Wednesday, May 16, 2007

Malaysia: Doubts over Biofuel


Stories by TAN CHENG LI

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.

Bigger harvests: Demand for palm biodiesel has led to the expansion of
oil palm plantations.
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.

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

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

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.


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