Biofuels: An Environmental and Economic Catch 22?

Earlier this month, France’s constitutional court upheld a law cutting palm oil from the country’s list of approved biofuels and eliminating associated tax exemptions. The court rejected an appeal by French energy company Total, which had invested 300 million euros to convert a crude oil refinery into a biofuel plant that would use palm oil feedstock.

Mixing biofuels with fossil fuels for vehicles to burn initially seemed like an easy way to cut down on the 22% of the world’s greenhouse gas emissions that stem from the transport sector. Biofuels are still expected to play an important part in hitting ambitious climate targets; to keep global warming under 1.5°C by 2100, at least 26.3% of transport’s energy mix would need to be composed of biofuels. At the same time, the unintentional environmental consequences provoked by mandatory biofuel quotas have increasingly come under scrutiny.

Palm oil: economic lifeline, but environmental stain

Palm oil, in particular, illustrates both the promise and the peril of biofuels. Palm oil is the most productive land-based lipid crop, and hence the preferred oil crop in tropical regions. The versatile oil can be converted to biodiesel, or hydrotreated to make renewable diesel, as Total was doing in its French plant. Notably, unlike biodiesel, such renewable diesel is a petroleum equivalent.

Driven by demand thanks to the U.S. and the EU’s mandated biofuel requirements, palm oil has provided a valuable cash crop for farmers in tropical countries like Malaysia, Indonesia, and Thailand. Palm oil’s high productivity has led to a dramatic expansion of palm oil plantations in broad swaths of the areas around the equator—with the potential for alleviating poverty in these regions. Even as environmental concerns have spread, the International Monetary Fund has pushed Malaysia and Indonesia to produce more palm oil, recognizing the outsize impact it’s had on these countries’ economies.

In some locations, however, increased oil palm cultivation has resulted in serious environmental damage as rainforest has been cleared—often through widespread burning— to make room for new palm oil plantations. This severe deforestation has undermined biofuels’ sustainability credentials, as these tropical forests are key absorbers of carbon dioxide. 

In Indonesia, for example, the levelling of peat land in order to build new oil palm plantations has vastly increased the country’s emissions, causing Indonesia to take its place as the world’s fourth largest emitter of greenhouse gases. Yearly forest fires have spewed plumes of smog across Southeast Asia and put populations of already-endangered species at risk—and there is every indication the fires are getting worse. The amount of land burned in Indonesia through September of this year, for example, already exceeded the amount of land burned all last year.

This massive land burning is driven by economic interests—in Indonesia, those of a limited group of corporations. The latest devastating fire season has renewed accusations that the Indonesian government isn’t doing enough to crack down on the principal culprits behind deforestation. These firms, including Sinar Mas and Kallista Alam, have pledged to publicly stop deforestation, but Sinar Mas’s palm and paper operations alone burned an area nearly four times the size of Singapore.

Additionally, both companies have wiggled their way out of fines intended to punish them for deliberately setting fires, violating environmental regulations, and creating human and health risks. For example, PT Bumi Andalas Permai, a Sinar Mas affiliate, burned 81,800 hectares (ha) within a given concession from 2015 to 2018—an area twelve times larger than Manhattan—yet was only asked to replant on land it had burned in 2015. Kallista Alam has managed to evade a $26.5 million fine for years, as the Meulaboh State Court has yet to enforce the penalty.

Such large-scale destruction of the Indonesian rainforest has spooked Western policymakers—who are already struggling to keep carbon emissions within acceptable parameters. But Asian demand has spillover effects in the West, as the very firms with the lion’s share of responsibility for deforestation in ASEAN are diversifying their supply sources Westward. Sinar Mas spinoff Paper Excellence, for example, has been picking up Canadian assets, estimating that the company’s customers in Asia will ensure long-term demand.

A powerful economic driver

ASEAN governments have been slow to crack down on these firms in part because they remain lynchpins of their economic development. I saw the impact of the palm oil sector firsthand several years ago in the Malaysian state of Sarawak. It was immediately clear that the people there took pride in the industry’s economic success. Not only was the landscape dotted with African oil palm plantations, the lucrative palms grew beside the road and outside people’s houses. On the roads were tankers filled with palm oil, while the port in Bintulu, Malaysia has a tank farm and facilities devoted to palm oil exports.

I discussed yields and cost of production with a palm oil grower there, learning that palm oil is a heavy user of fertilizer (4 kg of nitrogen fertilizer per tree). At the time, harvesting was heavily dependent on manual labor, while wages weren’t high enough to entice Malaysians to harvest oil palm fruits—meaning that the industry relied on imported Indonesian labor. I did see signs of clear-cutting and erosion where some plantations had been developed.

As the environmental impact of the palm oil industry has become ever clearer, Western countries are increasingly considering following in France’s footprints and excluding the product from their biofuel schemes. Growers like the one I spoke with in Malaysia question whether campaigns to reduce palm oil usage in the West would actually slow encroachment into the rainforests. Even if the West refused to buy Southeast Asia’s palm oil, China would buy all they could make. The overarching message I took away is that in Malaysia and Indonesia, palm oil is a way for rural poor people to feed their families and send their children to school—ensuring that the industry will continue to develop whether the West boycotts it or not.

At times, international organizations have helped keep corporations at check. Greenpeace, for example, rightfully cut all of its ties and engagements with Sinar Mas in 2018 after its subsidiary APP failed to adopt its agreed-upon Forest Conservation Policy across Asia. Since then, Greenpeace has continued to call out the bad behavior of palm oil and paper and pulp companies in Asia as well as governments’ inaction in stamping out this bad behavior.

Palm oil represents a difficult dilemma: How does the West address negative social or environmental implications from the development of an industry that is helping to lift rural people out of poverty? The answer lies in maintaining the social balance that can only be achieved by assuring that a plethora of stakeholders have a say. These rural populations may see environmental objectives as conflicting with their basic needs— explaining why rainforest continues to disappear around the world. These conflicting priorities, as well as demand in countries like China and India, ensure that the industry will continue to develop.

Rather than attempting to address the issue through Western boycotts, therefore, the global community—from Western policymakers to international organizations like Rainforest Action Network— would be better served by putting pressure on the governments of Malaysia and Indonesia to sustainably produce palm oil while protecting rainforests.

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