This article first appeared in Forum, The Edge Malaysia Weekly on May 20, 2024 - May 26, 2024

Over two months have passed since the World Trade Organization (WTO) ruled on Malaysia’s objection against the European Union’s (EU) rejection of palm oil as a renewable energy source. Among a number of issues, indirect land use change (ILUC) stands out as a primary factor leading to the EU’s mandate that palm oil cannot count towards the its 2030 renewable energy target for biofuels and must be phased out by 2030.

ILUC, introduced in 2008, happens when growing biofuels on existing farmland keeps the demand for food and animal feed crops high. This can lead to farmers clearing new land elsewhere to meet that demand. Land use changes, such as the conversion of forests into agricultural areas, result in significant greenhouse gas emissions that negate the emission savings from using biofuels instead of fossil fuels.

Among all oil crops, palm oil is globally recognised as the most efficient. Despite this, the European Commission (EC) has designated it as a high-risk feedstock for ILUC biofuels, citing its purported link to substantial annual expansion of production areas globally and elevated ILUC emissions.

Although the ILUC concept is well-intentioned, concerns have been raised regarding the robustness and currency of its frameworks and modellings. Therefore, here are the reasons why it is crucial to immediately reassess the ILUC of palm oil, especially given its significant inclusion in the recent WTO ruling.

Palm oil has reportedly experienced an average annual expansion of production area by 702,000ha or 4% since 2008. However, this data is outdated, spanning from 2008 to 2016. Although ILUC standards are not internationally standardised, the EU had intended to review the high ILUC-risk biofuels by June 2021, but this has not come to fruition.

Meanwhile, Malaysia, the world’s second largest palm oil producer, has made significant efforts to curb the expansion of oil palm plantations, resulting in record low levels of deforestation. Given this development, it is imperative to choose a more recent time period to reassess the ILUC of palm oil.

Applying the same principle employed by the EU in ILUC modelling, the average annual expansion of production area in Malaysia from 2018 to 2022 is 0.12%, falling below the EU’s 1% threshold. Consequently, it is evident that the current outdated ILUC data underscores a significant flaw, resulting in an unjustifiable bias against Malaysian palm oil as a high ILUC-risk biofuel.

Palm oil ranks highest among oil crops in terms of yield, with approximately three tonnes per hectare, surpassing crops like rape, sunflower and soy, which yield 0.7, 0.6 and 0.5 tonnes per hectare respectively. This indicates that palm oil is nearly five times more efficient than rape and sunflower, and over six times more efficient than soy. However, this significant advantage does not appear to be fully recognised in ILUC modelling.

Besides the share of expansion into land with high-carbon stock, productivity is a crucial factor in ILUC modelling. The productivity factor for palm oil is set at 2.5, while other crops like soy are set at 1. This results in palm oil being associated with a share of expansion exceeding the 10% threshold. Yet, upon correcting the productivity factor to its actual value, it is found that the reported share of expansion into peatland would decrease from 23% to less than 10%.

Given the underestimation of the productivity factor for palm oil, there are concerns about the justification for labelling palm oil as a high ILUC-risk biofuel. Therefore, it is necessary to reconsider the productivity factor used in the modelling to ensure fair treatment of palm oil.

Not all palm oil production leads to high ILUC emissions. However, rather than evaluating each case individually, the EC has uniformly labelled all palm oil as high ILUC-risk. This decision is based on the absence of clear, enforceable criteria to ensure that oil palm cultivation does not contribute to deforestation or displacement of other land uses. However, this approach lacks reasonableness, as evidence suggests that many oil palm plantations, particularly in Malaysia, are converted from other land categories rather than forests.

For example, research conducted by a team from the Department of Biological Sciences at the National University of Singapore estimates that approximately 2% of rubber plantations in Malaysia (and Indonesia) were converted to oil palm between 2014 and 2020. Moreover, data from Our World In Data indicates that logged-over forests are commonly transformed into oil palm plantations in Malaysia after 1995.

Disregarding these nuances is akin to disregarding fundamental principles of justice, such as giving the benefit of the doubt. It is unfair to assume blanket culpability without considering such complexities. Instead, palm oil should be presumed to be of low ILUC-risk until proven otherwise, for instance, through Malaysian Sustainable Palm Oil certifications verifying that the oil palm plantation was established after the deforestation cut-off date.

While ILUC modelling addresses the increased greenhouse gas emissions resulting from the release of carbon sequestered in soil and land cover vegetation due to land use change impacts, the treatment of carbon flux post-land conversion remains unclear. This is especially relevant for palm oil, which contributes to carbon sequestration.

Research conducted by a palm oil company has presented evidence indicating that oil palm functions as a carbon sink, with the capacity to absorb carbon dioxide (CO2) from the atmosphere at rates ranging from 36 to 40 tonnes of CO2 per hectare per year (CO2/ha/yr). Similarly, a study conducted by the Malaysian Palm Oil Board in collaboration with the University of Copenhagen, Denmark, yielded comparable results, indicating that carbon stocks in oil palm plantations can potentially reach up to 60 tonnes of CO2/ha/yr. Furthermore, it suggests that the conversion of forest fallows to oil palm plantations may either sustain or increase the standing carbon stock. With the lowest carbon sequestration rate of 

36 tonnes of CO2/ha/yr, and considering the approximately 29 million hectares of oil palm plantations worldwide, they are estimated to absorb a net of 1.04 billion tonnes of CO2 per year. This amount is equivalent to around 14% of the total CO2 absorbed by forests globally.

While it is unrealistic to expect palm oil to absorb as much carbon as forests, disregarding palm oil as a carbon sequester in ILUC modelling is equally unreasonable. Therefore, palm oil should be recognised as a carbon sequester, potentially leading to a transition from high to low emissions and significantly improving its ILUC-risk category.

There exist notable disparities between current ILUC frameworks and modellings and the actualities of palm oil production. Therefore, we have two options: either rely on the EC to promptly resume the scheduled review of ILUC, or Malaysia should take the lead by initiating a research group consisting of local and international scientists, researchers, engineers, policymakers and other stakeholders to produce its own updated and independent ILUC report for palm oil. Failing to do so unfairly perpetuates the assumption that palm oil has high ILUC emissions, thus underestimating its genuine potential as a low ILUC-risk biofuel capable of aiding global climate action efforts.

Hong Wai Onn is a chartered chemical engineer and a fellow of the Institution of Chemical Engineers and the Royal Society of Chemistry. He is also the author of A Chemical Engineer in the Palm Oil Milling Industry.

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