EU likely to curb Indonesian palm biofuel imports

November 27, 2011

RECORDER REPORT

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European Union (EU) governments are likely to curtail their imports of Indonesian palm oil-based biofuel, which has become cheaper due to a tax cut, to protect their own domestic plants, a top analyst said on Wednesday.

"The EU has supported the build of local production capacity that is heavily under-utilised and will not be able to survive if foreign competitors to rapeseed biodiesel cannot be kept out of the market," Fredrik Erixon, director of the European Centre for International Political Economy told Reuters.

Biodiesel producers in Southeast Asia and the Americas are making headway in Europe's lucrative renewable energy market, where demand has expanded thanks to official targets designed to slow global warming and limit dependence on fossil fuels. Erixon, who advises several European governments, said market access conditions for palm-based biodiesel should not ideally change given it is about 22 percent cheaper than European rapeseed-based biofuel priced at $1,490 per tonne. But the European Union is certainly trying to change this, he said in an interview ahead of the Indonesian Palm Oil Conference and Price Outlook next week.

"I am pretty sure it is only a matter of time before Malaysia and Indonesia will find themselves discriminated upon access to the EU market." Three years ago, Jakarta first set an export tax for palm-based biofuel at a lower rate than crude palm oil, spurring Indonesian firms to turn palm oil into the renewable fuel and cornering the European market.

In the most recent tax structure change in August, the tax-free threshold for a tonne of biodiesel was raised to $950 a tonne from the $800 range. The tax was capped at 7.5 percent. Growing market share for biodiesel made of Indonesian palm oil became more apparent this year with poor weather and limited acreage affecting the rapeseed crop - the key feedstock for European biodiesel sector.

Hamburg-based oilseed analysts Oil World said palm-biodiesel exports mostly from Indonesia to Europe will show a jump of more than 60 percent to 830,000 tonnes in 2011. Higher imports have led to underutilisation of Europe's biodiesel capacity usage. Europe's biodiesel industry association EBB estimates utilisation rates have only reached 44 percent of the region's 22.1 million tonne capacity.

EBB have also said they will ask EU Commission authorities to investigate Indonesian biodiesel that is getting exported to Europe at a price which is lower than the rates at which it is sold in the Asian country, seen as dumping. The move against Indonesian biodiesel comes as the EU trade authority plans to start an investigation into whether US bioethanol exporters are getting unfair state subsidies and selling their fuel to Europe at low prices.

Erixon said it was highly likely the EU would slap import tariffs in response to EU industry officials' complaints of unfair trade practices by the United States. "The Commission is not difficult to convince - it has a strong ambition to protect the local industry even if it produces an overall cost to the EU economy to slap duties on import from the US," he said.