The Green Development Oil Newsletter – Issue 29, March 2013

EU energy ministers question Commission proposal to expand GhG emission coverage of RED

EU energy ministers and industry have questioned a draft European Commission proposal to amend the EU Renewable Energy Directive (RED). The Commissions’ draft directive would introduce reporting requirements for emissions from Indirect Land Use Change (ILUC) into EU rules on eligibility of biofuel feedstock for recognition in EU biofuel consumption targets.

EU RED sets renewable energy targets for member states. In order to be eligible for the targets, biofuels must be produced from biomass that meets the EU’s ‘sustainability criteria’. Some imports of palm oil are already limited under EU RED, but the proposal opens a possibility that access could be further restrained.

The Commission’s proposal includes a vague pledge to “include provisions to address Indirect Land Use Change”, and to “review the methodology for estimating land-use change emission factors”, which might open the possibility for the Commission to incorporate ILUC factors in the sustainability criteria used to assess which biofuels are eligible for subsidies under EU RED.

ILUC is a term used to describe the carbon dioxide ‘indirectly’ emitted when forests are converted to clear land for agricultural production. Direct Land Use Change (DLUC), which is already considered under RED, includes emissions from forest cleared to make way for land to grow biomass crops. Factoring in ILUC would also include emissions from forest cleared to make way for food cultivation in order to compensate for the loss of pasture area converted to biomass production.

The proposed directive also caps the contribution of food based biofuels at 5%, limiting the potential environmental benefits from substituting fossil fuels with biofuels.

Energy ministers from member countries meet in Brussels last month to discuss the proposal. Some ministers were critical. UK Secretary of State, Edward Davey, said a blanket approach to ILUC was “not helpful”, and argued that “most Member States considered that the 5% cap on industry was too restrictive and damaging to investor confidence”. Biofuel industry associations such as the Renewable Energy Association (REA) have welcomed Davey’s comments.

ILUC lacks sufficient methodology and baseline data required to ascertain whether indirect carbon emissions are in fact ‘caused’ from biofuel production. Because ILUC is technically a market effect (i.e. depends on the relative returns from cultivation of different crops), a ‘cause and effect’ relationship is tenuous; while exact emissions ‘caused’ by the market are difficult to measure. Furthermore, estimates of CO2 emissions from forest clearance – used as a baseline for estimating emissions from ILUC – have a high degree of uncertainty.

Non-EU member biofuel producing countries are generally wary of Green efforts to rig carbon accounting methodology to exclude sustainable biomass such as palm oil on an unsubstantiated basis. Excluding palm oil would also ensure that biofuels produced from economically viable biomass are not eligible for targets.

European rapeseed farmers are likely to support Green protectionist policies which promote their product over crops grown in tropical forested countries penalised by ILUC methodology. European growers have reason to feel threatened by imports: a new FAO report shows that biodiesels produced from EU’s major crops are economically unviable without government subsidies, unlike competitive palm oil based biofuels imported from Southeast Asia.

Campaigners push for ILUC in EU policy

While ministers meet to discuss the revised RED proposal, environmental campaigners have intensified lobbying efforts to factor ‘Indirect Land Use Change’ (ILUC) into the EU energy policy.

Efforts to factor ILUC into European policy may appeal to environmentalists, but are ultimately detrimental to the economic development of Southern hemisphere countries where competitive biofeed crops are grown.

Environmental campaigners including Friends of the Earth and WWF have largely rallied behind the recent Commission proposal. WWF recently held an event in the European Parliament and released a briefing – ‘Advanced Biofuels and ILUC: is Europe Up for the Challenge?” – in an attempt to lobby MEPs to institute a 5 per cent limit on food based biofuels, and introduce feedstock based ILUC factors into sustainability criteria being proposed by the European Commission.

Other radical NGOs such as Greenpeace and GRAIN have used ILUC as a tool to attack palm oil grown in South East Asia and Africa for use as an efficient feed stock for biofuel production.

The ‘science’ behind ILUC is still in its infancy, and cannot justify limiting palm oil derived biofuels.  Speaking at the WWF event, a representative of the Commission’s Director General for Energy admitted that the science behind ILUC and ILUC estimates was not robust enough to be factored into ‘sustainability criteria’ for biofuels. Environmentalists are pushing on nonetheless.

Exports of palm oil based fuels from Southeast Asia have been on the rise. Indonesia’s exports of palm oil-based biodiesel doubled from October to December reaching 53,505 tonnes. According to the same media report, Malaysian biodiesel exports jumped 100-fold from October to December to reach 6,000 tonnes.

Most of this was exported to Europe, where palm oil is the second largest feedstock for biodiesel. Rising biofuel imports into Europe have generated pushback from European biomass growers, who are not economically viable without subsidies. They have supported efforts by NGOs to lobby for ILUCN in EU policy. With this protectionist support, Environmentalists are intensifying efforts to use EU policy as a point of leverage in their campaign against palm oil production in tropical countries.

Anti-development palm oil campaign spreads to Africa

Several Western-based NGOs have attacked palm oil production and foreign investment that supports industry growth in Africa. NGOs including Greenpeace and UK Rainforest Foundation have attacked palm oil cultivation in Africa for having detrimental environmental impacts.

NGOs appear to be intensifying campaign activities in efforts to influence debate in Brussels on whether to include ILUC in EU biofuels policy. Recent NGO activities have attempted to link debate over the EU’s Renewable Energy Directive with alleged ‘land grabs’ and environmental degradation in countries where feed stock for biofuel is grown.  The campaign allegations cannot be substantiated.

The campaign against African palm oil threatens economic development. Palm oil offers African small farmers one of the best opportunities to participate in a value added economic activity. The crop also has the potential to provide significant government revenue and generates investment in infrastructure development in poor rural areas. African governments and local communities appear to have welcomed investment in this agricultural sector.

Demand for palm oil is expected to grow, as large palm oil consuming markets in China expand. South East Asia – the dominant palm oil producing region – has seen rapid industry growth over the last two decades, but this is likely to slow down as suitable land for plantation becomes increasingly scarce.

Other regions have been keen to fill this supply slack, attracted by the economic and development benefits of palm oil production. Africa, as a region with suitable climate and available productive lands, is embracing agricultural development in the palm oil sector.

The crop – indigenous to the content – offers a number of development opportunities. The continent’s vast numbers of small-scale family farmers in particular are keen to participate in production of value added agricultural commodity.

Africa is currently a relatively minor palm oil producer. In 2011 the combined African palm oil output was about 2.5 million tones, or around 5% of global palm oil production. Despite having suitable conditions for palm oil cultivation, most African countries are in fact net importers. African countries import most of their palm oil for use in cooking and as an affordable source of valuable fats. The continent as a whole imported close to 4 million tonnes in 2009.

The FAO assert that investment in agriculture is one of the most effective strategies for poverty reduction. However, it appears that poverty reduction is not on the NGO agenda. Halting industrial agricultural in Africa may suit Western campaign groups, but does little to address food insecurity and poverty throughout the continent.

FAO: RSPO certification may be “indirect trade barrier” for smallholders

The FAO have found that certification schemes such as the Roundtable on Sustainable Palm Oil (RSPO) can serve as “indirect barriers to trade”. A new report released by the UN’s Food and Agricultural Organisation (FAO) analyses certification schemes for biofuel producers and biomass growers, finding schemes can restrict market access for poor farmers in developing countries.

According to the report, “the way certification schemes for biofuels are structured makes it difficult for smallholder producers and many developing countries to participate in export markets”.

Small farmers – who have embraced the crop as a high value commodity suitable to smallholder cultivation – are especially disadvantaged under a certification system that is unsuitable or inappropriate to their development context.

The FAO research demonstrates that certification schemes such as the RSPO are unsuitable for small-scale farmers – the costs are simply too high, while farmers require technical expertise that many do not possess.  According to the FAO, “most certifications require costly, complex and intensive information systems and management capacities that are easily absorbed by large-scale agribusinesses (with their advantage of economies of scale) but are largely out of reach for small-scale producers.”

Requirements for imported biofuels to be made from ‘certified’ feedstock can – according to the FAO study – restrict smallholder farmers in developing countries from accessing global biofuel markets.

The authors argue that certification schemes favour large- scale operators “by design”, as they have the means and incentives for scaling up production to absorb the certification costs. Many already keep records needed for audits, or have the capacity to do so. Small-scale farmers on the other hand typically keep no written records on yields and fertilizers use; and in many cases are illiterate, and simply unable to comply with RSPO record keeping requirements regardless of their environmental management practices.

The findings question the strategy by WWF – a key backer of the RSPO system – to certify smallholders. The cost of doing so would render smallholders economically unviable and drive many farming communities in Southeast Asia into poverty. Despite the detrimental effect to smallholders, European farmers have supported efforts to limit import of non-certified biofuels.

European farmers are keen to preserve market share against competitive imports of palm oil-base biodiesel. Common biofuel feedstocks, such as European-grown rapeseed, have been protected by subsidies and mandates in the EU. But the FAO research has questioned their economic viability and argued that “their long-term economic and environmental sustainability are not clear”.

On the other hand, the report recognised that palm oil based biofuel can be economically viable without direct subsidies. This is partly because palm oil and sugar cane are “by far” the most efficient sources for biodiesel. While sugar cane requires specific growing conditions, palm oil is a crop that can be easily cultivated by smallholders in tropical climates. Its yield per unit of land far exceeds alternatives like rapeseed, while palm oil biodiesel have the potential to generate significant GHG emissions savings compared to fossil fuels, according to research by leading academics Pehnelt and Vietze.

The report has raised concerns in palm oil exporting countries that European efforts to tie imports of biofuels to certification regimes are yet another attempt to protect domestic industry from competitive palm oil-based biofuel imports. According to the FAO, it is “a commonly raised concern among exporting countries is that certification schemes are viewed as disguised trade barriers.” This protectionist agenda continues to have a detrimental economic effect on the small-scale farmers, poor rural communities and developing economies that rely on palm oil exports.

Government official pressures food manufactures to adopt NGO standards

American donut chain, Dunkin’ Donuts, has committed to revise its procurement policy for sourcing palm oil, following pressure from the Office of the New York State Comptroller.

State Comptroller Tom DiNapoli, who oversees the State’s public pension fund, has become embroiled in public campaigning against the company with the support of radical environmental NGO – Rainforest Action Network (RAN).

According to a press release from the Comptroller’s office, DiNapoli offered to withdraw a resolution from fund shareholders that asked the company to address the social and environmental concerns associated with palm oil production in exchange for meeting green demands, including establishment of a target date for sourcing 100% sustainable palm oil.

The New York State’s public pension fund headed by DiNapoli reportedly owns around 50,000 shares of Dunkin’ Donuts stock, giving the office leverage against the company.

Action like this from public office is state-sponsored intimidation, and is increasingly a reality in the U.S.

NGOs have lobbied pension fund managers to demand that the businesses they invest in change their procurement policies. In some cases, their campaign tactics appear to be dubious.

The recent campaign against Dunkin Donuts has generated support from US environmental campaigners, including RAN. RAN have lobbied hard for business to commit to only using their endorsed palm oil standard – the Roundtable on Sustainable palm Oil – despite business concerns about the higher cost and lack of ready availability of RSPO certified palm oil.

DiNapoli has already used his position to pressure other food manufactures that use palm oil – such as Sara Lee and JM Smuckers Company – to make a similar commitment to purchase only from RSPO members.

The New York Post have reported criticism of the Comptroller’s past actions, reporting that election rivals have accused him of allegedly giving out business from the pension fund in return for campaign contributions. The Wall Street Journal, reported that Chevron has also filed a complaint against the Comptroller, arguing that Mr. DiNapoli used his office to pressure the company into settling a lawsuit in exchange for receipt of financial benefits from actors (including ENGOs) working for the plaintiff.

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