The oil palm is crucial to Malaysia's portfolio of biofuel policies.
Until recently the country had been the palm oil juggernaut of
Asia, and palm oil plantations still occupy about 5 million hectares
of Malaysian land, equivalent to almost three-quarters of total
agricultural land and about 12% of the country's total land area
[68,96]. With a long agricultural history surrounding the oil palm
crop, it is unsurprising that palm oil is the nation's top feedstock.
In 2000, the Government of Malaysia passed its “Small Renewable
Energy Power Program” aimed primarily at capturing the byproducts
from palm oil production and converting them to electricity
[97] [98]. In 2005, the country established its National Biofuel
Policy (BNP) with the primary aspiration of penetrating the world
biodiesel market as a leading producer. Through instating the BNP,
Malaysia hoped to and succeeded in opening a new export
channel for its palm oil biofuel during a time when world prices
of petroleum were much higher than those for palm oil [49]. With
national biofuels strongly aligned towards palm oil as a feedstock,
the BNP aims to establish its use in the transport and industry
sectors as a mechanism for rural development and economic
growth as well as for exports. This latter emphasis on exports
very much eclipsed domestic use of palm oil biodiesel at the
beginning of the decade, as is evident from Table 2.
Exports, while still central to Malaysia's aspirations to expand
palm oil biofuel until 2011, have also been matched with more
domestic consumption that is incentivized by national policies.
According to recent estimates from the United States Department
of Agriculture Foreign Agricultural Service (FAS), approximately
58% of the biodiesel produced in Malaysia in 2013 was used
domestically while 43% was exported to Singapore, Australia the
EU, among other destinations [99]. Exports, however, are projected
to remain influential for current and future production, impacted
by both national export policies as well as the biofuel import
policies in importer nations.
Policies implemented by major trade partners like the EU
towards biofuels and biofuel feedstocks have had a large influence
on Malaysia's palm oil export opportunities. In 2003, before the
BNP was established in Malaysia, the EU declared a fuel consumption
target under its Directive 2003/30/EC under which biofuels
were to eventually replace 5.75% of all of its transport fuels by
2010 [49]. The EU created a mandate in 2009 (Directive 2009/28/
EC) requiring that 10% of its transport fuel consumed in 2020 be
met from renewable sources, mainly biofuels. With this mandate
in place, it was estimated that more than 10 million tons of
biofuels would be required to meet the growing demand and
“imports would serve around 20% of the biofuel production. About
half of them would be first generation feedstock and mainly
oilseeds” such as palm oil [100]. Quick to take advantage of this
export opportunity, Malaysia ramped up its production of palm oil
and began exporting large volumes of both palm oil as a feedstock.
However, this trade has been threatened by several developments.
The EU implemented new sustainability criteria in 2011
that effectively de-list palm oil biodiesel from Malaysia as qualifying
for its quotas and support policies [101]. In anticipation of a
possible fall in exports to the EU, Malaysia is currently working
towards building up the market in the United States and “laying
the foundation for palm oil to qualify as an advanced biofuel
source in the United States under its Renewable Fuels Standards”
[101]
In addition to export opportunities, Malaysia's promotion of
palm oil biofuel is also directed towards rural development and
creating employment. Towards this aspiration, Malaysia has
achieved mixed results largely due to the interaction of petroleum
and palm oil prices. After the BNP was implemented in 2005, the
Malaysian government distributed 92 approval permits for new
palm oil biodiesel projects that, once completed, would have the
combined capacity to produce 11.7 billion liters of fuel per year
[98]. These plants have generally been quite profitable, with a
typical 50 kt biodiesel production plant in Malaysia yielding a
positive return on investment within 3.5 years [102]. However, at
the end of 2007 and the beginning of 2008, the energy-equivalent
price of palm oil rose beyond that of crude petroleum, the refined
products of which enjoy generous subsidies in Malaysia, thereby
shutting production at many biodiesel plants and destabilizing
plans for new facilities [54]. At the beginning of 2010, the
international price of palm oil had fallen enough relative to the
price of crude oil that most biodiesel plants re-opened and plans
for several new plants had been announced [101]. Labor resource
figures in the palm oil industry indicated the employment of over
800,000 workers in 2008 [98]. However, the incremental increase
in employment in the palm oil sector as a result of biofuel
development remains difficult to identify separately.
8 I. Mukherjee, B.K. Sovacool / Renewable and Sustainable Energy Reviews 37 (2014) 1–12
There are several ways that Malaysia could better ensure social
and environmental sustainability in its palm oil biofuel industry. In
terms of social sustainability, unclear land ownership rights
remain a problem that has generated strife due to industry
advances into traditional lands [51]. Contracts and communal
agreements between producers and farmers have been criticized
for their insufficient clarity, transparency and lack of coordination
[98]. The Malaysian palm oil industry is strongly vertically integrated,
which gives it substantial power to influence policy. Lopez
and Laan ([49], p. 33) have noted that “there has been significant
consolidation of corporations in the Malaysian agriculture sector
as well as expansion in terms of land banks and diversification
towards other areas of the trade chain” [49]. Within the status quo,
smallholder palm oil producers are to be expected to remain
marginalized with growing instances of encroachment on indigenous
lands due to a de-culturalization of production practices
that are insensitive to customary rights and leave smallholders
susceptible to patronization by large industry players [49,70].
Indeed, a strategy that fosters decentralized production in rural
areas might achieve better equity in production and ameliorate the
power imbalance apparent between rural farmers and large
industry. As expressed by the U.S. Agency for International Development
(USAID) “decentralized energy using non-food crops can
reduce soil erosion, improve soil fertility, improve water quality
and reduce deforestation with careful planning and management.
Biofuels on a smaller, decentralized scale can provide energy for
cooking, transport and lighting” [103]. Examples of decentralized
biodiesel production are scant in Malaysia, but can be found in
other areas of Asia, where they have helped increase rural incomes
[103].
Environmental sustainability in Malaysia is a secondary government
concern despite criticism by civil society groups of the
country's palm oil industry. For example, one assessment noted
that “the presumed environmental benefits of biodiesel—most
notably in terms of reducing greenhouse gas emissions—have
evaporated with improved understanding of the full lifecycle
impacts of biofuel production … The expansion of the palm oil
industry in Malaysia has been associated with deforestation,
release of carbon from vegetation and soil, forest fires, soil erosion,
water pollution and biodiversity loss.” [49]
Part of the explanation underlying unsustainable production
techniques is the fragmented nature of Malaysian energy policymaking.
With a decentralized government, achieving environmental
protection and executing Environmental Impact Assessments
(EIAs) of existing and planned biofuel production systems, falls
under the jurisdiction of the different Malaysian states, which
have variable capacities for governance of the country's rich
ecological heritage. Most notably the Eastern Malaysian states of
Sabah and Sarawak are exempt from most national policies and
standards and can set their own regulations [97]. Malaysian forests
are a globally vital biological hotspot [47]. And palm plantations
are estimated to retain only about 20% of a forest's habitat value
[51]. These environmental tradeoffs between plantations and
forests have attained global attention and elicited copious censure
from international environmental NGOs. Still, in Malaysia environmental
preservation appears to be a comparatively lesser
national consideration in planning future biodiesel projects.
Environmental considerations are beginning to infiltrate
private sector production decisions through initiatives such as
the RSPO which engages private sector, environmental and farmer
groups. With voluntary membership, the RSPO has drawn up
sustainability criteria and established a certification scheme in
the hope of enabling palm oil consumers to be able to make
informed choices. However, because the scheme is voluntary, its
effect may simply be to divert certified palm oil towards consumers
in countries with high sustainability standards, leaving
production that does not meet the standards to be sold elsewhere
Similar to Indonesia, the Government of Malaysia is expected to
implement its own national sustainable standard, the Malaysian
Sustainable Palm Oil (MSPO) criteria by 2014