Indonesia challenges legality of EU palm oil biofuel restrictions

A World Trade Organisation (WTO) disputes panel is to assess whether import restrictions created by the European Union (EU) to reduce the use of carbon-intensive biofuels comply with global trading rules.

The Indonesian government is challenging portions of the EU’s renewable energy directive (RED) linked to EU guidance limiting the indirect land use change (ILUC) of biofuel feedstock cultivation, writes Keith Nuthall. ILUC presupposes that when land is given over to biofuels, there is pressure to clear virgin forest for displaced food production, increasing carbon emissions and decreasing carbon sinks.

The EU considers palm oil production to have a significant environmental impact in this way, and as a result, under the RED, is calling for EU palm-oil biofuel usage to be phased out by 2030.

Indonesia, the world’s largest palm oil producer, has challenged this rule at the WTO, claiming it breaks the general agreement on tariffs and trade (GATT), and agreements on subsidies and technical trade barriers. It is being supported in this case by the US, Malaysia, Norway, Turkey, Singapore, Thailand, Russia, Japan, Korea, India, Honduras, Guatemala, Costa Rica, Colombia, China, Canada, Brazil and Argentina.

It says that EU ILUC calculations mean only palm oil-based biofuels are subject to this phase-out, so they ‘discriminate against palm oil and oil palm crop-based biofuels, which are primarily imported into the European Union, in favour of like products that are either of EU origin or imported’.

Moreover, Indonesia claims the ILUC restrictions were ‘adopted without any adequate statement on the underlying scientific evidence or impact assessment’, a key issue at the WTO where scientific validity often needs to underpin legal trade restrictions.

Should Indonesia win its case, the EU may have to review its ILUC rules and its RED restrictions, perhaps allowing the longer-term use of palm-oil biofuels – not just from Indonesia, but also from other WTO member states, including Malaysia, another major producer.