The Green Development Oil Newsletter – Issue 32, June 2013

Haze from land clearing engulfs parts of SE Asia; Situation requires facts before pronouncements

Malaysian and Singaporean governments have expressed concerns about the impact of haze from forest and peat fires in Sumatra. There are suggestions that this has been caused by land clearance for oil palm plantations by agricultural businesses, including a number of Malaysian-owned companies operating in Indonesia.

The issue appears to have its root causes with weak Indonesian government regulation and enforcement, as well as overlapping land tenure arrangements which exacerbate externalities such as forest clearance through burning by local land owners.

According to analysis by the World Resources Institute (WRI), the majority of fires were located either outside forestry or palm oil concessions, or in protected areas. According to WRI 20% of the fire alerts identified through NASA’s satellite data were located in palm oil concessions.

Forest fires in Indonesia are a recurring problem, especially between June and September where the intensity and frequency of fires increases. The WRI claim that this year’s fires “are not beyond the normal historic range for fires in the region”.

Instead, it is more likely that weather conditions have blown smoke and pollution from fires on nearby cities – such as the financial and media hub of Singapore – which has in turn generated significant media attention. The last exceptional haze event in 1997 was also attributed to weather patterns. WWF famously declared they created a ‘cone of smoke’ visible in space, and blamed the forestry industry. A report by the Asian Development Bank found a leading factor was unseasonable weather.

Following the 1997 event, the ASEAN Transboundary Haze Agreement was negotiated. Indonesia is the only ASEAN member nation not to have signed this agreement.

Malaysian Plantation Industries and Commodities Minister Datuk Seri Douglas Unggah Embas recently commented that Malaysian industry has “always been practicing zero burning”; and that strict biodiversity policies “are adhered to by all parties, including the palm oil industry.”

The RSPO has asked five of its members operating in Indonesia to submit satellite imagery of their plantations as evidence that they are not responsible for forest fires.

The Indonesian Government has announced it will examine the cause of the fires, and is likely to take action against companies that have breached Indonesian law.

Improved governance is critical to resolving the issue, but any long term approach must also address entrenched farming practices. It has been normal practice for decades for small farmers in Indonesia to practise slash-and-burn clearing, with land clearing by fire widely accepted by rural landowners.

EU Parliament begins voting on ILUC

The European Parliamentary Committees have begun voting on the EU Commission proposal that seeks to cap food crop-based biofuels at 5% of energy consumption in transport in 2020. The proposal represents a policy reversal from the 2009 Renewable Energy Directive (RED) which set a target of 10% energy consumption in transport from biofuels.

The proposed amendments would also require companies and Member States to report emissions from Indirect Land Use Change (ILUC) to the Commission. ILUC emissions are not currently included in the carbon accounting methodology as mandatory under RED.

ILUC relates to the land use change driven by market demand for biofuels or other commodities. It is an attempt to quantify the ‘indirect’ land use change – i.e. land use change which occurs when land is cleared to grow food crops in one location, in order to satisfy demand for food created when a crop area was converted from food to feedstock in another location.

There is no accurate methodology to report on ILUC emissions, and the “best available scientific evidence” underpinning ILUC has been heavily criticised.

The Commission’s proposal is an attempt to stimulate the development of alternative ‘second generation’ biofuels (biofuels produced from feedstock not associated with food or fibre sources).

Two Parliamentary Committees have prepared reports on the proposal. Alejo Vidal-Quadras, Rapporteur for the Parliamentary Committee on Industry, Research and Energy, recently proposed amendments that would cancel the proposed 5% limit, and instead set a 2% minimum for second-generation biofuel.

The Energy Committee also decided that “a reliable model for measuring indirect land use change (ILUC) must be found before including it in legislation”. Vidal-Quadras’ report found that “contrary to the Commission proposal, no mention of the ILUC factor should be included in the Directives, not even for a reporting obligation.”

Vidal-Quadras has referred the proposal to the Parliamentary Committee on the Environment, Public Health and Food Safety, headed by French Green MP Lepage. Lepage has drafted a report that recommends that the Commission revise the proposal to go a step further and make market access for biofuels conditional on compliance with ILUC values.

It is now up to European Parliament to vote on the Commission’s proposal based on the opinions presented by the various Parliamentary Committees. The proposal will become EU law if adopted in Parliament and Council. Parliament is expected to vote on the proposal in September 2013.

NGOs have been leading lobbying efforts against biofuels consumption targets and for incorporating ILUC into EU policy. Groups, like Friends of the Earth (FoE), have linked European biofuel consumption with land grabs and rising food prices in developing countries. The allegations cannot be substantiated.

Economists at the World Bank recently found decreased likelihood that biofuels were responsible for rising food prices, but attributed rising food prices to several factors, most prominently increasing demand for food, and rising cost of crude oil.

Lobbying efforts have also been heavily criticised in developing countries. The Nigeria-based think-tank IPPA recently argued that the ILUC ‘fable’ represents “yet another obstacle in their path to self-sufficiency and sustainable living” and threatens to harm agricultural industries in Africa which are contributing to economic development throughout the continent.

Certification: RSPO goes on offensive; MSPO gets closer

The RSPO has been forced to defend itself in the face of an outcry from growers following the adoption of new requirements at its recent meeting.

Key RSPO backer Simon Lord, from New Britain Palm Oil in Papua New Guinea, has defended the adoption of new standards on greenhouse emissions, labour, human rights and corruption. Lord defended the new standards, calling on fellow growers to support broader principles of sustainability, yet ignoring the slow uptake of CSPO in Western markets.

The stance by grower representatives from countries other than Malaysia and Indonesia is at odds with their Southeast Asian counterparts, who produce around 90 per cent of the world’s palm oil.

It also adds fuel to speculation that the Malaysian growers association will follow the lead set by Indonesia’s grower representative body and withdraw from RSPO altogether — which would be a significant setback for the organisation.

The departure of the Indonesian growers association was precipitated to an extent by the development of a competing Indonesian CSPO standard. Malaysia is close to completing a similar standard.

The Malaysian standards development organisation – SIRIM Berhad – is developing the Malaysian Sustainable Palm Oil (MSPO) standard. Several new draft standards, released for public comment in March 2013, offer guidelines for independent smallholders, palm oil plantations, and mills, on top of the general guidelines which were released late last year.

SIRIM Berhad is recognised by the Department of Standards Malaysia – the Malaysian member to the International Organisation for Standardisation (ISO) in keeping with international best practice in standard-setting.

The draft standards are comprehensive in scope, with additional details and content expected in the near future as the standard is finalised.

Developing alternative certification regimes which balance high level sustainability assurances – verified through robust certification and accreditation arrangements – with national development agendas, is a priority for palm oil industries. It has the potential to mitigate the impact of environmental campaigns which attempt to reduce the attractiveness of the valuable food processing commodity. The UK Rainforest Foundation, for example, recently ranked biscuit manufacturers largely based on their procurement of RSPO certified palm oil. Their campaign serves to promote the RSPO, but ignore the high costs of achieving RSPO certification in developing countries, especially for small scale palm oil growers; and the difficulties for manufacturers in securing reliable supply of certified palm oil.

Australian campaigners seek palm oil ban on agenda in election build-up

Anti-palm oil campaigners have intensified efforts in Australia, with activists accusing the palm oil industry of unsustainable practices and violating labor rights.

Humanitarian campaign organization World Vision has leveled a number of allegations at the Southeast Asian palm oil industry, and promoted the RSPO as a means to “put a lot of pressure on companies to improve their business practices”.

WWF Australia has also campaigned to promote the RSPO as the only means to promote ‘sustainable’ palm oil. The Australian Food and Grocery Council (AFGC) has co-published a report with WWF on the Australian palm oil market. Its conclusion is simple — sustainable palm oil is good — but the report only specifies one way to achieve this: RSPO.

Palm oil has come under considerable scrutiny in Australia over the past five years, with a range of negative campaign activities seeking to encourage consumer boycotts, change company procurement policies and introduce government regulatory requirements.

The AFGC is the main trade body for Australian grocery companies, representing both producers and retailers. AFGC jointly published the report with WWF, commissioning not-for-profit organisation NetBalance to author the report.

The report states the obvious: palm oil is versatile and cost effective, and has been subject to substantial environmental allegations.

However, the report recommends only one solution to any social or environmental problems created by palm oil: RSPO certification.

But in doing so, the report points out the myriad problems associated with RSPO, specifically the slow uptake of CSPO by purchasers across the world, and the additional cost burdens the system places on growers.

The anti-palm oil campaign in Australia is long-running, but the timing of the intensified campaign activity coincides with the build-up to the Australian election, which could potentially see Senator Xenophon, a politician who advocates anti-palm oil policies, hold the balance of power in the next Senate.

Western NGOs dictate terms of tropical land use at TFA

The Tropical Forest Alliance (TFA) – a government-business ‘partnership’ – met in Jakarta to discuss sustainable production in the pulp & paper and palm oil industries. The TFA is supported by several Western governments – include the US, UK, Netherlands and Norway – and the Consumer Goods Forum (CGF), which involves a number of large consumer goods companies.

The TFA’s stated goal is to mobilize and coordinate “actions by governments, the private sector, and civil society to reduce tropical deforestation related to key agricultural commodities by 2020” (see May newsletter – UK government joins pressure group to harm agri development).

Deforestation rates in Asia have significantly decreased over the last decade, according to the FAO. The FAO’s most recent assessment of global forest resources also indicated that Asia has seen a net gain of over 2.2 million hectares of forest annually between 200 and 2010, mostly due to afforestation programmes in several Asian countries.

Some land cleaning continues in the region, driven by a range of context-specific factors. For example, it is likely that subsistence and industrial farmers require some land expansion, with the latter of particular importance for generating national economic growth – which in turn improves food security – and food supply. Western governments should be supportive of initiatives which generate growth in agricultural sectors of developing countries.

NGOs on the other hand, have been quick to advance their own anti-development agenda, in a dubious attempt to influence the terms of the organization. Radical activists – Rainforest Action Network (RAN) – attended the recent TFA workshop. Their establish position is to pressure others to oppose deforestation.

RAN along with a number of other influential US campaign groups, have recently commissioned a report lobbying President Obama to “leverage” the TFA in order to achieve their anti-development Green agenda. The report suggests the US implement a number of policies and trade restrictions which would likely breach free trade obligations under the WTO, and have detrimental consequences for US consumers and developing economies that rely on agricultural and timber commodity production for economic development.

The report mistakenly claims the goal of the TFA is “ending deforestation for agricultural commodities by 2020.” The TFA has no such mandate.

This campaign activity serves to highlight the radical agenda of ENGOs – cessation of all deforestation and industrial agriculture in the tropics, regardless of the development context; economic and social needs of low income communities; or the efficacy of science-based sustainability measures implemented by agricultural and forest operators. The campaign is likely to slow development and threatens prosperity for the poor.

Meanwhile, Western governments appear willing participants in a program which offers little contribution towards international development objectives.

Attack on investment and financing reduces development opportunities

The radical environmental group Friends of the Earth (FoE) has accused palm oil producer Wilmar of supposedly environmentally damaging practices and legal violations, and demanded that shareholders and financiers divest from the company.  FoE regularly acts as ‘whistle-blower’ to pressure major companies to adopt more onerous regulations.

Divestment from the palm oil industry has been a key campaign target for anti-palm oil activists. World Growth research has shown that investment in palm oil projects in particular, can raise livelihood and generate economic growth in developing countries. However, the campaign against investment in palm oil is directly threatening these positive benefits.

FoE recently released a publication levelling a range of accusations at Wilmar, and pressuring a number of financial institutions and lenders to divest from the company. FoE claimed to receive funding assistance from the European Union in what is – ironically given FoE’s allegations and financiers – dubious use of government coffers. The EU has funded FoE activity in the past.

The campaign runs against national development objectives by threatening projects with significant benefits to rural communities. EU funding could be better put towards supporting sustainable agricultural developments, rather than funding anti-business campaigners.

FoE also commissioned a report by Profundo which served to identify Wilmar’s major shareholders and financiers. Profundo regularly provides such reports for activist NGOs.  Their campaign tactic is to identify Western banks engaged in partnerships with palm oil producers, and then pressure those banks to divest from palm oil by threatening them with reputational damage. HSBC – traditionally a major funder of environmental NGOs – has been targeted in particular, with Global Witness recently launching a campaign against the bank.

Banks and financiers have attempted to mitigate campaign risk through the establishment of NGO-dominated sustainability framework – the Equator Principles. However, World Growth analysis shows that the framework has a detrimental impact on investment in developing countries, as compliance with the Principles’ environmental and social requirements – which go beyond the levels prescribed by national law – increase cost burdens on both the borrower and lender without ensuing improved environmental or social outcomes.

This burden effectively constitutes a tax on legitimate foreign investment, and harms economic growth in emerging markets. This is the ultimate goal of environmental campaigners – reducing investment and economic growth in developing countries as an obstacle to industrial scale sustainable agriculture.

Ukraine and Indonesia establish trade dispute settlement body, encouraging for palm oil producers

Ukraine and Indonesia will create a working group on trade and investment to help settle trade disputes, according to media reports. The announcement signals a positive step for palm oil producers supplying Ukraine, who have been threatened by a Ukrainian proposal to ban their products.

According to media reports, the two governments will create a working group in order to settle disputes. The move comes as part of the preparations for the bilateral intergovernmental commission, scheduled to meet in Kyiv in December.

It is expected that the newly announced arrangement will benefit palm oil producers, who have been threatened by proposals in Ukraine to ban or restrict palm oil products.

Earlier this year, a Ukrainian MP proposed that parliament ban the use of palm oil in the production of foodstuffs in the Ukraine. According to media reports, Ukrainian MP Viktor Baloha registered a draft law in parliament that would ban the use of palm oil in food processing, based on alleged health concerns.

Ukraine is one of the largest exporters of competing vegetable oils, raising concerns that the proposal was aimed at protecting domestic industry against the superior palm oil, rather than genuine concern for public health. Ukraine is the biggest global exporter of sunflower oil, with a share of over 50% of the world market.

Accusations that palm oil is detrimental to health have been thoroughly discredited over the last decade. Claims that palm oil may lead to heart disease due to the relatively high ratio of saturated to unsaturated fats compared to other vegetable oils were debated during the 1990s and have subsequently been found to be without foundation.

The proposal threatened a number of palm oil exporters, as well as domestic processors. Palm oil processing in the Ukraine has been growing, with Odessa acting as a major gateway for Ukrainian processed palm oil exports to Russia and CIS markets.

Large palm oil refineries in Ukraine, such as Delta Wilmar CIS Ltd in Odessa, are a testament to the industry growth. This joint venture company, involving Singaporean, Russian and Ukrainian investments, reportedly procures around 300,000 metric tons of palm oil from Malaysia annually.

According to a report of the Ministry of Trade of Indonesia, the agreement was reached during a visit of the Indonesian trade mission to Ukraine in May.

Uncertainty in deforestation alerts

An environmental blog has claimed signals of deforestation in Malaysia have increase by 115%, compared to the same period in 2012. The claim was reportedly based on satellite data produced by NASA’s Ames Research Center and packaged under the ‘Global Forest Disturbance Alert System’. It does not appear that NASA has publically released official analysis, and blog links to NASA’s data and analysis are not operational, hindering wider data analysis efforts.

Data presented on the blog appears to indicate significant vegetation change in Malaysia, leading to claims of increased deforestation in the country. However, only two datasets are available for the month of May (2012 and 2013), raising concerns that the datasets are too narrow to draw meaningful statistical conclusions.

NASA’s analysis purportedly showed that deforestation signals increased in Malaysia. The assumption is based on an increase in the number of ‘alerts’ rather than a systematic analysis of total land vegetation change. The NASA system identifies ‘spots’ (relatively small land parcels) where satellite imagery shows a significant decrease in vegetation. The May 2013 data appears to show an increase in the frequency of these ‘spots’ compared to the same month in 2012.

This approach may present a useful tool for identifying ‘at risk’ regions for further analysis, but provides little certain evidence required for making sound policy decision. The reported data also provides weak justification to environmentalist claims that Malaysia is losing forest resources at an alarming rate over the long-term.  Around 60 percent of Malaysia is still forested.

Further detailed analysis would be required to substantiate claims of widespread deforestation in Malaysia. Unfortunately remote sensing and satellite imagery technology has not yet provided publicly available stand-alone inventories of forest resources, and datasets for deforestation at a global scale. ‘Alerts’ may be a useful tool for identifying priority areas for further investigation, but given the data limitations, any policy conclusion should be carefully qualified.


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