Opportunities and Challenges in Production of Sustainable Palm Oil: The Malaysian Experiences. Dr. Kalyana Sundram & Tan Sri Datuk Dr.

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Opportunities and Challenges in Production of Sustainable Palm Oil: The Malaysian Experiences Dr. Kalyana Sundram & Tan Sri Datuk Dr. Yusof Basiron

2.1 World Palm Oil Production (2010) 46 mil. tonnes (31%) Palm Oil 101 mil. tonnes (69%) Other Vegetable Oils Other Oils and Fats 126 mil. tonnes (73%) Palm Oil 46 mil. tonnes (27%)

Ever Growing World Population Results in More Mouths to Feed Future of palm oil is driven by growth in demand for food, oleochemicals and bio fuel due to population and economic growth The world population is projected to grow from 6 billion in 1999 to 9 billion by 2043, an increase of 50 percent. Food production must meet this rate of increase.

Global Demand and Supply of Oils & Fats A 20 Years Outlook (Supply gap emerged in 2010, will become more prominent by 2014 indicating long term shortages) 240,000 220,000 200,000 ('000 MT) 180,000 160,000 140,000 Production Consumption 120,000 100,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Source: Oil World and MPOC

Palm oil is readily available in large quantities (only small portion to be used as biofuel ) Malaysia, Indonesia & Argentina are major net exporters of oils and fats. China PR EU-27 India North Africa Pakistan Iran Bangladesh Mexico Japan Turkey South Africa South Korea Saudi Russia Arabia Nigeria Taiwan Others Argentina Brazil Ukraine Canada Philippines Russia Thailand Net Importers Net Exporters Indonesia Malaysia 15,000 10,000 5,000 0 (x 1000 5,000 10,000 15,000 20,000 25,000 30,000 tonnes) Source: Oil World

4th largest contributor to Malaysia s economy, accounting for Euros 20 billion in Gross National Income (GNI). one of the 12 National Key Economic Areas (NKEAs) that would spearhead our country s transformation into a high income nation by 2020. Malaysian oil palm is sustainably produced while adhering to the 3P: People, Planet, Profit

The Tree of Life: Oil Palm!

MALAYSIAN PALM OIL AREA ( 000 Hectares) 2010 2011 Mature Immature Total Mature Immature Total Peninsula Malaysia 2.224 0.300 2.525 2.200 0.345 2.545 Sabah 1.261 0.149 1.410 1.272 0.152 1.423 Sarawak 0.717 0.203 0.919 0.792 0.215 1.007 Total 4.202 0.652 4.854 4.264 0.711 4.978 Source : MPOB Data

High land productivity is key to sustainable production t/ha 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Soyabean Sunflower Rapeseed Palm Oil Crop Oil Palm produces 11 x more than Soyabean, 10x Sunflower & 7x Rapeseed Note: with next generation higher yielding palm varieties, productivity per ha of palm is projected to triple whereas other oil bearing crops cannot match this potential

Malaysian oil palm industry is land conservation friendly Parameter Area or % Malaysian palm oil area Malaysian agricultural land area Total world land area for vegetable oils Total world agricultural land area Malaysian palm oil as % of total Malaysian agricultural land area Malaysian palm oil as % of total world land area for oil bearing crops Malaysian palm oil as % of total world agricultural land area Malaysian palm oil s contribution to global oils & fats supply 4.98 million ha 6.89 million ha 244 million ha 5,660 million ha 70% 2.0 % 0.09% ( of 5,660 million ha) 11.4%

Harvested area of oil crops in world (million ha) 120 100 80 60 40 20 0 oil palm soyabean rapeseed sunflower Oil palm occupies less than 5% of oil crops area and less than 1% of agricultural land area in world. Avoided deforestation

Year Malaysian palm oil dedicated primarily for food supply while biofuel use is minimal CPO production (t) Biodiesel production (t) Biodiesel production as % of total CPO production 2007 15,823,745 128,236 0.81% 2008 17,734,441 197,610 1.11% 2009 17,564,937 238,469 1.36% 2010 16,993,000 190,374 1.13% Malaysian PO industry generates nearly 42 million MT of various palm biomass. Potential for use as second generation renewable energy source is an important driver and opportunity towards reduced use of polluting fossil fuels.

Malaysia s deforestation rate is lowest Forest area & deforestation rate in selected countries (1990-2010) Country Forest area (Million ha) Deforestation ( Million ha) Year 2000 2005 2010 2000-2005 2005-2010 Australia 154.92 153.92 149.30 1.0 4.62 Indonesia 99.41 97.86 94.43 1.55 3.43 Argentina 31.86 30.60 29.40 1.26 1.20 Malaysia 21.59 20.89 20.46 0.70 0.43 Source: FAO Global Forest Resources Assessment (2010) Malaysia would not deforest unnecessarily and will continue to use land judiciously Committed to Rio Summit pledge to maintain at least 50% of total land area under forest

Distribution of forest in Malaysia versus other countries % 70 60 50 40 30 20 10 0 Average 23% Average 51%

Poor uptake of Certified Sustainable Pam Oil CSPO production in 2011 was 5.6 million tonnes Malaysian plantations contribute 49% of RSPO production, Indonesia (48%) & South America (3%) Poor uptake of CSPO by MNCs e.g. Nestle, Unilever; implementation date pushed back by MNCs Malaysia will continue to get more production units certified and compliant with an ever increasing stringent set of standards mandated by Malaysia s own legislations

CSPO Palm Fat: Possibly The only Certified SUSTAINABLE INGREDIENT IN A CHOCLATE Bar Cocoa Powder Palm Fat (CSPO) Sugar Permitted Food Additives and Colorants Milk Solids

Oil Palm A Major Factor in Malaysia s National Key Economic Area (NKEA) Palm Oil to raise Gross National Income by RM 125 billion To reach RM 178 billion by 2020 Additional 41,000 jobs (40% of which are high skilled jobs earning RM 6,000 /month) 8 EPPs for palm oil industry address productivity, sustainability & value addition

STATUS EPP1 & EPP2 Key Actions 400,000 ha with trees > 25 years drag down national average yield ACTIONS Replant if > 25 years & productivity <14 t/ha/yr Increase national area under replanted oil palm >1 million ha to be replanted by 2020 Improving Fresh Fruit Bunch Yields National FFB yield stagnated at 20MT /ha & independent smallholders lower at 17 MT/ha ACTIONS Increase National FFB yield to 26.2MT/ha in the short term Increase oil yields progressively to 6.0 MT per hectare

EPP5 Develop biogas facilities STATUS Opportunity loss from unutilized methane gas released during milling ACTIONS Build biogas facilities for all mills by 2020 200 mills to supply electricity to national grid by 2020 Get increase in electricity tariff from 21 sen to 35 sen per kilowatt hour EFFECTS Increase GNI by RM 2.9bil RM 2.8 bil of private investment Create 2,000 jobs ACHIEVEMENTS IN 2011 48 mills built with biogas facility compared to 36 mills target (133%)

Currently nearly 80% of Clean Development Mechanism (CDM) projects in Malaysia are from the palm oil industry, There are now 423 palm oil mills in the country as of May 2011. Out of this figure 38 mills (9%) have completed their biogas facility A further 34 are under construction while another 47 more facilities are planned By 2012, 28% of the mills will be equipped with methane capture facilities. Therefore, the Malaysian palm oil industry has a tremendous opportunity to improve its environmental performances for better market acceptance.

EPP7 Commercialising 2 nd Generation Biofuels STATUS EFB fibre & shell accounts for 74% of biomass Biogas to gas technology available but more expensive that fossil fuel gasification ACTIONS Fast track commercialization of 2 nd generation biofuels As technology becomes available next few years, bio oil to be converted into transportation fuels e.g. diesel

Oil palm biomass and POME potential based on 2010 statistics

Potential biofuel from palm oil biomass Use biomass to produce biofuel so that palm oil continued to be used for food

Oil palm is most efficient biofuel source producer Mileage per hectare per year Soy Biodiesel Rapeseed Biodiesel 8,000 km 23,660 km 440 litre 1,300 litre Bioethanol 33,000 km 2,500 litre Jatropha Biodiesel 45,500 km 2,500 litre Yield per hectare Sundiesel (BtL) 75,330 km 4,050 litre Biomethane Palm Biodiesel 99,600 km 109,000 km 4,980 litre 6,000 litre Source: Biofuels, Fachagentur Nachwachsende Rohstoffe e.v. (FNR), 2006 and own data

Proper Life Cycle Analysis (LCA) studies in US and Europe show palm biodiesel GHG reduction exceeds stipulated threshold values Threshold value for EPA (US):50% Eud: EU Directive EU: van Zutphen s study US1: GREET Model using allocation method US2: GREET Model using displacement method

EU Directive GHG emission reduction for palm oil biodiesel

Directive Discriminating Against Palm Oil Vague and distortive formulations and values regarding the classification of sustainable, with significant variations in calculations that undermine the credibility of the values contained in the Directive. A study by Friedrich Schiller University, Germany shows that a more realistic overall default value for palm oil diesel was derived resulting in GHG savings potentials of palm based biodiesel beyond the 35% threshold value required and not 19% default value as published in the Directive. This shows the unreliability of the Directive to support the EU s low carbon ambitions, thus exposing the EU and its commission to unfair practice and trade discrimination.

Palm Oil Recovered From Process Waste Streams Several waste streams within the current palm oil process operations could yield valuable outputs: eg. Oil extracted from spent bleaching earth Current production capacity is nearly 60,000 MT per annum Classified as a waste product and hence qualifies for a significantly lower GHG emission value compared to CPO Readily lend itself for aviataion biofuel after cracking

Palm oil biofuel cannot qualify as RE based on EPA s NODA Notice of Data Availability concerning renewable fuels produced from palm oil under RFS Scheme EPA s analysis shows Palm oil biodiesel has GHG emission reduction of 17% Palm oil renewable diesel has GHG emission reduction of 11% Both palm oil based biofuels fail to qualify minimum 20% threshold value Cannot qualify as renewable fuel under RFS program MPOC and MPOB are mounting technically sound responses to challenge the EPA s NODA results

EPA RFS2 NODA GHG emission reduction for palm oil biodiesel Is ILUC An Exact Science that it could now be used in Policy / Rule Making??

EPA s LCA GHG emissions for palm oil biodiesel (kg CO2/mmBtu) Fuel Type Palm oil biodiesel 2005 Diesel base Net agriculture (w/o land use change) 5 Land use change, Mean 46 Fuel production 25 18 Fuel & feedstock transport 4 * Tailpipe emissions 1 79 Total emissions 80 97 LCA GHG% reduction compared to petroleum baseline 17%

MALAYSIAN GREENHOUSE GAS EMISSION AND REMOVAL CO 2 MT 350 300 Total Co 2 Removal by LULUCF 249.8 Removal Co 2 Emission 223.1 Removal Co 2 Emission 292.9 Total Co 2 Removal by LULUCF 247 250 200 150 167 Forest 147 Emission by Energy 217 147* Forest 100 50 0 82 Palm Plantation Emission by Others 40.5 49 Emission by LULUCF + 35.6 Agriculture (Rice) Sectors 26.9 100* Palm Plantation Land Use, Land Use Change and Forestry (LULUCF) is made up of Forestry and (Oil Palm) Plantation Sector * Trend Estimate Year :2000 Year:2007

Conservation of biodiversity in Protected RainForests (PRFs) Tropical rainforests of Malaysia are very complex ecosystems Malaysia is committed to protect its PRFs and biodiversity Pledge made at Earth Summit in Rio (1992) This commitment manifested since 7 th Malaysia Plan (1996 2000) until now Malaysia is also a signatory to Convention on Biological Diversity Importance of Biological Diversity conservation accorded high priority National Policy on Biological Diversity adopted in April 1998

Conservational efforts of Malaysian Palm Oil Industry Malaysian Palm Oil Wildlife Conservation Fund (MPOWCF) Launched in 2006 RM 20,000,000: RM 10m from Malaysian palm oil industry RM 10m as grant from Malaysian government MPOWCF welcomes donations & grants Matches third party funding on a 1:1 basis

MPOC/SABAH WILDLIFE DEPT. COLLABORATION Instrumental in setting up the region s first WILDLIFE RESCUE Unit (WRU)

MPOC Serves Multiple Stakeholders within the industry FELDA Govt Schemes Small - holders Refiners Palm kernel crushers Oleochem producers Plantation companie s Upstream Producers Downstream Producers Palm-based products manufacturers Institution al Investors Customers Retail Specialty fats producers Exporters/ Importers ISP MOMG EMPA MPOA Industry Organisations POMA MPOC Ministry of Agriculture Government Ministries & Agencies DOE MOSTE MEOMA PORAM NGOs Other Players NASH MPOB Ministry of Plantation Industries & Commodities Source: MPOA, Unions MAPA