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“DEFORESTATION FREE” POLICY FOR PALM OIL CAUSE WIDER GLOBAL DEFORESTATION 2023

  • First Published : November 14, 2022 7:07 am
  • Last Update : Maret 14, 2023 4:14 pm
Dr. Ir. Tungkot Sipayung
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Dr. ir. tungkot sipayung

Executive Director at PASPI

Dr. Ir. Tungkot Sipayung is a seasoned professional in the palm oil industry with over 23 years of experience. Currently serving as Executive Director of PASPI, he is a recognized leader and expert in the development of agribusiness strategies. Under his leadership, PASPI continues to drive growth, innovation, and sustainability in the industry.

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Abstract

The European Union (EU), the United States (USA), and the United Kingdom (UK) have formulated a “deforestation-free” policy as part of a trade policy for products and commodities related to deforestation. The ban on palm oil consumption as a result of these policies has led to consumption shifting to other vegetable oils, such as rapeseed oil. The increase in consumption of rapeseed oil leads to greater land expansion, considering that the productivity of the oil is lower than palm oil. This shows that these policies expands global deforestation.

Key Takeaways

  1. To reducing or stopping global deforestation, three countries (the EU, UK, and USA) have implemented “deforestation-free” policy on various commodities, including palm oil. In the last five years, the average consumption of palm oil in the EU, USA, and UK was 7.2 million tons per year, 1.9 million tons per year, and 0.4 million tons per year, respectively.
  2. If these countries enact “deforestation-free” policy for palm oil will increase global deforestation by 13.7 million hectares due to the expansion of rapeseed vegetable oil as a substitute for palm oil. This means the world has lost 13.7 million hectares of forest. Given that palm oil productivity is much higher than other vegetable oil, all policies or campaigns aimed at reducing or prohibiting global consumption of palm oil will be paid for by an increase in global deforestation or loss of global fo

Introduction

The European Union (EU) has issued and implemented a new trade policy, namely deforestation-free for some commodities, including palm oil (PASPI Monitor, 2022a,b,c). This policy is contained in the Regulation on Deforestation-Free Commodities and Products, which was issued in September 2022 and will be implemented in 2023.

The United States (USA) had previously implemented a similar policy, namely the Fostering Overseas Rule of Law and Environmentally Sound Trade Act (FOREST Act 2021). In addition, the UK has also implemented “deforestation-free” policies through the UK Environment Act 2021, which has been in effect since 2021.

These policies have the same principle, namely “deforestation-free”, which means stopping or eliminating trade in commodities or products whose production processes are related to deforestation, both from within the country and from abroad (imported). The aim of implementing these policies is to suppress or even stop global deforestation.

Some differences between the anti-deforestation policies of the EU, UK, and USA (UK Parliament, 2021; Weiss & Shin, 2021; Monard & Manistis, 2021; McCarty, 2022; Weiss et al., 2022; Chain Reaction Research, 2022). First, “deforestation-free” only applies to illegal deforestation (USA, UK), while policies implemented in the EU include legal, illegal, and forest degradation. Second, the commodities and products targeted by the policy are “forest risk commodities”, both domestic and imported (for the EU and UK), while in the USA it only applies to imported commodities and products. Third, exporting countries of forest risk commodities are categorized into three groups based on the “deforestation-free” principle are low-risk, standard-risk, and high-risk with mandatory due diligence.

Although several commodities that are the target of the “deforestation-free” policies, it seems that palm oil has become the main target of the policies. This can be traced to the policy’s background. For example, in the USA, it is reflected in the statement of Senator Schatz (one of the proponents of the policy) that “… half of the products in American grocery stores contain palm oil and most of that comes from illegally deforested land around the world…”.

Likewise, since the beginning of the policy design in the EU, they have placed palm oil as the main driver of deforestation (embodied deforestation) (European Commission, 2013). So, it is not an exaggeration if there is a view that the policy is actually designed to suppress the development of the global palm oil industry.

These policies then raise critical questions. Can implementing the “deforestation-free” policy in palm oil reduce global deforestation in global vegetable oil production? This article will discuss the answers to these questions. In addition, it also discussed the relevance of the policy to its objectives, whether these policies aimed to reduce deforestation or vice versa, these policies cause wider global deforestation in the supply of global vegetable oil.

PALM OIL CONSUMPTION

The EU, the UK, and the USA are three of the main export destinations for global palm oil. In the consumption of vegetable oil in the EU (including the UK), palm oil occupies the second largest share, after rapeseed oil. Meanwhile, the structure of vegetable oil consumption in the USA shows that palm oil ranks third, after soybean oil and rapeseed oil. In 2016–2021 (Figure 1), the volume of EU palm oil importaveraged around 7.2 million tons per year. The volume of palm oil imports in 2016 was still approximately 7.6 million tons and increased to 7.9 million tons in 2019, but it continued to decline to 6.4 million tons in 2021.

Figure 1. The Palm Oil Import Volume of EU 27 United States US and United Kingdom UK 2016 2021 Period
Figure 1. The Palm Oil Import Volume of EU-27, United States (US) and United Kingdom (UK) 2016-2021 Period (Source: USDA)

The use of palm oil in the EU has changed. By 2008, almost 80 percent of the palm oil imported by the EU was used for the food, feed, and toiletries industries. Meanwhile, the use of palm oil for energy is only about 20 percent. Ten years later, the use of palm oil in the EU changed drastically. In 2018, around 65 percent was used for energy, both biodiesel and power generation. Meanwhile, the rest of the share’s palm oil import (35 percent) is used for food, feed, and toiletries (Transport and Environment, 2019).

The decline in EU import volumes since 2020 is related to the RED II policy, which gradually phase-outs palm oil for EU biofuels from 2020 to 2030. It is estimated that with RED II in 2030, EU palm oil import volumes will decrease to around 4 million tons (Fern, 2022; Chain Reaction Research, 2022).

In contrast to the EU, the average volume of USA palm oil imports is still around 1.9 million tons per year. The import volume increased from 1.7 million tons in 2016 to 2.1 million tons in 2021. Likewise, UK palm oil imports still tends to increase, from around 449 thousand tons to 490 thousand tons in the same period, or an average of about 452 thousand tons per year.

If we compare the total volume of world palm oil imports, the share of the countries/regions implementing a “deforestation-free” policy is relatively small. The total volume of world palm oil imports is around 46.8 million tons to 53.6 million tons, or an average of 52.8 million tons per year. The share volume of palm oil imports for three countries/regions is only about 17.6 percent.

Thus, if the “deforestation-free” policy is enacted, so that palm oil is not allowed to enter market of these countries, the impact on the global palm oil market will not be too significant. In addition to palm oil-producing countries can export to other countries, they (such as Indonesia) can also increase the domestic use for biodiesel and biofuel. This show that if the “deforestation-free” policy imposed by the EU, USA, and UK is to stop deforestation addressed to palm oil, it will not be able to stop or reduce global deforestation (Chain Reaction Research, 2022).

DEFORESTATION IS GETTING WIDER

Suppose we trace the history of global deforestation (PASPI Monitor, 2021a,b), it’s revealed that historically all land in the world has been associated with global deforestation since the beginning of civilization until today. The only difference is the time of deforestation. Sub-tropical regions such as the European Union and North America deforested first, while the tropics are deforested later. Therefore, all commodities or products produced on deforested land are related to deforestation. So that no commodity or product is produced from the earth unrelated to deforestation. It is unfair to accuse only eight commodities (including palm oil) of deforestation-risk commodities.

Suppose it is true that palm oil is linked to global deforestation and the results of the due diligence of deforestation carried out by the three countries decide that palm oil does not pass the deforestation-free test. In that case, palm oil should not enter the three countries. Will it then reduce global deforestation? To answer this, let us look at the scenarios presented in Table 1.

In the last five years, the palm consumption of EU, USA, and UK palm oil was 7.2 million tons per year, 1.9 million tons per year, and 0.4 million tons per year, respectively, so the total consumption of palm oil is around 9.6 million tons per year.

Suppose the EU enacted “deforestation-free” policy and refuses to consume palm oil. In that case, EU must shift its consumption of palm oil to rapeseed oil (the main vegetable oil in the EU). The additional rapeseed oil required by them is 7.2 million tons per year. To obtain an additional 7.2 million tons of rapeseed oil for the EU, an expansion of the global rapeseed plantations area of 10.3 million hectares is required (assuming the oil productivity of rapeseed is 0.7 tons of oil per hectare).

Table 1. Scenario of Additional Global Deforestation Areas If the EU USA and UK Replace Palm Oil Consumption with Rapeseed Oil
Table 1. Scenario of Additional Global Deforestation Areas If the EU, USA, and UK Replace Palm Oil Consumption with Rapeseed Oil

Likewise, suppose the UK decides not to consume palm oil because of “deforestation-free”, UK will need an additional 0.4 million tons of rapeseed oil (also the UK’s main vegetable oil). To provide additional rapeseed oil for its consumption, the expansion of global rapeseed plantations is carried out in an area of 645 thousand hectares.

What about the USA? The second-largest consumption of vegetable oil in the USA is also rapeseed oil. If the USA, with its deforestation-free policy, prohibits the consumption of palm oil, then the USA requires an additional 1.9 million tons of rapeseed oil per year. To provide an additional 1.9 million tons of rapeseed oil for the USA, an additional expansion of global rapeseed plantations with an area of about 2.7 million hectares is needed.

In the “deforestation-free” policy, soybean oil is one of the products targeted by the policy. But many observers doubt it because the USA is one of the world’s largest producers and consumers of soybeans. If soybean oil is also included in the list commodities in “deforestation-free” policy, then the consequences are broader and more complex. Additional global deforestation will increase to replace soybean oil.

With this scenario, if the three countries (EU, UK, and USA) are implementing the “deforestation-free” policy for palm oil, then the additional global deforestation is 13.7 million hectares for the expansion of rapeseed oil plantations. Does not these policies increase global deforestation?

Conclusion

To reducing or stopping global deforestation, three countries (the EU, UK, and USA) have implemented “deforestation-free” policy on various commodities, including palm oil. In the last five years, the average consumption of palm oil in the EU, USA, and UK was 7.2 million tons per year, 1.9 million tons per year, and 0.4 million tons per year, respectively.

If these countries enact “deforestation-free” policy for palm oil will increase global deforestation by 13.7 million hectares due to the expansion of rapeseed vegetable oil as a substitute for palm oil. This means the world has lost 13.7 million hectares of forest. Given that palm oil productivity is much higher than other vegetable oil, all policies or campaigns aimed at reducing or prohibiting global consumption of palm oil will be paid for by an increase in global deforestation or loss of global forests.

References

FAQ (Frequently Asked Question)

What is the EU’s new trade policy on deforestation-free commodities and products?

The EU has issued and implemented a new trade policy called the Regulation on Deforestation-Free Commodities and Products, which aims to stop or eliminate trade in commodities or products whose production processes are related to deforestation, both from within the EU and from abroad (imported). This policy will be implemented in 2023. Learn More

How do the EU’s, UK’s, and USA’s policies on deforestation compare?

What is the main commodity targeted by the EU’s “deforestation-free” policy?

What is the impact of the “deforestation-free” policy on global vegetable oil production?

What is the consumption of palm oil in the EU and USA?

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