Can palm oil firms really create a sustainable future?

Posted on February 28, 2011. Filed under: Bio-diversity, Forestry/Wetlands |

The palm oil industry has stepped up efforts to reduce its environmental impact, but as Jessica Shankleman discovers, many challenges remain

Plans to create a sustainable palm oil industry are set to take a major step forward next month when the World Bank Group (WBG) presents a long-awaited strategy detailing how it could lift its moratorium on new palm oil investments as part of efforts to enhance the sector’s sustainability practices.

The strategy is intended to create a framework for WBG to selectively invest in projects in a bid to tackle some of the key barriers facing the growth of a sustainable palm oil sector, such as the lack of protection for high-conservation-value forests and the absence of formal procedures for sharing economic benefits with poor rural stakeholders – key concerns that prompted WBG to suspend its palm oil investment programme in 2009.

The past few years have seen some palm oil developers step up efforts to practise more environmentally responsible techniques, such as avoiding peat land or virgin forests development, or implementing zero-burning replanting techniques, while also launching a new sustainable palm oil certification scheme.

According to the voluntary certification body, the Round Table on Sustainable Palm Oil (RSPO), these investments resulted in the volume of certified sustainable palm oil (CSPO) capacity more than doubling in 2010, from less than 1.5 million to 3.5 million tonnes.

WBG is expected to argue that its investment moratorium has been an important factor in encouraging companies to adopt these more sustainable practices. But the sector also appears to have benefited from increased cooperation between industry and NGOs. Just last month, Singapore-listed Golden-Agri Resources signed an unprecedented forest conservation policy in partnership with not-for-profit group The Forest Trust (TFT), in response to pressure and lobbying by green groups within the RSPO over allegations of illegal forest clearing.

Yet the shift towards more sustainable operations has a long way still to go if the industry is to satisfy its many critics.

For example, questions continue to be raised over how to tighten up voluntary RSPO standards, without deterring companies from adopting sustainability practices that can drive up costs. While some of the more responsible palm oil producers claim their sustainability efforts are motivated by a commitment to the environment and human rights, customer demand also plays a crucial role in improving standards, and at the moment sustainable certified palm oil remains a niche market.

China demand

In Europe, demand for sustainable palm oil has increased as a result of high-profile campaigns by green groups targeting multinationals such as Nestlé and Unilever. However, some industry players believe that some palm oil producers, particularly in Indonesia, will continue to supply unsustainable palm oil as long as major customers in China and India continue to purchase it.

Puvan J Selvanathan, group chief sustainability officer from one of the leading sustainable palm oil producers, Sime Darby, said China’s commitment to sustainable palm oil will be critical to tipping the balance in terms of demand.

“If China were to make a decision tomorrow… then the whole dynamic of certified sustainable palm oil (CSPO) and how it’s going to be taken up by the world would completely change,” he said “So this is something that would be very, very important, very significant.”

RSPO standards

There are also growing concerns about the effectiveness of the RSPO’s voluntary standards – a concern highlighted by green groups such as Friends of the Earth, which has argued that RSPO certified palm oil is “certainly likely to be more sustainably produced than non-certified palm oil, but a voluntary certification scheme can never guarantee sustainability”.

The lack of a standard to measure and reduce greenhouse gases (GHG) is a particular concern. In the past two years, the RSPO has struggled to determine how best to measure emissions from the numerous palm oil production processes, an essential step towards setting reduction targets.

The group’s GHG working group is aiming to test and finalise a tool to measure emissions by the end of this year, although the RSPO itself acknowledges, “the sustainability of palm oil production can only really be claimed when explicit consideration has been given to GHG emissions”.

In broad terms, WBG identifies land use change and deforestation as the largest single contributors to GHG emissions in tropical countries. But dealing with palm oil mill effluents (POME) is another significant issue.

The most commonly used treatment for POME is anaerobic digestion through a series of open ponds. However, the process is a major source of methane, which is significantly more potent than carbon dioxide as a contributor to global warming.

Some larger palm oil producers are testing methane capture technology on these ponds, which can then be used as power for the mills. If these capture processes prove successful, it could open up new business opportunities. For example, the methane could be separated into hydrogen and nano carbons, with the hydrogen providing power to its mills and nano carbons being used to make electronics or fillers.

However, methane capture technology, like many of the sustainable practices being implemented by RSPO members, is unviable for smallholders because of the high up-front costs.

Poverty alleviation

Palm oil has traditionally been seen as an important alleviator of poverty for developing countries such as Malaysia and Indonesia, and some industry players argue that mandatory targets for sustainable palm oil would alienate smallholders if they are introduced too soon.

For example, poorer plantations would be reluctant to replace ageing trees with higher-yield crops because they would have to wait eight years until the fruit could be harvested to make a return on investment. In the early years of palm oil development in Indonesia and still today, this gap was covered by sales of timber from cutting down tropical rainforest, but that would clearly violate CSPO sustainability standards.

WBG argues that incentives, such as the United Nations REDD+ scheme (Reducing Emissions from Deforestation and Forest Degradation) could help to plug this funding gap, but REDD+ is still very much at the pilot phase, and critics fear the forest protection scheme could be undermined if it is seen to support plantation developers.

Continued demand

Despite the fact the palm oil sector has been widely criticised for causing deforestation and emitting greenhouse gases, many experts still predict that sustainable palm oil could play a significant role in meeting rising demands for food and edible oils over the coming decades.

WBG itself acknowledges that palm oil is five to ten times more productive than other oil-bearing crops such as soyabean and sunflower, and it also has lower requirements in terms of fuel, fertilisers and pesticides per tonne of production.

As plantation companies advance into African nations such as Liberia, Ghana and Cameroon, targeted investment from WBG would have the potential to drive the expansion of the palm oil sector while ensuring improved sustainability standards are met.

However, WBG’s involvement would still prove controversial with many green groups that want to see more robust mandatory sustainability standards and remain concerned the sector’s expansion into new countries could again fuel deforestation.

But regardless of the WBG’s eventual decision, growing global demand for palm oil means developers look set to continue to seek funding from private financiers to fuel their expansion plans. It remains to be seen if increasing demand for sustainable palm oil and continued pressure from customers and green groups will be sufficient to ensure this expansion is managed in an environmentally responsible manner.

Jessica Shankleman has travelled to Malaysia as part of a press trip organised and funded by Sime Darby


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