KUALA LUMPUR: The recent disqualification of palm oil-based biodiesel as a renewable fuel by the US Environmental Protection Agency (EPA) may limit the industry’s potential markets according to analysts.

“Although this will not effect the industry significantly, it is not a good development for the plantation sector as it restricts the avenues where producers can sell and distribute their products,” said an analyst with a bank-backed research house.

This is a big deal for the future potential of palm oil as both the European Union and US are among major users of biodiesel.

However, the analyst told The Edge Financial Daily that despite the US being among the top 10 importers of Malaysian palm oil, it was never a major buyer of biodiesel products from Malaysia.

The analyst noted that although the EU and US are heavily promoting the use of  biodiesel, it is mainly to promote and protect biodiesel produced from their countries’ own crops and not another country’s crops. In its analysis, the EPA found that biodiesel and renewable diesel produced from palm oil does not meet the minimum 20% lifecycle greenhouse gas (GHG) reduction threshold.

Compared with baseline petroleum diesel, biodiesel and renewable diesel produced from palm oil has an estimated lifecycle GHG emission of 17% and 11% respectively.

This minimum requirement was key in qualifying as a renewable fuel under the Renewable Fuel Standard (RFS) programme.

If these findings are finalised, palm oil producers not only in Malaysia but in Indonesia as well will be unable to break into the US markets and compete with canola and soyoil-fuelled competitors according to an article on BiofuelsDigest.com.

According to the OECD-FAO Agricultural Outlook 2011-2020, Malaysia and Indonesia could become important exporters in the future as high biofuel production capacities have been installed in these countries.

It estimates that Malaysia currently accounts for approximately 45% or 1.75 billion litres of available production capacity of biodiesel while Indonesia has 10% of available production capacity.

The report said it is not clear if these capacities might be more fully utilised or might even continue to grow in the next few years.

It did highlight that the EU Renewable Energy Directive (RED) sustainability and certification scheme, which set a precedent for the US EPA, may likely negatively impact Malaysian and Indonesian biodiesel production and exports.

This was not the first blow for the industry but the second after RED decreed palm oil unsuitable as a base for renewable fuel.

Media reports have highlighted the dissatisfaction of industry players claiming the calculations of  these organisations were manipulated to show low carbon emissions for one commodity against another.

As such, many believe that these were in fact protectionist measures implemented to protect local crops such as soyabeans and wheat in the EU and US which have typically traded at a higher value than palm oil.


This article appeared in The Edge Financial Daily, February 3, 2012.