The Malaysian palm oil industry has no shortage of biomass, with over five million hectares of plantations generating almost 94.7 million tonnes a year. This includes fronds and trunks left in the field, as well as empty fruit bunches (EFBs), palm kernel shells (PKS), palm kernel cake and mesocarp fibre produced during milling.

On paper, that makes the sector an obvious candidate to contribute more to Malaysia’s energy transition, whether through renewable power, biofuel or carbon removal.

The reality is more complicated, as much of that biomass is already being put to use. Many palm oil mills already run on their own waste, leaving less surplus biomass available for other uses than the headline figure suggests, said Datuk Carl Bek-Nielsen, chairman of the Malaysian Palm Oil Council (MPOC) and vice-chairman and chief executive director of United Plantations Bhd (KL:UTDPLT).

“Waste is now equal to gold because that gold can be converted into energy,” said Bek-Nielsen.

He was speaking at a roundtable organised by The Edge and MPOC on Aug 12, at which senior industry figures gathered to consider what oil palm can offer beyond the fruit.

The roundtable, held at MPOC’s office, was held to discuss the opportunities that the industry could leverage amid the current energy crisis, triggered by the US-Iran war, which has spurred the search for alternative energy sources. At the same time, the pursuit of net zero targets — especially by big tech companies — and the introduction of carbon tax is driving up the demand for carbon credits.

The palm oil industry is able to fulfil some of the demand for greener energy sources and carbon credits through its biomass waste, while supporting the country’s climate targets. Malaysia’s National Energy Transition Roadmap aims to raise the renewables’ share of installed capacity in the coming decades.

Biomass and biogas currently contribute only a small share to the national grid. Electricity demand is rising as more power-hungry data centres come online, adding to the need for new sources of supply.

Already, various players are looking at how they can tap into the biomass waste from the palm oil sector to generate renewable energy, produce sustainable aviation fuel (SAF) and biochar, among others. There is also interest in turning unproductive plantations into solar farms.

The challenge, as Bek-Nielsen pointed out, is to ascertain how the biomass waste can be used for other purposes without jeopardising the palm oil industry’s productivity and sustainability targets. Navigating this would require careful planning and a clear idea of where the biomass waste is and what is the best value that can be derived from it.

Much of that biomass is already being put to use at the mills. EFBs are returned to the fields as mulch, thanks to their nutrient-rich profile. PKS and mesocarp fibre are generally burnt in boilers to generate steam energy.

“The challenge is how we move from self-consumption to extracting it out of our operations. The key thing here is how to make it commercially viable. There are various factors, like logistics, innovation and whether the price is right for us to generate the energy. We need to discuss what the enablers are, who the leaders of the collaboration are and what role each stakeholder needs to play in the industry for this to happen,” said Rashyid Redza Anwarudin, chief sustainability officer at SD Guthrie Bhd (KL:SDG).

The opportunities are there. In fact, SD Guthrie sees renewable energy as one of the company’s key growth drivers. The company has a renewable energy segment to drive its initiatives in this area, which include Large Scale Solar and biogas plants.

“Other than biomass, we are also looking at solar, because at the end of the day, another asset that we have is land. We are looking at areas that are no longer productive [and asking] if there is an opportunity to convert those into solar farms. It’s essentially a door for us to not just reduce our own emissions but also to support the nation’s agenda,” he said.

As a plantation company, SD Guthrie needs to ensure the land remains fertile for the future generations.

“Our priority is to maximise use in our own operations. Whatever is left, we will figure out what to do with it. And the value we get from taking it out has to beat the value we already get from using it in the mill,” said Rashyid.

FGV Holdings Bhd has also ventured into this area, with 28 biogas plants that convert methane from palm oil mill effluent (POME) into renewable energy for Tenaga Nasional Bhd and rural townships, while the PKS are exported to Japan.

“Most of our feedstock is received either from independent or organised smallholders … Not every estate we have is nearby, so we always need to make decisions [based on] where the mill is and if it makes logistical sense to do mulching, a compost plant or a biogas plant. All these are done on a case-by-case basis, and you will see a portfolio of different initiatives to tackle the climate agenda,” said FGV head of transformation Gideon Tan.

He framed the challenge as one of value rather than volume, arguing that Malaysia tends to default to the lowest-value uses of its biomass.

“There are at least four categories of what you can do. One is bioenergy or biofuel, and I include biogas in that. Then plant and animal nutrients. The third, which is less explored here, is biomaterials and packaging. And the fourth is biochemicals. We are usually in the first two … What we don’t really have is a policy that covers all these areas and asks what is actually good for Malaysia, rather than leaving each company to decide on its own,” said Tan.

Malaysia Biomass Industries Confederation (MBIC) president Datuk Leong Kin Mun, who has run national feasibility studies on the subject, estimated the gross figure of solid palm oil biomass waste in Malaysia to be at 90 million to 100 million tonnes a year on a dry basis.

But little of it can be simply gathered and sold because the PKS and mesocarp fibre are largely spoken for and perhaps only a third of the EFBs are accessible since the larger planters return their own to the field. 

In this regard, the speakers called for a clearer view of what biomass waste is available in Malaysia and a strategy for how it can be tapped and for what purposes, based on the value provided.

“Malaysia has around 4.8 million tonnes of PKS and about a third of it is exported to Japan. The rest are used to power mills,” said Leong.

There remains some biomass waste that can be used for grid-connected biomass power plants or biogas plants, in which he sees great potential. He pointed out that the Sustainable Energy Development Authority (Seda) recently awarded about 136MW of the quota under the Feed-in-Tariff (FiT) scheme to 11 biomass power plants.

This has attracted two major players from the palm oil sector: a 50MW project submitted by a Johor-based plantation and another by a private miller in Nibong Tebal. “This is a good sign for the industry, especially as the FiT rate has increased from the previous 35 to 36 sen per kWh to between 44 and 45 sen per kWh,” said Leong.

One of the low hanging fruit is in renewable energy, particularly biogas. POME can be treated to capture methane for power or heat. And since 2014, the Malaysian Palm Oil Board (MPOB) has made biogas trapping a condition for building a new mill or expanding an existing one.

Even so, the take-up remains low, with MPOB counting around 135 mills fitted with biogas-capturing facilities, out of more than 450, so most still let the methane escape, according to its 2023 research journal.

Those that have installed such facilities tend to be the newer or larger operations while smaller mills, whose economics are tighter, have largely not done so.

Bek-Nielsen believes the technology should be eventually adopted by all mills. “All palm oil mills in Malaysia should have biogas plants. No more excuses — you build, or no permit,” he said.

The harder question is what happens to any power generated beyond a mill’s own needs. Most mills sit in the rural interior where the grid is weak, so a mill can have both the biomass and the means to generate and still struggle to sell the electricity.

Moving the biomass instead of the power is similarly challenging. Leong cited a study comparing a central plant collecting EFBs from 20 mills against upgrading a single mill in place. “On logistics cost alone, the difference is RM5 million to RM10 million a year,” he noted, and suggested upgrading existing mills into grid-connected biomass plants, rather than developing a standalone independent biomass plant in centralised locations, subject to the readiness of interconnected grid infrastructure.

One possible opportunity lies in the growth of data centres, particularly in Johor, which has drawn one of the region’s largest pipelines of such projects. These facilities need a large and reliable supply of power, much of it around the clock.

Leong believes the demand could be linked to the biomass available in nearby plantations. “Data centre investors came to Malaysia and asked for cheap electricity. At the same time, we have plenty of biomass. They can turn it into biochar, especially for the oil palm industry driven by smallholders,” he said.

His idea is to bundle the demand for cheap power with the demand for carbon-removal products, so that investors seeking favourable electricity deals would also commit to buying palm-based biochar credits.

The same issue of scale is one reason why solar farms are attracting the interest of industry players, particularly on marginal land. The proposal is not to replace productive oil palm plantations with solar farms, but to make use of land that is producing poor yields.

The idea takes on added relevance given the challenges facing the country’s smallholders who work a sizeable share of the nation’s oil palm land, whose average age is around 60 and many of their holdings are nearing the end of their productive cycle, with fewer of the next generation willing to take over. Some plots yield only 1.8 to 2 tonnes of crude palm oil per hectare — well below what a well-run estate produces.

For oil palm growers on marginal soils, low returns, rising labour costs and the difficulty of maintaining their plantations as they approach retirement age are making the economics increasingly challenging.

Solar could offer some smallholders another source of income, particularly where oil palm is becoming less viable, said Bek-Nielsen. “I really think solar energy is an area where the potential has not really been fully tapped.

“We’re just scraping the surface for smallholders. You imagine they have huge land banks. If now, the government gives them a more favourable rate, by all means do it. Give them special status and put up big solar farms so they can earn more money compared to running oil palm plantations, instead of having the hassle to chase these yields on marginal soils, which is going to be very, very difficult.”

National Association of Smallholders Malaysia (NASH) president Adzmi Hassan sees pooling marginal plots into a leasable land bank as a way to address the challenges faced by the ageing smallholder population, rather than simply as another renewable energy project. Consolidating scattered plots would also ease the certification headache, since under a group scheme, a single non-compliant grower can put the entire cluster’s sustainability certificate at risk.

He said the idea could also give growers on marginal land a form of pension through the income generated from solar projects. “We suggested to the government some sort of pension for smallholders. Unlike other sectors, such as government employees who have pensions or private-sector workers who have the Employees Provident Fund, we have nothing.

“So, in this way, when they reach retirement age and beyond, they can just relax. [They can receive, say,] RM3,000 a month from solar power. This is the way forward.”

On the conversion of biomass waste into other uses, smallholders also lose out. Although they own the palm trees, much of the residue is generated only after the fresh fruit bunches reach the mill, where the FFB leaves their hands.

The same disconnect runs through the wider discussion on biomass, biochar and carbon markets, where much of the value is captured downstream.

Most smallholders are left with oil palm trunk waste, which is produced after replanting at 25 years, and oil palm fronds after every harvest. This is where Adzmi believes biochar production could be a viable waste management solution that could generate income.

Dry biomass waste is burnt in low-oxygen conditions and turned into biochar. In the process, atmospheric carbon is locked into solid form for centuries, and the biochar can be used to enrich soil health.

“Simple biochar production would be a good idea. [It would be great] if this can be developed by the government, particularly for smallholders ... It could also be developed through cooperatives. These are new initiatives that we can look into and get support for,” he said.

One idea raised was a shared biochar plant, with Adzmi suggesting that growers could pool their resources to run a single unit instead of buying equipment individually. The plant could process residue from the surrounding farms and potentially generate additional income through carbon credits.

Biochar has drawn attention because it can turn biomass residue into a carbon-removal product and a second revenue stream, making it a prime candidate for generating carbon removal credits.

Major technology companies dominate the procurement of these credits. Microsoft, for instance, last year signed the largest agreement to purchase this type of credit from waste wood.

Even so, it can be hard for players in Malaysia to tap into this demand and make the projects commercially viable.

Leong’s firm was commissioned by the UK government to study biochar in the oil palm sector. It engaged with about 100 stakeholders, including potential buyers, and found the demand real but out of reach as it rested with the big Western technology firms.

“We call it biochar carbon removal credits. The price we are talking about averages between US$120 and US$200 per carbon credit. But technically and financially, we currently do not have credit buyers in Malaysia. We have to acknowledge that it is the Western multinational companies that could potentially buy these credits,” said Leong.

The history of the carbon market also offers a reason for caution, as United Plantations was among the early sellers of carbon credits and Bek-Nielsen still remembers how difficult the experience was. There were bureaucratic hurdles, and the market crashed after the 2008 global financial crisis.

The lesson from this experience is that supply alone does not create a market. For credits to have value, there must be standards that buyers recognise, rules that create demand and a price that makes development worthwhile.

This is where FGV is trying to develop its own approach. Tan said the company has begun piloting a domestic instrument with agencies, including the MPOB, after finding that oil palm does not fit the definitions set by the Malaysia Forest Fund for forest conservation carbon credits.

“They said our palm is on a tree, and because it is a fibrous crop, they could not consider it a forest product. So, we created our own, for lack of a better name, a Malaysian Emission Reduction Unit (Meru). We are asking the local emitters to buy it first, so we can become one of the sellers. For the first time, compliance would not only take money from the grower but could give some back,” said Tan.

The global carbon credit standards Verra and Gold Standard are not welcoming projects in the palm oil sector, he added.

Even a home-grown standard needs buyers, and that demand is tied to government policy. During the tabling of Budget 2025 in parliament, and again during the Budget 2026 announcement, the finance minister said the government would impose a carbon tax on the iron, steel and energy sectors by 2026, but the rate has yet to be set.

The carbon tax is intended to work alongside the National Climate Change Bill, known as RUUPIN, which would give the government a legal mandate to regulate emissions from local facilities and provide a framework for the domestic carbon market.

The price set under those measures would go a long way towards determining the value of a locally generated credit, as a compliance market would give buyers a reason to pay for emissions reductions they might otherwise overlook. Until then, demand is likely to remain largely voluntary and limited.

For some companies, the value may not lie in selling the credits but in keeping the reductions they generate and using them to lower the carbon intensity of the palm oil they produce. This could become increasingly valuable as customers look to reduce emissions across their supply chains.

Rashyid said this is the approach SD Guthrie is taking, as it sees the reductions as part of the value it can offer customers rather than as credits to sell. “For a company like ours, with a commitment to net zero, whatever reductions we make, we want to claim for ourselves. The focus is to provide the lowest-carbon palm oil for our customers,” he added.

SAF faces much the same gap between its promise and its economics. While palm-derived feedstocks can be used to produce SAF and green marine fuel, Malaysia has limited supplies of the waste oils needed for the Hydroprocessed Esters and Fatty Acids (HEFA) pathway, much of which is already committed to existing projects.

Leong, who recently completed a study on the biomass supply chain for a proposed SAF plant, said supply for the HEFA pathway is already stretched.

“Based on data from the MPOB, we have about 400,000 to 500,000 tonnes of POME oil a year, and used cooking oil is about the same. But if you look at the PETRONAS SAF plant or the EcoCeres plant, just two of these facilities alone can actually absorb all this biomass feedstock.”

The problem is that HEFA, the most practical SAF technology available today, depends on these same waste oils. Other technologies could eventually use a wider range of feedstocks, but they are still at an early stage of development.

Cost is another challenge, with SAF remaining more expensive than conventional jet fuel, and its wider uptake depending on regulation and demand from airlines.

Bek-Nielsen said the push for SAF also needs to take into account the cost to airlines, rather than assuming that being a greener fuel is enough to create demand.

“SAF is so expensive. Now look at the cost of jet fuel. SAF is much more expensive than that, so you also have to be careful not to burden the airlines. It should be on a voluntary basis,” he noted.

Behind the search for new value in biomass is pressure the industry can no longer ignore, as climate change is already affecting plantations, making it just as important to protect the land as it is to find new uses for its by-products, said Rashyid.

That long-term view also shapes how Bek-Nielsen assesses options, ranging from biogas and solar to biochar and aviation fuel, with each ultimately having to make economic sense without compromising the plantation.

He says, “There are many pathways and there are many technologies. But we always have to ask ourselves: What is pragmatic? What is practical? What makes economic sense?”

For Bek-Nielsen, the biomass debate risks missing a bigger prize, which is productivity.

Malaysia’s average yield has sat around 3.3 to 3.4 tonnes of CPO per hectare for decades, while the best plantations do considerably better, and closing even part of that gap would dwarf the value of most of the new businesses built on waste.

“The best in class are getting more than 5.5 to 6 tonnes … If Malaysia raises its yield by just one tonne of CPO per hectare — about 25% to 30% more than today, that alone generates at least another RM30 billion for the government. That is not a small amount of money. It is far more than anything we are talking about with biochar,” he said.

Closing that gap comes back to the basics of good agronomy, from using better planting material to replanting ageing palms on time and maintaining the crop consistently. It is the kind of patient, unglamorous work that rarely draws attention, but has a direct bearing on yields and returns.

The same applies to how much biomass can be taken out of the plantations. Trunks, fronds and EFBs help maintain soil quality and support the next planting cycle, so removing too much could simply shift the cost elsewhere.

“Over a 25-year cycle, you recycle more than 100 tonnes of organic dry matter through the trunks and fronds. Start taking that out and you erode long-term yield potential. If you want a horse to run fast, you have to feed it and take care of it. You cannot tell it to run fast and give it no food. It is the same with oil palm,” said Bek-Nielsen.