Turning food to fuel may not be the answer to the world’s energy woes and global warming, after all.

THE appeal of palm oil biodiesel appears to have lost its lustre. Soaring crude palm oil prices have eaten into profitability of the business, while Europe is slowly losing interest in palm diesel amidst fears that the biofuel may not be so green after all. 

The rush to obtain palm diesel production licences has all but died, and the Government has frozen all new applications. Of the approved 92 licensees, only six are operating, producing 350,000 tonnes annually.  

“In just 10 months, the whole economics of the business went haywire,” says Carotino Sdn Bhd executive director, U.R. Unnithan, of the impact of crude palm oil price soaring from RM1,400 a tonne in June 2006 to RM2,200 last month.  

“There is no money to be made. Investment in the industry has come to a grinding halt,” says Unnithan, at the Biofuels Business Asia conference in Kuala Lumpur last month. Unnithan's company built the country’s first palm biodiesel plant last June. 

Touted as a planet-friendly substitute for coal and oil, biofuels – which include ethanol made from corn or sugar cane and biodiesel made from soya bean, rapeseed and oil palm – cut down emissions of greenhouse gases, which contribute to global warming.  

However, the high-energy cost of making biofuels, expansion of farmland to grow biofuel crops, and fears over soaring food prices have dampened enthusiasm over vegetable oils as substitutes for fossil fuels.  

In the case of palm diesel, European consumers have pressured their governments to not import the biofuel for fear that oil palm farming will accelerate deforestation and destroy habitat for wildlife such as the orang utan.  

There are also studies showing that biodiesel derived from crops grown on peat forests adds to, not reduce, carbon dioxide emissions.  

“The EU (European Union) has said that it will only use sustainably produced feedstock for biofuel. Malaysia must not be over-enthusiastic about biodiesel and should be more realistic,” says Edgare Kerkwijk, chief financial officer of renewable energy firm Biox Group Asia.  

He says European consumers are also demanding “carbon neutral” biofuels – which means that even their processing and transportation must not be adverse to the environment. 

With the eco-friendliness of palm diesel in doubt, the European Commission is eyeing other greener biofuels, including “second generation” ones such as renewable synthetic natural gas and hydrogen-based solutions.  

Smear campaign 

Some in the palm oil sector insist that the ecological concerns are misplaced and a guise for trade protectionism (to safeguard local seed oil production) but in Europe, governments and companies are already reacting to the fears.  

The Dutch government has cancelled a subsidy scheme for palm oil biofuel plants. UtilitiesEssent in the Netherlands and RWE npower in Britain have both scrapped plans for palm diesel power stations as they were unsure of getting sustainably produced supplies.  

With personalities such as naturalist Sir David Attenborough and country singer Willie Nelson speaking out against palm oil, the Malaysian Palm Oil Council (MPOC) faces a tough battle.  

It does not help that the industry has not embraced orang utan conservation efforts, although given the opportunity.   
Bigger harvests: Demand for palm 
biodiesel has led to the expansion of 
oil palm plantations.

In Kinabatangan, one of Sabah’s major orang utan strongholds, a project to get plantation companies to set aside land to link fragmented forests drew support from only two.  

Land cultivated with oil palm in Malaysia grew from 0.64 million ha in 1975 to one million ha in 1980 to the current 4.16 million ha but Plantation Industries and Commodities Ministry secretary-general Datuk Dr Michael Dosim Lunjew insists that the expansion occurred in logged forest and in cocoa and rubber plantations. 

“We are not cutting down forests. Most plantations are in their second or third planting cycle, so we are planting on the same plot of land,” he says, adding that the industry is aiming to produce more on less land by improving yields.  

Plans for palm oil eco-labelling might improve the sector’s green report card. The Roundtable on Sustainable Palm Oil (RSPO) – a grouping of oil palm growers, traders, processors, consumer goods manufacturers, retailers, investors and non-governmental groups promoting sustainable palm oil production – is finalising the scheme for implementation next year.  

The scheme has limitations, however. It covers only crude palm oil production, which means it tracks the environmental impact of a plantation right to the palm oil mill but not when palm oil is processed into biodiesel, transported and supplied to consumers.  

The RSPO has ruled that plantations set up in “high conservation forests” (forests with high biodiversity and settlements) after November 2005 will not be certified but has nothing about the carbon neutrality of oil palm grown in peat forests.  

Battling the green lobby 

Urging for more work to counter the smear campaign, Unnithan asserts that oil palm is greener than rapeseed and soya bean – its cultivation requires less energy input and its oil yield is five and 10 times higher.  

He remains optimistic about the industry’s future – so long as it weathers the current storm. He says integrated biofuel companies – those owning plantations and thus have their own crude palm oil supply – will be better-equipped to brace current setbacks.  

“If you are just a biodiesel producer, you will be subjected to feedstock price and supply,” he points out.  

He says other biofuels, such as jatropha, poses no competition to palm diesel as they were at least five years away from commercialisation. Even if the world’s vegetable oils today were turned into biofuel, Unnithan says it would meet only 4% to 5% of global diesel needs. Hence, he believes the EU’s target for a 5.75% biofuel use by 2010 could only be met with palm diesel. 

Unitthan also urges for mandatory use of biodiesel in the country. “This will reduce our greenhouse gas emissions as well as hedge us against forex (foreign exchange) risks. Unless we start using biodiesel locally, we cannot justify making it for export.”  

Malaysia’s Envo biodiesel, a mix of 95% diesel and 5% palm olein, was launched last March but is still on trial usage.  

But environmentalists like Gurmit Singh still eschews the whole biofuel idea, saying it does not discourage driving and its production leads to other social and environmental impacts, including rising food prices and pollution. 

Some ethanol plants in the United States, for instance, run on natural gas and coal, hence offsetting whatever cuts in carbon dioxide resulting in biofuel use. What is needed, Gurmit argues, is simply a drastic reduction in the consumption of energy or to make fuel from non-food crops and agricultural waste.  

Non-food plants with possibilities include jatropha and switchgrass; both are perennial plants tolerant of many soil types. Some oil-containing algae are also promising options. Researchers are also prospecting other alternatives, such as municipal waste, wood pulp, leftover grain and corn husks, that can produce cellulosic ethanol.  

All these options are still under study and now more expensive to produce than existing biofuels, but it will be a matter of time before they become viable.