Dr Yusof Basiron, CEO, Malaysian Palm Oil Council (MPOC) International Conference on Biofuels, Brussels, Belgium 5 th and 6 th July, 2007

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1 Dr Yusof Basiron, CEO, International Conference on Biofuels, Brussels, Belgium 5 th and 6 th July, 2007 Session 3: Environment and Biofuels: Risks and Benefits of Production and Use Mr. Chairman, distinguished guests, fellow speakers, ladies & gentlemen, on behalf of Hon Peter Chin, Minister of Plantation Industries and Commodities, Malaysia, I must say it is indeed a great pleasure and honour to be here in Brussels once again to speak on a subject that is so widely discussed Biofuels.The Hon Minister extends his apologies as he is unable to be present here today but sends his warmest regards to all and thanks the organizers for the invitation to speak at this conference. Never a day goes by when you do not hear of a seminar or conference related to this subject, more so during this high commodity price period. High energy prices coupled with government incentives and environmental concerns mainly to reduce greenhouse gas emission (GHG) have propelled the fast expansion of the industry and demand for biofuels. This expansion has certainly created a huge demand in the oils and fats sector which has provided an avenue to countries like Malaysia to capitalize its vast production of agricultural products and by-products to be used as feedstock for the betterment of the environment. As a signatory of the UN Framework Convention on Climate Change (UNFCCC), Malaysia aims to lead the way in the production and use of biofuel to enhance the quality of the environment. We believe that biofuels, particularly palm oil, have the potential to make a real contribution to the fight against climate change. Clearly, biofuels are not the sole answer to such a complex challenge. But besides promoting energy efficiency and other forms of renewable energy, the use of biofuels can play an important part. 1

2 I would like to take this opportunity to highlight why among biofuels palm oil in particular offers promising perspectives for reducing CO2 emissions. But I would then also like to address some of the concerns raised at various occasions about the sustainability of palm oil production in Malaysia in the light of growing demand for biofuels and what it means for land-use and biodiversity in our country. When we speak about biofuels and the environment all of these issues must be looked at. That is why the Malaysian government and palm oil industry welcome Europe s comprehensive efforts to assess and take into account - in full - the environmental impact of biofuels. We share this objective for the simple reason that it is in the interest of Malaysia s economy, our environment and our communities to make sure palm oil production is and remains sustainable. Let me first turn to the question of CO2 savings. Although vegetable oils can only contribute in a minor way to prevent petroleum prices from escalating as their supply potential compared to that of petroleum, is only less than 5%, being carbon neutral, they can significantly reduce carbon emission in replacing fossil fuels. Oilseed plants, especially oil palm, help in carbon sequestration as it absorbs carbon dioxide This is attributed to its environment friendly nature as the palm tree absorbs a lot more carbon dioxide (CO2) and releases oxygen during photosynthesis. The tree continues to absorb CO2 throughout its life span of years which in turn lowers greenhouse gas emissions and provide a more cleaner and greener future. Biofuels are primarily intended to reduce global CO 2 emissions. When using biomass as a fuel, the net CO 2 reduction is usually defined as the percentage of fossil fuel emissions which are avoided (by replacing them with biofuels), minus all the CO 2 emissions incurred in the supply chain of the biofuel. Studies show that using palm oil for biofuel applications renders an average net CO2 reduction of approximately 0%. In other words, the CO2 emissions incurred in the palm oil supply chain are roughly 40% if the same unit of fossil fuels is used. Similarly, the energy balance of 2

3 the use of palm oil as a biofuel shows a net energy reduction of approximately 80%. This means that of the primary energy savings from using palm oil as a biofuel, 80% remains after taking into account all energy requirements to produce and deliver the palm oil to its final destination (1). Biodiesel a clean burning fuel with a key advantage in reducing CO2 emissions and government spending or subsidies on oil and its dependency on fossil fuels has made it one of the most promising alternative fuels in the market. Although the profitability of the sector hinges on the cost and availability of feedstock, government policies and incentives and its carbon efficiency, it is the former that is very much driving the development of industry. The availability of feedstock is critical in the development of the biodiesel sector as this very much affects the production cost and profit margin of suppliers. Hence, the price of the available feedstock is important. Biodiesel is viable to produce if the price differential between petroleum and vegetable oils provides a sustainable profit margin for the producers. However, the price differential is indeed volatile, and will diminish if more vegetable oils are used for the production of biodiesel, as competing demand from the food and oleochemical industries will increase vegetable oils prices. Feedstock account for 80% of production cost of biodiesel Palm oil has a competitive advantage as it is by far the most economical feedstock for biodiesel production. According to Rabobank estimates, the price of palm bio-diesel in the EU if produced in Malaysia will be about US$ tonne. The estimated production cost for rapeseed biodiesel is US$1,035 per tonne and US$840 for soybean biodiesel. These figures are based on the average prices of each vegetable oil, including approximately 20% cost of production, international freight and domestic distribution charges (2). Demand for oil crops is expected to grow in future arising also from the demand of the European Biofuels Directive where 5.75% of all energy used in transportation by 2010 should come from biofuels. 3

4 The availability of biodiesel to supply shortages in the EU and other potential importing countries offers mutual benefits. The EU has set a target of 5.75% biodiesel by 2010 in its fuel mix to reduce over-dependence on fossil fuels and 20% by Meeting the 20% target with rapeseed would require over 60% of Europe s arable land area. While this may be impractical, the demand can be realistically met with palm oil. Ideal or waste land available for development could be used in a sustainable manner to meet Europe s 20% target, roughly equivalent to a further 12 million ha of plantations. Palm oil, a high yielding crop offers the most efficient yield in the production of biodiesel. It can produce about 4,500 liters of diesel per hectare compared to 500 liters per hectare for soybean oil. This is where palm oil is expected to play a significant role due to the ability of this high yielding crop to capture sunlight and convert carbon dioxide and water into a vegetable oil. It is the highest yielding vegetable crop with a potential of achieving up to 10 tonnes per hectare per year. A single hectare of oil palm produces up to 10 times more oil than other oilseeds. Oil palm yields an average of 3.74 tonnes of oil per ha/year, compared to soybean 0.38 tonnes/ha/year; sunflower seed 0.48 tonnes/ha/year and rapeseed 0.67 tonnes/ha/year (3). This has today put it on the center stage of the oils and fats industry. Most importantly, this is done without any subsidies unlike those in Europe and America, instead it is one of the most highly regulated industries in the world. For a country like Malaysia, the oil palm industry has become an important component of the national economy. It provides direct employment to at least 800,000 people and has emerged as a significant foreign exchange earner with an average of RM30 billion ( Euro 6.5billion ) for the past 3 years. Palm oil has played a positive role in the world supply and demand equation. In terms of productivity and sustainability, oil palm needs a smaller area to produce a target quantity of oil. It occupies only 9.2 million hectares of agricultural land to 4

5 produce 31.8% of the global oils and fats output. For a similar output, soybean cultivation would require 92.5 million hectares while rapeseed would require 27.3 million hectares. In 2006, Malaysia produced 11% of the global vegetable oil output and accounted for 26% of the export trade in oils and fats. All these came from a mere 1.84% of the total 231 million hectares under global oilseeds cultivated areas. One must realize that to produce the present production of vegetable oils by any other oilseed crop would require the clearing of much of Malaysia s jungle reserves. Economically, there is no better alternative than growing oil palm which ultimately uses less land to produce more oil. The greatest sustainability challenge for the palm oil sector lies in finding ways to meet the increased demand for palm oil without opening new land. Increasing the yield has the potential to meet this challenge. For e.g. a small increase in average yields of 0.5 tonnes of palm oil per hectare per year could result in an additional output of 1.9 million tonnes of palm oil through cultivation on existing land area in Malaysia. Its effect therefore, goes much further than improving the carbon and energy balance alone and is an important sustainability measure. The oil palm a pillar of Malaysia s economy, continues to uplift the quality of life of people, which is a key plank of the sustainability platform. Growing oil palm has helped alleviate poverty among the landless farmers in Malaysia who have been given a new and better life through government schemes. These successful schemes have garnered praise from World Bank as it has helped settlers and provided their children a brighter future Indeed, if not for oil palm agriculture with its intrinsic high productivity, much more land formerly gazetted under forest would have been lost as the rural population aspires for better standards of living through agriculture who in some states in the country earn less than USD$3.00 per day. This is where oil palm offers a permanent and well paid employment thus relieving some of the pressure that may occur on primary forest due to shifting agriculture which is common in many rural areas as a way to earn an income to feed families. 5

6 Although Malaysia has 64% of its land area under forest (4), and a mere 20% for agriculture and oil palm, this policy underscores the acceptance of the need for sustainability. If oil palm occupying 2/3 of the agriculture land is not desired, farmers would have to plant rubber, cocoa or coconut or any other profitable crops to survive. Every nation has a right to use its land for agriculture to provide food and earn an income. For developing countries like Malaysia, agriculture performs an important function in meeting the basic needs of development in order to address poverty and food security problems, which are national priorities. In many cases, the development of natural resources is the only means and comparative advantage the developing countries have in securing the necessary foreign exchange to satisfy their basic needs. For Malaysia, conservation and agriculture development are two complementary objectives that the Government has and continues to delicately balance through the implementation of policies that ensure sustainable management of its natural resources. For e.g. Malaysia is committed to the implementation of Sustainable Forest Management (SFM) as enshrined in the resolution of the United Nations Conference on Environment and Development (UNCED). While focusing on economic growth and development, Malaysia continues to give equal emphasis to promote conservation of its natural resources and to give adequate attention to social aspects as well. Currently, Malaysia has established 2.15 million hectares of conservation areas, such as national parks, wildlife reserves, nature parks, bird sanctuaries and marine parks which are totally protected by legislation. In addition, since the 1950s Malaysia has also established a network of 139 Virgin Jungle Reserves covering 114,237 hectares to serve as permanent nature reserves and natural arboreta, as controls for comparing harvested and silviculturally treated forests and as undisturbed natural forests for general ecological and botanical studies. Hence, with the protection forests of the permanent forest reserves (PRFs), the totally protected areas designated for the conservation of biological diversity in Malaysia are now estimated to be 5.04 million hectares. Under the Ninth Malaysia Plan ( ), appropriate actions have been 6

7 included for the conservation of biological diversity through rigorous in situ and exsitu conservation programmes. The challenge of maintaining the natural forest with high conservation value has remained a major objective of the government. With a growing population and a need to open land for agriculture, only logged over land zoned for agriculture development is planted with oil palm or other crops. Nevertheless, due to profitability of the oil palm, many other crops lands have been converted to cultivate oil palms. These lands were formerly planted with rubber, cocoa, and coconut. Thus, the expansion of oil palm areas has been at the expanse of these crops. Oil palm cultivation in Malaysia began in 1917, but growth was initially very slow. It was only during the last 50 years that the plantation development accelerated through investments in the cultivation of the crop as one of the approved crops for diversifying the country s agricultural development. Today, the Malaysian oil palm area stands at 4.17 mil hectares. After over 100 years of plantation development activities in Malaysia, the scarcity and expense of land mean that the current and future thrust of our agricultural programmes is to increase productivity and yield. Malaysia is aware of the need to strike a balance of the dynamic demands of the world in terms of food and nutrition, oleochemical and biofuel; and between development, biodiversity and the environment. This has led the country to be the prime mover of the Roundtable for Sustainable Palm Oil (RSPO) which aims to promote the use and production of sustainable palm oil. In fact, palm oil was the first tropical plantation commodity to reinforce responsible plantation operations on an environmental, economic and social scale in addressing global concerns in particular CO 2 emission 7

8 and global warming. This has enabled industry players to join hands with other stakeholders to pursue certification of sustainably produced palm oil with full traceability capabilities. While Malaysian palm oil can and has been produced in a sustainable manner it should not be singled out as the only source that needs to be certified as sustainable, as this will hamper and distort trade. In moving forward to develop the biofuel industry sustainably and ensure sustainable supplies, equitable conditions must be applied to local and imported oils in line with WTO and other trade provisions. To contact the author to: yusof@mpoc.org.my End References: 1) Zutphen, J.M. & Wijbrans, R.A. The CO2 and energy balance of Malaysian palm oil : Current Status and Potential for Future Improvements, ) Tan, Cherie, Head Start Palm oil could become the top choice of bio-fuel producers, Global Oils Fats Business, Malaysian Palm Oil Council, Vol. 4 (2), 2007, pp

9 3) ) Singh, Gurmit, The Malaysian oil palm industry: progress towards environmentally sound and sustainable crop production. Industry and Environment Volume 22 No. 2/3, UNEP, Paris. pp ) FAO - Global Forest Resources Assessment