Bye Bye Palm Biodiesel?

A potential ban on palm oil in EU biodiesel would mean Indonesia and Malaysia need to find alternative crude palm oil export markets for up to 2.6m tonnes. If the EU really bans palm oil in Biodiesel, rapeseed oil and soybean oil will be the likely winners, triggering changes in trade flows and crushing volumes as the EU-28 will need those alternatives for biodiesel production. Ethanol in the EU-28 and some other alternative fuels in the EU-28 may also receive a boost.

Another challenge for CPO and EU biodiesel

On 17 January, the EU Parliament voted on a resolution which would ban the use of palm oil as feedstock in biodiesel from January 2021 onwards. This resolution it is not yet definitive. In the coming months, this measure will be the subject of trialogue negotiations between the Parliament, the EU Commission, and the EU Council. To become official law, e.g. at international level, the measure has to comply with WTO rules, which could forbid the ban of palm oil imports. Assuming that the final law will ban palm oil as feedstock, the impact will be quite significant because palm oil accounts for 3.5 million tonnes or around 27% of total EU-28 biodiesel feedstock (see Figure 1). This would also have a big impact on palm producers.

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Potential implications on Malaysia and Indonesia

Palm oil imports to the EU-28 countries have trended down in recent years as demand for palm oil stagnates. Demand for crude palm oil (CPO) as feedstock for biodiesel, specifically, has been flat since 2014 (see Figure 2).

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If the EU Parliament resolution becomes law, Indonesia and Malaysia will be heavily impacted because the EU-28 accounted for 2.6m tonnes or 29% of combined CPO exports from both countries in 2016 (see Figure 3). EU-28 countries sourced the remaining 0.9m tonnes from other countries in 2016.  It is therefore important for Indonesia and Malaysia to look for alternative CPO export markets. CPO exports accounted for 25% of total palm oil exports from both countries in 2016, while refined palm oil accounted for the remaining 75%.

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Alternatives to palm oil in EU biodiesel?

The 3.5 million tonne drop of CPO consumption for biodiesel would need to be compensated with alternative options and feedstocks. We are likely to see a combination of the following alternatives:

- If replaced only with rapeseed, an additional EU crushing of 8.2 million tonnes would be required. These will need to come from additional EU rapeseed acreage (although an almost 30% expansion of the EU rapeseed crop will not be possible) and significantly higher rapeseed imports (the EU already accounts for 4 million tonnes, or 25%, of the global rapeseed imports, but would need to reach a 75% market share).

- Rapeseed oil imports would have to increase, but would basically require almost all of the 4 million tonnes of global rapeseed oil trade to be shipped to the EU.

Additional imports of North American and South American soybean oil will probably affect sunflower oil imports due to the higher prices of sunflower oil.

- Biodiesel imports from Argentina seem a viable alternative. In 2010, the EU imported 1.2 million tonnes of biodiesel from Argentina. Last year, the EU Commission again lowered the anti-dumping duties for Argentine biodiesel. However, last month, another investigation was launched to assess unfair subsidies to Argentine biodiesel exporters. 

- Waste oil is already a key feedstock for biodiesel, but this is not an endless market and has already showed slowing growth in the most recent years.

- An increase of ethanol usage is also likely, as the EU-28 only has a biofuels target, which does not differentiate between biodiesel and ethanol. However, this will be limited due to the smaller volumes of gasoline in the EU market and the fact that individual EU countries still have obligations for fuels.

- Finally, other alternative fuels, such as electricity, can gain more traction.

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  • Vito Martielli

    Senior Analyst - Grains & Oilseeds
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  • Oscar Tjakra

    Senior Analyst - Asia
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