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2 Case Study: The Palm Oil Example Palm oil accounts for 33 percent of all of the world’s production of vegetable oils, with soybean oil—at 27 percent—its nearest competitor. One of its uses is as a raw material in the production of palm oil–based biodiesel fuel. In the workshop’s second session, Jamal Hisham Hashim, a research fellow at the United Nations University International Institute for Global Health and a professor of environmental health at the National University of Malaysia, described Malaysia’s efforts at using palm oil to produce biodiesel fuel. The example highlighted some of the major benefits and challenges of developing biofuels. THE MALAYSIAN PALM OIL INDUSTRY Malaysia is located in Southeast Asia and is split into two land areas; one is on a peninsula south of Thailand and the other is on the island of Borneo, which borders with Indonesia and Brunei. Malaysia and Indonesia together produce 85 percent of the world’s palm oil. The climate of these two countries is particularly well suited for the growing of palm oil, Hisham Hashim said. There have been attempts to grow palm oil in countries farther north, such as Cambodia, but it is possible only in the southern part of the country because it is too dry farther north. Although the palm oil is not native to Malaysia—it was brought over from Africa—it is now well established, and it serves as both a food crop and a cash crop. The Malaysian palm oil industry has been around for more than 100 years, and there are now 5 million hectares of palm oil plantations—almost 14 percent of the country’s total land area (May, 2012). Until recently, Malaysia was the world’s largest producer of palm oil. It is now second to Indonesia, which has much more area available to grow the palms. Because Indonesia consumes a portion of its palm oil 29

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30 THE NEXUS OF BIOFUELS, CLIMATE CHANGE, AND HUMAN HEALTH domestically, Malaysia remains the world’s largest exporter of palm oil and palm products. In 2011, it exported 24.3 million metric tons of the oil (Chin, 2011). The Malaysian government has identified the palm oil industry as 1 of the 12 national key economic areas to spearhead its economic transformation program, whose goal is to transform Malaysia into a developed nation by 2020. The growth strategy for the palm oil industry is not to increase the acreage being planted with palm oil, but rather to increase production to 6 metric tons per hectare per year. “It is already a very productive crop,” Hisham Hashim said, “but we intend to increase productivity further through genetic methods and so on.” Another focus is on value-added downstream activities, such as processed foods, oleo derivatives, phytonutrients, and palm biodiesel. Most of Malaysia’s palm oil–derived exports—almost 75 percent— are in the form of the crude palm oil itself, with products such as oleochemicals, palm kernel cake, palm kernel oil, and biodiesel making up far smaller percentages (May, 2012). The government would like to increase the amounts of these value-added products. “We are investing a lot in research and conservation to improve the products, especially the oleo chemicals and also the potential of turning it into biodiesel,” Hisham Hashim said. The palm oil industry is a valuable segment of Malaysia’s economy; accounting for 8 percent of the country’s gross national income per capita, and is the fourth-largest contributor to Malaysia’s economy (RSPO, 2011). World palm oil production more than tripled between 1995 and 2011, so the global demand the palm oil products is very strong. In 2011, heavy rainfall, which disrupted harvesting, combined with increasing demand, caused the price of crude palm oil to jump to US$1,065 per metric ton. The main importers of Malaysia’s palm oil are China, the European Union, India, Pakistan, and the United States. Malaysia’s major competitor for these imports is Indonesia. PALM OIL AS A BIOFUEL Palm oil has a variety of uses, Hisham Hashim said. Its traditional use has been as cooking oil, but it is now used as a food additive and an industrial lubricant as well as in the production of various cosmetic ingredients. “We have a very active palm oil research area in Malaysia that helped to generate these other important products,” he said. One

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CASE STUDY: THE PALM OIL EXAMPLE 31 particularly promising use is in the production of phytonutrients—plant- derived chemicals that are added to food which contribute to health. Recently, palm oil has been used as a feedstock in the production of biodiesel. The Malaysian government’s plan is to combine 5 percent palm biodiesel with 95 percent petroleum diesel, in a way similar to the addition of 10 percent ethanol into gasoline in the United States. In response to a question about why the percentage should be just 5 percent, Hisham Hashim explained that it is simply an economic issue. At present, the cost of palm oil is more than US$1,000 per metric ton, and any price over about US$600 per ton makes palm biodiesel noncompetitive in Malaysia when compared to petroleum-derived diesel. However, Hisham Hashim said, much of the situation is driven by the government’s subsidy framework. “Diesel is highly subsidized in Malaysia, and at the moment the government is not yet extending this subsidy to palm oil biodiesel. So, that makes it very uncompetitive with other uses of palm oil,” he said. Hence, it is better for palm oil producers to sell the product for uses other than biodiesel. Nonetheless, palm oil has several advantages as a potential biofuel source, Hisham Hashim said. It has a larger yield than any other source of vegetable oil, for example at 3.93 tonnes per hectare per year, it has nearly three times the yield of rapeseed, its closest competitor. “It is cheaper than any other vegetable oil used in biodiesel production,” he said. “And it is a perennial crop with a life-cycle of 25 years, so it can be very productive over a significant duration of time.” Indeed, one issue in Malaysia is that the overall yield per hectare is declining because so many of the palms are getting close to the end of their productive period and their yield is decreasing, but the plantation owners are putting off replanting because the cash flow is still substantial. When compared to petroleum-based diesel, biodiesel from palm oil has certain advantages in its physical and chemical characteristics, Hisham Hashim said. For example, its sulfur content is much lower; this is an advantage because the sulfur dioxide release from the use of petroleum-based diesel is a serious atmospheric pollutant which can lead to acid rain and is hazardous to human health. A recently developed variety of palm biodiesel has a very low pour point so that it pours more easily at cold temperatures, making it a possible product for use in colder climates. Palm biodiesel also has an advantage in its cetane number— which is analogous to the octane number for gasoline—when compared with petroleum-based diesel. It also produces far less carbon residues,

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32 THE NEXUS OF BIOFUELS, CLIMATE CHANGE, AND HUMAN HEALTH which means that it will leave less carbon build-up in a diesel engine than petroleum diesel. Palm biodiesel also has some physical and chemical disadvantages, such as a higher viscosity, a higher flashpoint, and a lower gross heat of combustion. But all in all, Hisham Hashim said, the potential is there for palm biodiesel to be a valuable and promising product. One of the most intriguing products is the low-pour-point palm biodiesel, which is not yet being made on a production scale, but is showing a lot of promise. To date, however, movement toward the production of palm oil biodiesel in Malaysia has been very slow. Fifty-six licenses for biodiesel plants were issued under the Malaysia Biofuel Industry Act of 2007 (Chin, 2011), but so far only 25 biodiesel plants have been built. The major reason for this, Hisham Hashim said, is that petroleum diesel is receiving a significant subsidy from the government, and palm biodiesel cannot compete. Furthermore, diesel vehicle use in Malaysia is very small, accounting for only 5 percent of the total number of private vehicles. The initial government plan for encouraging palm biodiesel was to require government diesel vehicles to use a fuel blend with 5 percent palm diesel, referred to as B5. However, the total amount of palm oil diesel used by government vehicles running on B5 in 2009 was only 40 tonnes per month—an amount far too small to make it profitable for petroleum companies to set up B5 blending facilities. Even a nationwide B5 mandate in Malaysia would translate into a biodiesel consumption of only 500,000 tonnes. “So the potential for local consumption of biodiesel is not significant,” Hisham Hashim said. “The only way that we can do this is if we can export biodiesel to other countries, such as the European Union.” ENVIRONMENTAL IMPACTS OF PALM OIL Hisham Hashim next discussed the environmental impacts of palm oil. Deforestation is a major issue because 15 percent of the country’s total land area has been transformed into palm oil plantations. That will not be as much a problem in the future, however, because the country now has strict regulations that require environment impact assessments to be carried out before opening more large tracts of land for palm oil plantations.

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CASE STUDY: THE PALM OIL EXAMPLE 33 Loss of tropical biodiversity is also an issue, he said, but Malaysia is now emphasizing sustainable palm oil production, with 48 percent of the Roundtable on Sustainable Palm Oil1–certified palm oil coming from Malaysia. The mass clearing of forest areas to create palm oil plantations has resulted in significant soil erosion, and palm oil mills have produced liquid effluents that end up in the water. In the past, Hisham Hashim said, the government would issue contravening licenses to palm oil mills even when they did not meet regulatory standards for liquid effluents, but that no longer happens. Palm oil mills also produce a certain amount of air pollution. Indeed, most of the air and water pollution due to palm oil now comes from the refining of the oil, although occasionally there was air pollution caused by the burning of trees in order to clear land for plantations, or the burning of old palm oil trees for replanting. One of the worst instances came in 1997, an El Niño year, when the fires used to clear land spread into the surrounding forest and caused extensive forest fires and a heavy load of air pollution. “Some of this is still happening,” Hisham Hashim said, “but the government is clamping down on the palm oil plantation owners.” OCCUPATIONAL HEALTH HAZARDS IN THE PALM OIL INDUSTRY One of the main occupational health hazards in the palm oil industry is the risk of back problems caused by the harvesting. “We’re manually harvesting the fruit,” Hisham Hashim explained, “so we’re causing ergonomic problems like lower back pain and injury.” Eye injuries are another risk of fruit harvesting, because workers use sickles to harvest the fruit, which can lead to debris flying into workers’ eyes if they do not have eye protection. And the palm fronds have thorns that can scratch or puncture skin. Palms attract rats, which feed on the fruits, and the rats in turn attract snakes, so historically snake bites have been occupational hazards for workers on palm oil plantations. Today, some of the plantations use barn 1 The Roundtable on Sustainable Palm Oil was established in 2004 to promote the production and use of sustainable palm oil. Available at http://www.rspo. org/en/who_is_rspo (accessed July 29, 2013).

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34 THE NEXUS OF BIOFUELS, CLIMATE CHANGE, AND HUMAN HEALTH owls as a way of controlling the rat population and, consequently, the number of snakes. As with many forms of agriculture, the use of pesticides poses a hazard for workers on palm oil plantations. Before its ban, many plantations used paraquat for weed control because the ground has to be free of weeds in order for the palm oil to be productive. Paraquat is highly effective in controlling weeds, but it is also toxic to humans and animals. Thus, many palm oil plantations have begun grazing cattle on the land among the palms. The cattle eat the weeds, which minimizes the need for pesticides. In summary, Hisham Hashim said that because of the high demand for palm oil, the palm oil industry will likely remain an important economic driver for the Malaysian and Indonesian economies. Furthermore, palm oil has great potential as a source of biofuel. However, he said, at the current prices for crude palm oil, palm biofuel is not viable. Thus, the palm oil that is produced today is sold for uses other than biofuel. Introducing palm oil trees with a higher yield and developing value- added downstream products will help cushion the environmental damage from palm oil production. That is, instead of increasing the acreage devoted to palm oils, Malaysia is concentrating on improving yields and diversifying the products that can be generated from palm oil. Furthermore, the Malaysian government is focusing on responsible plantation management as a way of minimizing environmental damage and occupational health hazards associated with palm oil production. “Many of these plantations are huge companies, so they should be responsible for putting together better and a more sustainable management of palm oil plantations. But it is not easy to control them because some are located in remote areas accessible only by helicopters and four-wheel-drive vehicles, so they are out of sight of the regulator,” Hisham Hashim explained. Still, he said, it can be done. “It is a matter of commitment from the plantation managers and owners.” DISCUSSION Jack Spengler, roundtable member, opened the discussion session with a comment. Ramon Sanchez, one of his graduate students, looked at the use of biodiesel in Mexico City and found that it resulted in a reduction of particulates, which led to health benefits in the population.

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CASE STUDY: THE PALM OIL EXAMPLE 35 This has important implications for the health equation regarding biofuels, he said. Then Spengler asked a question: “If palm oil has been used for so many years, why does it have to be done on big plantations? Can it actually be distributed to smaller-scale operations, a village for instance?” Hisham Hashim responded that the palm oil industry started out as a poverty-eradication project. “We cut down the trees and opened up land for resettlement of the poor rural families into this cooperative plantation operated by Felda,” he said. “And the economic benefit was quite significant in trying to bridge the gap between the poor and the more affluent segment of the society. So that was quite successful.” But with the rising price of palm oil, the Malaysian government saw an opportunity to make the palm oil industry a significant contributor to the Malaysian economy, and “that’s when they started big concessions to companies to open up huge tracts of land.” The yield on a large palm oil plantation is about double the yield achieved by the small holders. Thus, it seemed that moving to large plantations would be the best way to manage the industry, he said, but there does seem to be a need “to balance between large plantations and small holders.” Hisham Hashim added some details about the prospects of exporting biodiesel, given that local consumption is limited. One approach would be to export biodiesel to the European Union, but the European Union has strict regulations on the types of biodiesel that can be used. For example, any biofuel used in diesel mixtures in Europe must offer a 35 percent carbon reduction according to life-cycle analysis, and palm biodiesel offers only 19 percent. “Because of that, we cannot penetrate the European market at the moment,” he said. Another problem is that the European Union requires that the palms not be planted in highly biodiversed land or land with high carbon content, and “some of the palm oil plantations have been planted over peat soil, which has a lot of carbon storage.” The problem, he explained, is that planting the palms requires that the land be drained, and the dried-out peat soil sometimes catches fire, releasing carbon. However, he said, not all palm oil plantations are on peat land. So Malaysia is now negotiating with the European Union as well as other markets in hopes of getting palm biodiesel accepted as a fuel for use in these countries. Another workshop participant asked Hisham Hashim about the water pollution resulting from the smaller-scale palm oil operations. “I’m wondering if that happens because of a lack of available technology. Is it

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36 THE NEXUS OF BIOFUELS, CLIMATE CHANGE, AND HUMAN HEALTH that those villagers chose to not use technology which would have prevented the contamination of that valued waterway, or is it that the type of technology for wastewater treatment isn’t available remotely?” Hisham Hashim answered that it is not a problem with the technology because the waste is mainly organic components and the water can be easily treated in a not particularly sophisticated water treatment plant. And, indeed, the small holders tend to be more environmentally conscious than the bigger plantation management, he said. These huge plantations are generally located in remote areas, far away from the regulatory agencies, which gives them the opportunity to violate the laws. REFERENCES Chin, M. 2011. Biofuels in Malaysia: An analysis of the legal and institutional framework. Working Paper 64. Center for International Forestry Research, Bagor, Indonesia. May, C. Y. 2012. September 2012: Malaysia: Economic transformation advances palm oil industry. Available at http://www.aocs.org/Membership/ FreeCover.cfm?itemnumber=18340 (accessed July 29, 2013). RSPO (Roundtable on Sustainable Palm Oil). 2011. Malaysia sets record as world’s largest producer of certified sustainable palm oil. Available at http://www.rspo.org/news_details.php?nid=27 (accessed July 29, 2013).