On January 17, 2018, the European Parliament agreed by vote on its revision of the Renewable Energy Directive (RED) which now prohibits the use of crude palm oil (CPO) in the production of biodiesel for Europe.
The reasoning behind the prohibition includes that conventional biodiesel does not contribute in pressuring down greenhouse gas emissions because of indirect land use change impacts of biofuels.
ILUC, as it is known, pertains to the unintended consequence of releasing more carbon emissions due to land use changes around the world induced by the expansion of croplands for ethanol or biodiesel production in response to increased global biofuel demands.
The planting of palm oil for biodiesel is deemed to have also reduced supply of the crop for food and feedstock.
Palm oil plantation is also seen as having encroached into more agricultural land, forests and peatland. This has led to the emission of more substantial greenhouse gases, offsetting the other gains of a vegetable-based biofuels.
The halt in the use of palm-oil based biofuel as a source of energy in Europe will begin in 2021 if approval is obtained from European Commission and the European Council in the upcoming tripartite meeting with the European parliament.
If the ban is applied, Indonesia as the world’s largest CPO producer, clearly stands to be deeply affected. Indonesia produced around 39 millions of CPO in 2017. During the first nine months of that year, its exports of CPO to Europe rose by 38 percent compared to the same period in the previous year. The European Union is clearly an important market for Indonesian CPO, and is actually the second largest importer of the Indonesian commodity after India.
Around 46 percent of the CPO exported to Europe, about 7.5 million tons, is used as a raw material for biodiesel. The value of Indonesian CPO exports to Europe reached more than two billion euros per year.
It is thus understandable that Indonesia strongly reacted to the European Parliamane decision. The government has expressed its disappointment over the decision of the European parliament that continued to agree to halt the use of palm oil for its biofuels by 2021.
Although the European Union said that this decision by the European Parliament was not yet a final policy, the government of Indonesia still deems that it would influence consumer views in the European Union and exert more pressure on its member countries as well as its institutions when formulating their stance regarding palm oil as one of the sources of renewable energy.
The government is deploring that a respectable institution such as the European Parliament, has repeatedly taken similar actions, discriminating against palm oil. The previous move of the European Parliament was to come out with its resolution on “Palm Oil and Deforestation of Rainforests” which came out with a conclusion that was biased against palm oil.
The European Parliament is deemed to have consistently ignored the fact that palm oil has a very high efficiency and productivity factor and has the potential of assuring a long term environmental conservation compared to other vegetable oils.
Palm oil is ten times more efficient in land use than rapeseed, another main source of vegetable oil. Therefore, the policy of the European Union to eliminate palm oil from the biofuel policy and its renewable energy policy, was more of a protectionist trade policy rather than one solely dedicated to environmental protection efforts.
The policy also was taken although Indonesia has pledged its commitment to assure and safeguard the economic, social and environmental benefit of developing palm oil through various policies and regulations. The Indonesian palm oil industry has proven itself to have contributed to poverty eradication, job creation and the attainment of the Sustainable Development Goals.
The trade ministry’s Director for the safeguarding of trade, Pradnyawati, said that the government may send an objection letter regarding the resolution of the European Parliament.
The government is also considering to report this case to the World Trade Organization (WTO). “This proposal of the European Parliament is discriminative, biased and unfair against palm oil,” Pradnyawati told Kontan.
The government’s protective stance of its palm oil industry is rooted in the fact that the value of its CPO exports to the European Union was high. The decision to halt the use of palm oil as a raw material for biodiesel will reduce exports of palm oil to the European Union.