Imelda Maidir, Jakarta
In the run-up to the United Nations Climate Change Conference in Bali, spectacular action by environmental NGOs highlighted the controversies surrounding the current boom in the palm oil industry. Greenpeace, in collaboration with Indonesian activists from Sumatra, dammed an irrigation canal to protest against the conversion of Sumatra's last rainforests.
A report by Wetlands International and Wageningen University placed Indonesia in third place on the global list of carbon emitters, because of the huge amounts of carbon released when the peat forests are drained. In reaction, representatives from the Indonesian and Malaysian governments and from the industry toured Europe to seek support for sustainable palm oil, claiming that, if properly managed, the product can play a positive role in the fight against global warming.
The oil palm, elaeis guineensis, is native to central Africa, but can be grown successfully as a commercial crop in tropical lowland areas. The products from the palm, crude palm oil, palm kernel oil and palm kernel meal and their derivates are extremely versatile, and, in addition to widespread use as cooking oil, are important ingredients for the food, cosmetics and chemical industries and as animal feed. Indonesia and Malaysia together account for over 80 percent of global production and Europe is one of their biggest markets.
The boom in the palm oil industry is breathtaking. Global output of crude palm oil increased by 65 percent between 1995 and 2002. The area devoted to oil palm plantations in Indonesia and Malaysia doubled to ten million hectares between 1995 and 2005. New plantations and expansion targets are being developed in the Philippines, in Thailand and in Papua New Guinea. The expansion of oil palm plantations is a key component of government development strategies across the region.
The links to, and importance of Europe in this development are profound and manifold. Europe is not only an important and expanding market for palm oil products. European banks, the food and chemical industries, agribusiness, animal feed, and also direct producers and refiners of palm oil such as Unilever are intertwined with the industry at different levels.
At the same time, the European Union and the Association of Southeast Asian Nations are cooperating in expanding free trade between the regions and in environmental protection. This includes joint initiatives against the problem of haze, for the protection of biodiversity, and, more recently, to stop global warming and to promote sustainable energy.
The latter initiative, perhaps ironically, has intensified the controversies surrounding oil palm. Environmental NGOs based in Europe, concerned by the rapid expansion of oil palm plantations in Southeast Asia, had been targeting the industry in the 1990s, campaigning around media-responsive species such as orangutans.
The exposure of the industry to negative publicity led to the formation of the Round Table on Sustainable Palm Oil (RSPO) in Malaysia and later in Indonesia. The stakeholder initiative which included leading corporations and the WWF set down criteria for sustainable palm oil, such as a zero-burning policy and no conversion of High Conservation Value Forests.
The European Commission has drafted a scheme that would fulfill the sustainability criteria as well as promote reduction of Greenhouse Gases (GHGs). The EU Commission laid out three criteria: to achieve a minimum level of GHG savings; to avoid major reduction in carbon stocks through land use change; and to avoid major biodiversity loss from land use change.
The Commission claims its scheme will ensure that biomass, failing to meet one of the criteria, will neither count towards meeting Member States' obligations nor be eligible for any incentives e.g. fuel-tax deductions or other financial support. The Member States would be responsible for ensuring the criteria are respected, and legislation would be put in place to define the requisite procedural requirements.
However, the scheme to set mandatory biofuel targets for the transport sector, has led to a new round of campaigning. Critical reports on RSPO members have questioned the implementation of the criteria, and the industry has also come under attack for antiunion policies.
At this stage, the proposed EU certification schemes, however, do not take into consideration the indirect, or displacement, effects of diverting plant oils to biofuel production. Certification of palm biodiesel is potentially meaningless if palm oil imported for food or other industrial purposes does not need to be certified. For example, certified EU-sourced rapeseed oil might be diverted from food purposes to make certified biodiesel, only to be replaced in the edible oils market by uncertified palm oil that has been grown unsustainably on former tropical forest.
Although these initiatives could be considered nontrade barriers, it is clear that environmental issues are high on the agenda of foreign importers of Indonesian biodiesel. To maintain these markets, the Indonesia government and producers will need to meet environmental and social criteria.
Other major markets, such as China and India, may be less discerning on environmental or social grounds. The net result is likely to be that developed-country markets will be furnished with sustainably produced biofuels and palm oil while other markets will take the less-sustainably-produced products.
Hence demand from the EU and other OECD countries could simply displace unsustainable practices to other markets, including domestic markets.
The Indonesian government has stipulated national standards (SNI- 04-7182-2006) for biodiesel parameters, e.g. carbon residue and sulfur and acid concentration, closely following the international standards. The remaining issue now is how to cost-effectively apply the scheme into domestic markets without causing too much burden to the industry.
However, it is politically sensitive to treat the domestic market as an inferior market.
The interaction between Europe and ASEAN, therefore, is much more complex and dynamic than a simple relationship of supply and demand, or government policy within the framework of international conventions. A specific, contested regime of environmental and development governance is emerging and changing, framed by coalitions from industry, civil society and government that operate transnationally.
The writer is a researcher at the Department of Economics, Centre for Strategic and International Studies (CSIS), Jakarta and Graduate Student of the Lee Kuan Yew School of Public Policy, NUS.
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