Palm biodiesel at a crossroads

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Late last year, the EU parliament voted in favour of the renewable energy directive which sets out a binding target to source 20% of its energy needs from renewables by 2020. This indirectly makes it harder for Malaysian palm oil to be used as an energy fuel within the 27-nation bloc. Member states will each have its own binding targets under the directive and each state is to publish its plan by June 2010.

The directive, which will be implemented by November 2010, stipulates a 10% renewable energy target for the transport sector and most of the fuel for this is expected to come from biofuels, both locally produced and imported. The directive also sets out sustainability criteria for biofuels where the material used should start by reducing greenhouse gas (GHG) emissions by 35% and increase this to 60% by 2018.

While the objectives of the directive appear noble, the problem for palm biodiesel producers lies in the default GHG savings value of only 19% which the EU has assigned to palm biodiesel. This means that palm biodiesel as it is now would not qualify as a sustainable fuel.

Biodiesel producers are questioning the methodology used to arrive at the default value which is lower than industry claims of between 26% and 50%, depending on whether the palm oil applies methane gas capture technology.

The EU is already a major user of bio­fuels, including those made from palm oil. According to Oil World, 800,000 tonnes of palm oil were used in biofuels in the euro zone last year. This year, it expects the volume to rise to between 1 million and 1.1 million tonnes. Of these, Oil World says the EU is likely to use 550,000 tonnes of palm oil for biodiesel compared to 450,000 tonnes last year while up to 450,000 tonnes will likely be used for electricity and heat generation in Germany alone.

David Ho, managing director of Carotech Bhd, which exports biodiesel to the US and indirectly to the EU, finds the EU’s default value of 16% (now revised to 19%) for palm biodiesel or palm methyl ester (PME) to be very low.

“The Malaysian Palm Oil Board (MPOB) and the Ministry of Plantation Industries and Commodities are disputing the figure. If it’s not rectified, it will become an entry barrier for PME into the EU. If Malaysian authorities are unable to rectify this value, we will be shut off from the EU market. I will be surprised if the Malaysian authorities are not able to resolve these values,” Ho tells The Edge.

He adds that in the “unlikely” event that the EU shuts its doors completely to palm bio­diesel based on the low default value, Carotech would continue selling to the US and the rest of the world. The company is also counting on the local B5 market coming up in 2010 to take up some of the biodiesel it produces instead of relying solely on the export market. Furthermore, Ho says, the PME produced by Carotech is of high quality and good enough to be sold to the oleochemical industries.“We have done so in the past and will pursue this avenue with more vigour,” he says.

Nevertheless, Ho is concerned that the negative publicity surrounding PME may rub off on palm oil’s use in the oleochemical industries. He says that traditionally, PME has been used as an alternative to animal fat and petroleum-based feedstock. PME was considered greener and a low-cost feedstock for the sector compared to soya and rapeseed oil.

“With NGOs targeting PME as a non-sustainable feedstock, the oleochemical industries are also targeted by NGOs and may be facing the same treatment in the future,” says Ho.

U N Unnithan, vice-president of the Malaysian Biodiesel Assocation, told The Edge Financial Daily recently that industry experts from the palm and biodiesel sectors plan to meet officials from the European Commission on the renewable energy directive. He also says that if palm millers adopt methane gas capture technology, the GHG savings value could go up to 60%.The milling of fresh fruit bunches (FFB) produces solid and liquid waste or palm oil mill effluent (POME). According to experts, about 0.1 tonne of raw POME is generated from every tonne of FFB processed. Typically, POME is treated in effluent ponds, releasing GHG during the process.

CB Industrial Products Holding Bhd constructs Modipalm mills which discharge lesser effluents compared to conventional mills. This paves the way for a composting process which turns wastes from the mills into fertilisers, while reducing methane gas emissions to zero. The first such mill can be found in the company’s plantation in Sarawak.

“Modipalm is one technology which can reduce greenhouse gas emissions. Plantation companies are looking for the technology to change but there are not many available and the changes are not easy to do. We can see changes taking place but it’ll take time,” says Lim Chai Beng, the company’s managing director.

One of the factors pushing the palm oil industry to go green is the clean development mechanism (CDM), an arrangement under the Kyoto Protocol and carried out by the UN Framework Convention for Climate Change (UNFCC). The CDM allows countries committed to reducing GHG emissions to implement emission-reduction projects in developing countries. These projects can earn certified emission-reduction credits which are tradable and can be counted in meeting targets set under the Kyoto Protocol. Some millers and plantation companies have embarked on CDM projects, not just to reduce GHG emissions but also to take advantage of carbon credit trading. Kim Loong Resources Bhd, for example, has a biogas plant in Kota Tinggi, Johor, which is approved as a CDM project.

However, according to the Palm Oil Miller Association (POMA), millers have hit a snag in implementing  CDM projects due to delays in getting approvals and the UNFCC’s changing guidelines. While millers have the option of going ahead without the approvals, they would then miss out on the opportunity to earn from the trading of carbon credits, says Steven Yow, president of POMA.On the ministry’s call for a dialogue with POMA to upgrade members’ mills to reduce carbon emissions, Yow says POMA will be happy to go along given the demand for sustainable palm oil. However, he notes that millers already meet licensing requirements set by the MPOB and the Department of Environment.

“What more do we need to do? And then the Roundtable for Sustainable Palm Oil (RSPO) requires another level of approval. We’re at a crossroads because of the unfair competition in the world,” says Yow, adding that POMA will be having discussions with the Malaysian Palm Oil Association (MPOA) and the ministry on these issues.

Vengeta Rao, the secretary-general of RSPO, says that while the roundtable’s principles and criteria (P&C) set out the need to reduce GHG emissions, it does not get into specifics such as quantification or methane capture. Thus, RSPO has set up a working group to look into the criteria for GHG savings in the palm oil industry, and revisions to the criteria would incorporate GHG emission savings.

“When the P&C were formulated between 2003 and 2005, palm oil was used mainly as food while the EU’s directive is for use of materials as fuel, but palm oil is now used for biodiesel. The EU feels the existing P&C do not address the GHG issue sufficiently in that respect,” says Rao.

The good news is the EU is open to discussions with the stakeholders of the palm oil industry.  This article appeared in The Edge Malaysia, Issue 749, April 6-12, 2009.