Las entrevistas

CPO, all, cif N.W Europe

CPO, Indon. fob Palm olein RBD, Mal. cif Rott. Palm stearin RBD, Mal. cif Rott.

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PART FOUR: BIOFUELS AND PALM OIL- BASED

BIODIESEL

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1. Definition and key issues

Biofuels are defined as fuels composed of, or produced from, biological raw materials (as opposed to petroleum fossil fuel). Biodiesels are fuels similar to the heavy mineral oil used as fuel in diesel engines; they can be used in standard diesel engines alone, or blended with fossil diesel. Biodiesels consist of long-chain alkyl esters (methyl, propyl or ethyl) and are obtained by processing vegetable oils or animal fat. The two terms are often used alternately.

Biodiesels manufacture encompasses the production of feed stocks, followed by processing to liquid biodiesel. A variety of feed stocks can be used for biodiesels manufacture, including vegetable oils which are already major cash crops used in food, cosmetics and chemical industries and as fodder (palm, soybean, rapeseed, corn, rice bran, jatropha, camelina96, etc.), recycled oils and greases or animal fats (tallow or by-products of the production of omega-3 fatty acids from fish oil). As products, plant – based biodiesels lie at the interface between agriculture and energy sectors, being therefore considerably more regulated than the input commodities.

Yield efficiency is one of the factors determining the competitiveness of various biodiesel feed stocks and their commercialisation potential over the next decade. From this point of view, palm oil is by far the most advantageous feedstock (yielding 4752 litres of biodiesel /ha), followed by coconut oil and far behind by rapeseed oil (955), Chinese tallow (910), soybean (550-800) and sunflower (750).

Several economic and environmental factors led to the growing interest in alternative sources of energy including biodiesels, the most important being the decreasing reserves and rising costs of petroleum.

Government policies, mandatory targets and financial incentives provided to private sector (subsidies and tax breaks) for the use of biodiesels are creating an artificial demand on the corresponding crop feed stocks. Following are the policy arguments most often presented for the promotion of biodiesels:

 Mitigation of climate change – although growing concern and doubts are expressed on both the greenhouse gas emissions and the effectiveness of large-scale use of land to cultivate oilseed for biodiesel. According to calculations by the European Commission97, greenhouse gas emissions from palm oil-based biodiesel are the highest among major biofuels when the effects of deforestation and peat lands degradation are considered. Emissions estimates, which haven't been officially released, have important implications for the biofuels industry in Europe. Likewise, the USA Environmental Protection Agency considers that palm oil-based biodiesel does not meet the requirements of its renewable fuels program because its greenhouse-gas emissions are too high. This means that palm oil-based biodiesel producers would be unable to break into US markets and compete with soybean and

96 _{Jatropha curcasis is a plant from the Euphorbiaceae family that can grow in marginal lands (similar to castor}

beans). Camelina sativa belongs to Brassicaceae family (similar to mustard and rapeseed).

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rapeseed oil-based biodiesels. In addition, cultivation of oilseeds for biodiesel manufacture may compete with their food use, inducing pressure on food supply and prices

 Energy security – with fossil fuel prices around or above 100 US $/barrel and uncertainty of supplies in the long term, biodiesels could be alternative or complementary fuel sources contributing to increased energy security and the reduction of petroleum import bills

 Rural development – land use for the cultivation of biodiesel feed stocks, although involving public subsidies, could provide better incomes and food security for farmers, along with value addition when processing facilities are neighbouring farms areas98

 Export development – biodiesels are an opportunity to diversify export markets for countries with favourable land endowments and labour and trade conditions.

2. Current market situation

2.1

Biofuels policies

Government policies are the key drivers of expanding biodiesel markets and, implicitly, the demand for feed stocks including palm oil. The decisive impact of governmental policies is best illustrated by the evolution of biodiesel production and demand in the European Union, but the situation is similar in many countries and several other examples are found in the table in Annex II.

Biofuel production in European Union was triggered by two policy instruments used in the frame of the Common Agricultural Policy (CAP)100, namely the land set-aside scheme launched in 1992 with a view to limit rising production and stabilize decreasing prices of food products, and the energy crop scheme linked to the creation and deployment of the biofuel industry. Farmers were required to set aside 10 per cent of the land on which they were allowed to grow crops as long as they were solely destined to non-food uses, and were paid 45 Euros per ha if the crops were used for energy. These policy instruments are now abandoned and replaced by tax reliefs and the obligations to blend.

Specific policy measures used according to country’s specific conditions include support to purchasing and maintain cars able to utilize biodiesels. In Sweden, individuals who buy new eco-friendly cars receive a subsidy of nearly 10,000 Euro; notably, at least 85% of passenger cars purchased or leased by the State are targeted to be eco-friendly.

A wealth of up-to-date, detailed information about EU biofuels policy, legislation, standards and certification is available at European Biofuels Technology Platform (see http://www.biofuelstp.eu/legislation.html).

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Palm oil produced in Indonesia and Malaysia is partly processed locally to biodiesel. The largest part is however shipped as crude palm oil to Dutch and German refineries for biodiesel manufacture. As transport costs become prohibitive, export of palm biodiesel may prevail over the export of crude palm oil.

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See “Global Biodiesel Production and Market Report” at www.biodieselmagazine.com/articles/4447/global-biodiesel-production-and-market report

100 _{The Common Agricultural Policy - CAP is a system of EU agricultural subsidies and programmes with an}

annual budget amounting to about 53 billion Euros. Over 70% of CAP of the CAP budget goes to direct payments for farmers, some 20% is spent on rural development measures and the remaining is given out to food companies as export subsidies. In September 2011, the European Commission proposed overhauling the CAP and suggested shifting a greater part of the funding to the Eastern European member states. The new policy directions are now being debated between the European Parliament and the EU's 27 member states in view of an expected approval by end 2013. The annual budgets after the 2013 reform are expected to fall by some 36%.

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European biodiesel policies for green fuels are currently questioned following studies claiming that the cultivation of rapeseed, palm and soybeans as feedstock for biodiesel is worse for climate than the use of regular diesel and the economics of the production of biodiesel could only be supported by subsidies.

2.2

Production and consumption

World biodiesel production is estimated to have doubled from 9.3 million tons in 2007, to 18.8 million tons in 2011101 (see Chart 36).

Sources: F.O. Licht102, USDA; ISTA Mielke

Palm biodiesel, which is a palm oil methyl ester, is obtained by esterification of palm oil feed stocks103 with methanol. Global palm biodiesel output rose trebled from 1.3 million tons in 2007 to 3.9 million tons in 2011. It accounted for 14 per cent of the total biofuels produced in 2007 and for 21 per cent in 2011. Production of biodiesels manufactured from all other feed stocks (corn, sugar, other vegetable oils, biomass, etc.) increased during the same period from 8 million tons to 14.9 million tons.

The producers of palm biodiesel are European Union, Indonesia, Thailand, Colombia and Malaysia (see Chart 37). Oil World estimates that 41 per cent of the global biodiesel production in 2011 was obtained in the European Union, 31 per cent in South America (mostly Argentina and Brazil), 14 per cent in the North and Central America and 12 per cent in Asia.

European Union is world leading biodiesel producer. According to the European Biodiesel Board, EU produced approximately 9 million metric tons of biodiesel in 2009. In July 2010, some 245 biodiesel plants existed in the EU, located mainly in the Netherlands, Germany, France and Spain.

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Over the same period, the total vegetable oils production rose from about 155 to 184 million tons.

102 _{F.O. Licht - World Ethanol and Biofuels Report} 103

Palm biodiesel feedstock mix in Malaysia consists of 26 per cent CPO, 49 per cent RBD palm oil,

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per cent palm stearin and 9 per cent other palm oil derivatives.

0 5 10 15 20 25 2007 2008 2009 2010 2011

Chart 36: World production of biodiesel