Melanie Williams Consulting

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Palm oil; the kernel of the dispute

Palm oil is causing a disagreement between the EU and producer countries in SE Asia. The European Commission has developed a scientifically based approach to limit palm oil in biofuels to that which does not directly or indirectly cause deforestation. The new palm oil measures will test the ability of governments to control trade in goods whose production may adversely impact the climate, so it will set a precedent for other high-risk commodities.

Producers are worried that dividing palm oil into ‘good’ and ‘bad’ categories will turn opinion against its use in other products. The stakes are high, with Indonesia and Malaysia threatening retaliatory measures and a complaint to the World Trade Organisation (WTO).

The European approach relies on sustainability schemes, which are the best solution for demonstrating the provenance of high deforestation risk commodities such as palm oil. The dispute is bringing their role to the forefront. Consumer goods companies are increasingly turning to sustainability certification to show that they are sourcing responsible palm oil. Estée Lauder recently announced that it is partnering with RSPO (Roundtable on Sustainable Palm Oil) to support Indonesian farmers with the implementation of sustainable palm oil practices.  Tesco, a supermarket, only sources RSPO certified palm oil for its UK own brand products whilst pledging to achieve the same for its international businesses. They are two amongst a growing number of brands who source RSPO certified palm oil. 

The pressures which drives companies to seek certified palm oil will only increase as the EU implements its requirements for palm based biofuels and the trade dispute plays out. The EU is giving extra responsibilities to approved sustainability schemes via new certification rules. Current regulation strongly forbids deforestation, but the displacement of other crops from agricultural land by palm plantations, drives further land clearing to replace the lost crop production. This phenomenon has been labelled indirect land use change (ILUC). The recent regulation from the EU has increased the sustainability requirements for palm oil to cover ILUC. Sustainability schemes, notably the market leader ISCC (International Sustainability and Carbon Certification), will check that palm oil for biofuels comes only from specific measures which have increased yields beyond business as usual or transformed disused land. Small holders will have a slightly easier path to certification but they too will have to comply with the main requirements. The barriers for both existing producers and smallholders, if properly enforced, will drastically cut the flow of palm oil into European biofuels. 

As we move to a low carbon future, trade in highly GHG intensive products must be controlled or environmental harm should be priced in, to incentivise substitution by low carbon replacements. Although there is widespread agreement about the need for this type of measure, gaining acceptance from producer countries will be a hard nut to crack.

Published: 11 June 19

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