. The discussions appear to have resulted in a review of the potential phase-out, with the review due towards the end of this year.
The resistance to the immediate phase-out has likely come from the Commission, which understands too well the diplomatic headaches the RED has caused, as well as the potential breaking of WTO rules. An immediate phase out would make things worse on diplomatic and legal fronts.
It’s likely, though, that the EU doesn’t want to give up its indirect land-use change (ILUC) methodology, which gave it the ability to arbitrarily set restrictions on imported crops. ILUC has already made its way into the EU’s new sustainable aviation fuel rules. A ruling by the WTO against RED and ILUC would undermine those new rules also – and potentially other new rules affecting other products. Food immediately springs to mind.
In this regard, it’s actually quite important that the ILUC methodology gets struck down once and for all. It’s not just for palm oil, but for any other agricultural export to the EU. Our advice to palm oil exporting governments: don’t compromise on RED; it will only come back to haunt you later.