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biofuel-2016-smlThe EU and the US have implemented legal frameworks regarding the ‘sustainability’ or ‘renewability’, respectively, or biofuels. Although some palm-oil-based biofuels continue to enter the EU and the US, many producers remain unable to export biofuel to these markets.

The legal frameworks have been questioned by businesses and World Trade Organisation (WTO) members alike, and the scientific basis and calculations methods for such regulations are heavily disputed.

In March 2010, the US Environmental Protection Agency (EPA) published its final rule on the second US Renewable Fuel Standard (RFS2) programme. It assessed the lifecycle greenhouse gas (GHG) emissions of multiple renewable fuel pathways (defined as feedstock, fuel type and the fuel production process).

In 2012, the EPA published its findings regarding the GHG lifecycle emission savings from various biofuels. This found that biodiesel and renewable diesel produced from palm oil have estimated lifecycle GHG emission reduction of 17% and 11% respectively, compared to the baseline petroleum diesel fuel that they replace.

As such, biodiesel and renewable diesel produced from palm oil failed to meet the minimum 20% GHG emission reduction threshold required for renewable fuel made in facilities that commenced construction after Dec 19, 2007.

The EPA stated that palm oil production produces wastewater effluent that eventually decomposes, creating methane, which is a GHG with a high global warming potential. It also stated that the expected expansion of oil palm plantations onto land with carbon-rich peat soils leads to significant releases of GHGs into the atmosphere.

This determination was not only challenged by a large number of public comments from stakeholders, but also by trading partners of the US (such as Indonesia and Malaysia) at meetings of the WTO Committee on Technical Barriers to Trade.

Expert opinion sought

In December 2014, the EPA released the Peer Review Report on Emission Factors for Tropical Peatlands Drained for Oil Palm Cultivation (the Report). This comprised scientific opinions from five independent experts.

Three of them reconfirmed that EPA’s measurement of GHG emissions generated from peat soil drainage was appropriate, on the basis of the current scientific understanding. But they also emphasised the need to re-evaluate the emission factors when additional research becomes available. The other two pointed out that the EPA likely overestimated the GHG emissions from peat soil drainage and suggested the use of alternative scientific studies.

It is worth noting that the Report still identifies substantial drawbacks of the EPA’s assessment – such as the exclusion of the root respiration and assumptions regarding peat soil bulk density, peat organic carbon content, and groundwater table depth.

The EPA’s choice of the peat soil drainage emission factor appears not to be firmly sustained by a large number of scientific studies. The existing ones come to different conclusions. In this light, it appears that there is still great uncertainty as to the scientific evidence that the EPA relied upon in order to disqualify palm-based biofuel from the RFS programme.

In addition, it must be noted that the EPA’s assessment envisages a ‘middle point approach’ to decide whether palm oil is a qualified feedstock. This means that the actual GHG emission savings rate of at least half of the production of palm-based biodiesel and renewable diesel may be higher than 17% and 11% savings, respectively.

Companies that believe their production method to surpass the 20% GHG emissions saving threshold may apply for a ‘new fuel pathway’ to be qualified as ‘efficient producers’ (and table a substantial amount of required evidence).

However, this approach clearly imposes additional burdens on ‘greener’ biofuel producers and may lead to instances of de facto discrimination against small and medium producers.

In the EU

The Fuel Quality Directive (FQD) and the Renewable Energy Directive (RED) provide for ‘sustainability criteria’ for renewable biofuels, including those derived from palm oil. These rules prescribe how biofuels must be produced for purposes of compliance with the relevant targets and requirements.

The criteria are based on two factors: that the use of biofuels must lead to a 35% GHG emissions saving (although this target is set to increase); and that the land used to produce biofuels must not have high biodiversity value and/or high carbon stock.

Biofuels that do not conform to these requirements are considered ‘unsustainable’ in the EU. Although they will theoretically continue to enjoy access to the EU’s market, they will not be eligible for demonstrating compliance with the targets, nor entitled to financial support, which may discourage their use and importation.

ILUC Directive

On April 28, 2015, the EU Parliament adopted a compromise text to amend the EU’s biofuel framework. The text originates from a proposal tabled by the European Commission (EC) in October 2012, referred to as the Proposal on Indirect Land Use Change (ILUC Proposal).

The EU Parliament adopted its position at first reading in September 2013, and the EU Council adopted its first reading position in December 2014, on the basis of which, the EU Parliament’s Committee on the Environment, Public Health and Food Safety (ENVI Committee) tabled its draft recommendation at second reading.

In February 2015, the ENVI Committee adopted its draft recommendation. At the same time, the rapporteur received the mandate to start negotiations with the EU Council. The compromise text is a result of such negotiations. On Oct 5, 2015, the ILUC Directive entered into force in the EU.

It caps at 7% the contribution of ‘first generation’ biofuels to the mandatory target of the RED, which requires EU member-states to ensure that, by 2020, 10% of the energy used for transport originate from renewable sources. In addition, it envisages a framework to incentivise ‘second generation’ biofuels, including through the creation of national targets under the RED.

Specifically, member-states shall endeavour to achieve a target set (in principle) at 0.5% of the energy from renewable sources used in transport by 2020, to be fulfilled by ‘second generation’ biofuels only.

The FQD provides that member-states must reduce by 6% the GHG intensity of transport fuels used by road vehicles and certain other non-road machinery by 2020. The ILUC Directive foresees that they have the possibility to set a 7% cap to the contribution of ‘first generation’ biofuels to the attainment of this target.

From the beginning, the attribution of ILUC factors to ‘first generation’ biofuels has been one of the most controversial elements of this policy. It foresees that ILUC factors be relevant only for monitoring and reporting purposes under the RED and the FQD. However, the possibility is left open for the EC to propose, by 2017, that ILUC factors be factored into the ‘sustainability criteria’ under the RED.

Currently, one way for companies to demonstrate that their biofuels comply with the sustainability criteria is to participate in voluntary schemes recognised by the EC. These include the Roundtable on Sustainable Palm Oil’s RED (RSPO RED) scheme. In August 2014, the RSPO announced that its first shipment of RSPO RED certified sustainable palm-based biofuel had entered the EU.

In both the US and the EU, there is no scientific consensus as to the appropriate approach to determining the sustainability or renewability of biofuels, evidenced in part by the different approaches found in the respective frameworks.

There appears to be a strong case to argue that the differential treatment accorded to ‘like’ biofuels is in contradiction with the WTO mandate of non-discrimination.


European Lawyers

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