The road ahead for palm oil

Palm oil seems to be in everything we use and eat, these days. Not only in household items like shampoos, lipstick and detergents, it is also used in biscuits and noodle soups, as cooking oil and to fuel your car, for electricity production and animal feed. No wonder the production of palm oil has seen a strong growth, from 25 million tonnes (2000) to about 67 million tonnes a year (2015).

This growth comes at a price. Palm oil production is regarded as one of the main drivers for deforestation¹. Millions of hectares of tropical rainforest and peat land forests have been converted to plantations, especially in Indonesia and Malaysia. Very valuable forest, both in terms of carbon stock and biodiversity has been lost and this process is still continuing.

Can we keep using palm oil and stop deforestation at the same time?
This article looks at the global setting and zooms in at European policies.

A road in Malaysia, 2013, picture by S. Shankar
Ban the use of palm oil?
Because of deforestation, palm oil already has a bad image. On top of that, recent research has shown that palm oil in food products can be carcinogenic, when processed above 200 °C. Customers in some countries are starting to avoid products that contain palm oil. Yet palm oil is a very efficient crop, providing much more yield per hectare than any other vegetable oil crop. Simply banning palm oil would result in more use of other vegetable oils, requiring even bigger plantations. This simple reaction does not seem to be the right solution. But what is?

Only use certified palm oil?
There are different certification schemes for palm oil that certify that palm oil is produced in a sustainable way. Sustainability criteria include requirements on land use: certified palm oil may not come from recently deforested land. This is important, as it enables producers and buyers to show that they act responsibly, but it is not sufficient to stop indirect land use change and deforestation. It does not reduce overall demand that leads to land conversion and deforestation elsewhere.  What happens on the ground is that sustainability certified palm oil is used for export to Europe and demand from for instance China and from many developing countries in South and South East Asia, and Latin America is covered with palm oil from unsustainable sources.
¹ for research on this see Trading forests: land-use change and carbon emissions embodied in production and exports of forest-risk commodities

Palm oil use and trends


Worldwide the largest share of palm oil (source: WWF 2016) was used for the production of food and feed items (68%), followed by industrial applications (cosmetics, cleaning products, lubricants, etc). Around 5% of the global production was used for energy (biofuels, electricity and heat).
 
In Europe, this picture is very different, due to the EU renewable energy Directive (EU RED). Data show that in 2015 between 50 and 55% of all palm oil imported to Europe was used for energy, mostly to produce biofuels, as additive to diesel. This is between a two to threefold increase since 2010. The use of palm oil for food and feed (around 40% and 5% of the total demand respectively) has remained more and less stable in the last five years. The same applies to the oleo-chemical sector with a share of around 4% of the total use (sources European Palm Oil Alliance; Transport & Environment).
 
The global palm oil production is expected to increase until 2025 although at a reduced pace compared to previous decades. How palm oil will be used will also change. Overall share of palm oil used for biofuels might increase as a result of biodiesel policies outside of Europe (US, Argentina, Brazil Indonesia, other palm oil producing countries, see OECD-FAO Agricultural Outlook 2016-2024). In Europe, palm oil use will be influenced by changes in biofuels’ policies towards advanced biofuels and by developments in the bio-economy sector.

Efforts to make supply chains “deforestation free”


To access the EU market for biofuels, palm oil has to meet the sustainability requirements of the EU RED which include provisions to avoid direct land use change. So far, implementation of these requirements in some member states has been slow and only in the Netherlands, Germany and the UK, the demand of palm oil in the energy sector has been covered by sustainability certified palm oil.

As for unwanted indirect land-use change (ILUC), the RED sustainability criteria originally did not include provisions to prevent this. In an attempt to reduce the risk of ILUC, an amendment to the RED, the so called “ILUC Directive” came into force in 2015. The ILUC Directive limits the share of biofuels for transport from crops grown on agricultural land (including palm oil) that can be counted towards the 2020 renewable energy targets to 7% and sets an indicative 0.5% target for advanced biofuels i.e. biofuels made from algae and selected biomass residues and wastes. For the time after 2020, the EC has proposed a revised RED, which seeks to further minimize the ILUC effect, reducing the 7% limit progressively down to 3.8% in 2030. The effects of the ILUC Directive and the proposed revised RED depend very much on the progress made by MS on implementing them. In the mean time, the European Parliament has recently (4 April 2017) accepted a motion ‘to phase out the use of vegetable oils that drive deforestation, including palm oil, as a component of biofuels, preferably by 2020’.
 
In other sectors, there is no obligation to meet sustainability criteria or use certified palm oil. However, many companies, particularly in the food and personal care industry have made voluntary commitments to aim for ‘deforestation free’ supply chains. They make use of certification schemes that help to proof the commodities they are using are ‘deforestation free`. Many of these companies, including for example Unilever, Nestle, Cargill and Wilmar) have signed the New York Declaration on Forests  (NYDF) in 2014, aiming to halve the rate of deforestation by 2020 and end the loss of natural forests by 2030, and restore at least 350 million hectares of degraded forest lands by 2030. This declaration is also supported by a range of governments in both producer and consumer countries.
 
In the emerging bio-economy sector in Europe, discussions about sustainability started few years ago. As a result, several of the existing voluntary certification systems initially developed for biofuels have created additional modules to extend the scope to all biomass raw materials (see for instance ISCC and RSB). Public-private initiatives aiming to promote voluntary certification for biobased products have also emerged. An example is the Dutch Green Deal Green Certificates, a sustainability standard for sustainable bio-based feedstock for applications in polymers and chemicals developed within the framework of a Green Deal between key stakeholders from the Dutch plastic and chemical sector and the Dutch Ministry of Economic Affairs. The standard encompasses sustainability criteria for bio-based feedstock, quality criteria for the selection of voluntary certification systems and chain of custody. Another example is the INRO initiative in Germany, which agreed on sustainability criteria and recommended the use of voluntary certification systems. At EU level, SQ Consult is involved in the Horizon 2020 Start-Bio project which aims to develop a fit-for-purpose sustainability scheme, including standards, labels and certifications for bio-based products.

So what is needed, to end palm oil use being a driver for deforestation?


The main problem is that current consumption levels for palm oil are unsustainable. This drives, in turn, production patterns that are also unsustainable. Measures to achieve a sustainable level of both consumption and production are as diverse and complex as the causes for its unsustainable growth.
 
Palm oil is in demand for a lot of reasons. It is a very versatile and efficient crop that is used in the food and feed industry, for cosmetics, chemicals and indeed also as energy crop. For most producing countries, palm oil is a very important commodity, bringing money and employment to developing regions that desperately need both.
 
To stop palm oil use from being a driver of deforestation, three things are necessary:
  • Reducing overall demand of vegetable oil, including palm oil.
  • Increasing the market share of sustainability certified palm oil.
  • Controlling and restricting further expansion of palm oil production.
Reducing overall demand
Any increase in demand of vegetable oil, including palm oil, whether it is certified or not, increases the pressure on land conversion and can result, directly or indirectly, in deforestation. Reducing overall palm oil demand does not mean we have to stop using palm oil or replace it by mineral oil. It means that governments need to develop policies that prioritize demand for applications where palm oil is most needed, and help to promote alternatives for other applications.
 
The following policy elements could be considered:
Demand from food applications can be reduced in several ways:
  • Palm oil is used in large quantities in processed food products and preparation of fast food. Policy makers and food industry could promote healthier diets based on regionally produced ingredients.
  • Palm oil results in very high CO2 emissions when deforestation related to indirect land use is taken into account. Food companies should include a land use change impact assessment in their buying decisions.
  • Food companies need to consider the impact of recent cancer research conclusions for the use of palm oil for food purposes. Perhaps palm oil is not well suited for all types of food applications.
Demand from energy applications should be reduced as much as possible. As an energy crop, palm oil is currently mainly used as a biofuel addition to diesel.  Demand can be reduced by shifting to alternative fuels and by shifting to second generation biofuels.
  • The future of diesel for passenger cars in Europe is already under pressure due to both the diesel emission scandal and to policies implemented by major cities in Europe, such as London, Berlin and Barcelona that are banning (older) diesel cars from the inner cities. With the uptake of electric driving, the future consumption of diesel for passenger cars is likely to reduce further. However, diesel will remain the main fuel for truck transport, for many years to come. For heavy transport electric driving (using batteries) is not a realistic option and other cleaner alternatives will require more time to develop.
  • As discussed earlier, the EU is pursuing a biofuels policy for transport that has resulted in a strong growth of the import of palm oil for energy use into the EU. The EU has recognised the negative impact of biofuels and is moving towards ‘second generation’ biofuels, made from forest residues and waste. However, some Member States are very slow in implementing these changes. The current discussions on a new draft of the Renewable Energy Directive provide an opportunity to step away from the use of palm oil as transportation fuel.
For many other applications, like soaps and shampoos, alternatives are available that can easily replace palm oil. As with food, producers should consider land use change impacts when sourcing vegetable oils.

Increasing the market share of sustainability certified palm oil


To fight deforestation, it is important to have insight in a company’s supply chain.
Traceability of palm oil is key. Without knowledge where palm oil is sourced from, it is impossible to get deforestation under control. Both the demand and the supply side have a role in this. Together they should aim for 100% sustainability certified palm oil.
Currently, only 20% of palm oil on the market is certified. The demand comes from only a small part of the market: through voluntary commitments from parts of the food and cosmetics industry, parts of the bio-economy sector and through legal requirements for sustainability of biofuels (in Europe only).
 
In other sectors where palm oil is used (medicine, feed industry) much less companies are actively committed to stop deforestation. Major markets like China or India are also not covered by any (governmental) sustainability requirements and few companies in these countries have made voluntary commitments on deforestation.
In order to fight deforestation, all companies that buy palm oil need to make company commitments and switch to the use of certified palm oil, increasing the demand for certified palm oil.

Sadly, voluntary approaches are often slow to implement. Hence, the EU should consider to make sustainable sourcing obligatory for all use of palm oil, following the example of the Renewable Energy Directive. Compliance can be demonstrated using a variety of certification schemes. (See also article on co-regulation by SQ Consult). Sustainability requirements should also include labour and social issues (e.g. land rights).

In its recent motion, the European Parliament also asks to set sustainability criteria for all use of palm oil. It goes one step further and aims for a single certification system for palm oil, to be used for acceptance in the European market.

Controlling and restricting production


Certification essentially remains a patch-up solution for a lack of effective local regulations and enforcement. A recent report by FERN on the implementation of company commitments towards deforestation concludes that governments of countries where commodities production occurs have a crucial role to play in “creating an enabling framework of rules, regulations and effective administration without which private sector commitments to tackle deforestation can only have limited impact”.
 
From climate change perspective, especially the protection of carbon stocks, that have piled up in the peatlands of Indonesia and Malaysia, is key to reduce the greenhouse gas impacts related to palm oil.  This is underlined by a study commissioned by the European Commission, ‘The land use change impact of biofuels consumed in the EU’, that shows the dramatic negative climate change impact of peatland drainage.
 
An important development in this respect is jurisdictional sustainability, where local or regional governments take the lead to improve governance and enforcement in order to increase overall sustainability in a jurisdiction. The Tropical Forest Alliance (TFA2020) in its recent annual report has provided several examples of jurisdictional sustainability, also on palm oil in Malaysia and Indonesia, where local governments are making real progress in cooperation with local communities, producers and buyers. Multinational buyers recognise these efforts and prefer to source their commodities from such jurisdiction avoiding risks of bad publicity by sourcing from other regions with less control over deforestation.

Conclusion


The main problem is that current consumption levels for palm oil are unsustainable. This drives prices upwards, increases pressure on land conversion and leads to unsustainable production patterns.

EU policies play a role in the increasing demand for palm oil. Therefore, a ‘no-brainer’ to reduce demand at EU level is to end the use of palm oil in the European transport sector. It is a direct consequence of the EU renewable energy policy with proven negative climate change impacts. This will not solve all deforestation, but it will take away some of the pressure. Another necessity at EU level is the introduction of obligatory sustainability criteria for all uses of palm oil, in all sectors. It cannot be true that sustainability is a requirement for one type of use and has no meaning for other types of use, while sources of palm oil and issues related to sustainability are exactly the same.

Of course, all other actors also have to step up their efforts, to reduce demand, to increase market share of certified palm oil and to control and restrict further expansion of palm oil production.
Contact the authors

Vincent Swinkels
Liliana Gamba

With thanks Sergio Ugarte
for his feedback and insights.
SQ Consult

P.O. Box 8239
3503 RE Utrecht
The Netherlands

info@sqconsult.com
Visit our website for more information
SQ Consult P.O. Box 8239 3503 RE, Utrecht The Netherlands