Southeast Asian palm oil mill effluent (POME) producers are eyeing legislative developments in Europe with concern after Germany decided to not double count the product towards its renewable mandate.
Germany is increasing its greenhouse gas reduction obligation to 25pc by 2030 from 6pc currently with a minimum 2.6pc share of advanced feedstocks, which include POME, listed under Annex IX part A of the Renewable Energy Directive II (RED II).
But anything blended above the minimum share will be eligible for double counting towards mandates, except for POME, and Berlin is calling for it to be struck off the list completely.
POME is considered an advanced feedstock because it is derived from waste water generated from the palm oil production process and thus has a much smaller carbon footprint than crop-based feedstocks.
But its lingering connotations with palm oil make it politically toxic for many stakeholders as environmental groups cite long-running deforestation and sustainability concerns with its cultivation. The US even banned Malaysian palm oil producers Sime Darby and FGV last year because of alleged human rights abuses at their plantations, heaping further scorn on the vegetable oil.
RED II already states that palm oil should be phased out of the biofuels mix by 2030 because of its high indirect land use change cost and several EU member states are bringing this target forward despite Malaysian and Indonesian palm oil producers contesting the changes with the World Trade Organisation.
Germany will ban palm-based biofuels from 2023, following in the footsteps of France, Austria and the Netherlands, which have either already administered or planned banishment of the vegetable oil by next year.
There has also been additional scrutiny surrounding the quality of POME with reports of bad batches being delivered, off-specification product or supplies mixed with other cheaper oils, further denting its reputation.
But POME suppliers maintain that their wares are a waste material that will be produced anyway and in doing so offers much higher greenhouse gas (GHG) savings than palm oil, which is why it is listed under part A in the first place.
Traders also pointed out that POME is not widely used in Germany and that it will still contribute to the 2.6pc part A target so the impact may be limited, though their optimism was tempered by the possibility of a domino effect across other EU countries, which may follow the lead of the German parliament in disincentivising the product.
This would not be without precedent as palm fatty acid distillate was once in a similar position where it was being double counted towards European mandates, before attitude towards it soured and governments one by one reined in stimulus packages, with Finland the only country that still classifies it as a waste product.
If the same scenario plays out for POME, it may cause havoc for biofuels producers and blenders already struggling with a dearth of waste-based feedstocks.
Of the raw materials listed under part A, POME has so far been the most scalable and widely used, with a huge chunk going to Chinese renewable diesel producers, which then ship their product to Europe. But because of their processes, Chinese producers — which use multiple feedstocks, mainly POME and UCO — will find it difficult to separate the final product according to the feedstock used.
Actual POME consumption in the biofuels mix is difficult to establish as it trades and is listed under various HS codes, but the maximum potential volumes out of Malaysia and Indonesia are estimated at around 1.2mn-1.3mn t/yr.
If these supplies are no longer available, blenders across Europe will struggle to meet ambitious renewable transport targets, particularly in the short to medium term, until other part A feedstocks are able to pick up the slack.
Pressure will be further heaped on used cooking oil (UCO), which is already the most widely used waste-based feedstock and trading at record-high prices of close to $1,300/t fob China bulk because of excess demand.
UCO is listed under Annex IX part B and so while it is double counted towards mandates, it has a soft cap of 1.7pc under RED II, though several countries have stipulated in excess of this, including Germany pitching a 1.9pc share of the renewable transport fuel mix.
A detrimental impact on POME prices will also be inevitable, the extent of which will depend on legislative support, or lack thereof, provided by European governments.
