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2 European blowback for Asian
biofuels By Bill Guerin
JAKARTA - New European concerns about the
adverse environmental impact associated with
Southeast Asian-produced biofuels threatens to
scupper the rapidly growing multibillion-dollar
industry, just as big new production facilities
and cultivation areas come onstream.
European demand for palm-oil-based biofuel
has recently skyrocketed, prompting Indonesia and
Malaysia to roll out
ambitious national biofuel
programs, including sweeteners for farmers to
plant more of oil palm. A 2003 European Union
directive mandated that all member states use
biofuel for 5.75% for total transportation by 2010
and increase that ratio to 8% by 2015.
Indonesia and Malaysia, which currently
account for 85% of the world's supply of crude
palm oil, combined earn more than US$6 billion a
year from the crop. That figure is expected to
soar as the two countries gear up for European
market exports, where biofuels fetch premium
prices. Both Jakarta and Kuala Lumpur recently
committed to set aside 6 million tons, or about
40% of each country's annual output, to supply
Europe's growing demand for more environmentally
friendly fuel sources.
Now Europe is
taking a harder look at how the region's biofuels
are actually produced, and apparently scientists
and environmental groups don't like what they see.
Dangers of global warming that only a decade ago
seemed exaggerated have suddenly become crucial
global issues with growing evidence of
greenhouse-gas-driven climate change.
Environmentalists say as much as 87% of
Malaysia's deforestation between 1985 and 2000 was
caused by the expansion of oil-palm plantations.
Malaysia has now reached its natural land limit
for new plantations and most of the new oil-palm
cultivation areas are being cleared in neighboring
Indonesia. An estimated 30% of oil-palm
plantations in Indonesia are currently controlled
by Malaysian interests, according to official
industry statistics.
The Indonesian
government has recently earmarked 6.5 million
hectares of idle land for biofuel-related crops,
including 3 million hectares for oil palm, 1.5
million each for jatropha and cassava, and 500,000
for sugarcane. Currently more than 25% of all palm
oil produced in Malaysia and Indonesia is
cultivated on peatlands.
The burning,
draining and clearing of organic peatlands has
resulted in the release of massive amounts of
carbon dioxide into the atmosphere, frequently
shrouding the region in smoke and turning
Indonesia into the third-largest greenhouse-gas
emitter in the world. That's raising hard new
questions about the net global environmental value
of palm-oil-derived biofuels.
Wetlands
International, a non-profit group supported by
Western governments and conservation groups, and
the Dutch water-research institute Delft
Hydraulics warned in a recent joint study that
about 20 tonnes of carbon dioxide is released from
each tonne of oil palm grown on peat. That and
other scientific studies have prompted the EU to
put its 2003 biofuel directive under review, and
many in the industry believe some sort of
sanctions or tax could soon be imposed on
palm-oil-derived biofuels from Malaysia and
Indonesia.
Investments up in
smoke If so, it would scupper what was
rapidly emerging as one of Southeast Asia's
fastest-growing rural-based industries. Last
month, Jakarta rolled out the red carpet for
global biofuel investors and pulled in 58 new
production agreements worth $12.4 billion. One
major $5.2 billion deal will see China National
Offshore Oil Corp, Indonesia's Sinar Mas Group and
Hong Kong Energy (Holdings) Ltd team up to develop
bio-diesel from crude palm oil and bio-ethanol.
Al Hilal Hamdi, chairman of the National
Team for the Development of Vegetable-Based Fuels,
the Indonesian government's team for biofuel
promotion, has described the bio-diesel program,
which aims to create 3 million new jobs by 2010,
as "pro-jobs, pro-growth and pro-poverty
reduction". President Susilo Bambang Yudhoyono has
likewise identified biofuels as a key engine of
future economic growth, particularly for
job-starved rural areas. Biofuel is also targeted
to account for 10% of
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