Lappeenranta University of Technology Faculty of Technology, LUT Energy Research Report 1 SUSTAINABILITY OF PALM OIL PRODUCTION AND OPPORTUNITIES FOR FINNISH TECHNOLOGY AND KNOW-HOW TRANSFER Virgilio Panapanaan Tuomas Helin Marjukka Kujanpää Risto Soukka Jussi Heinimö Lassi Linnanen 2009 ISBN 978-952-214-737-0 ISBN 978-952-214-758-5(PDF) ISSN 1798-1328 Copyright © Lappeenranta University of Technology, 2009 PUBLISHER Lappeenranta University of Technology Skinnarilankatu 34, P.O. Box 20, FI-53851 Lappeenranta, Finland Tel. +358 5 621 11, fax. +358 5 621 2350 This publication is available in PDF format on the Internet at www.doria.fi/lutpub Photos: 1. Oil palm plantation by: Rhett A. Butler, mongabay.com 2. Oil palm fruit by: Rhett A. Butler, mongabay.com 3. Wastewater aerobic treatment tank: Mika Horttanainen, LUT 4. Improved and modern dryer: Mika Horttanainen, LUT 2 ABSTRACT Virgilio Panapanaan, Tuomas Helin, Marjukka Kujanpää, Risto Soukka, Jussi Heinimö and Lassi Linnanen Sustainability of palm oil production and opportunities for Finnish technology and know- how transfer Lappeenranta University of Technology Institute of Energy Technology Research Report 1 March 2009 95 pages, 18 figures, 14 tables Keywords: palm oil, bio-diesel, CDM projects, carbon footprint, greenhouse gas balance, life cycle assessment The global demand for palm oil is growing, thus prompting an increase in the global production particularly in Malaysia and Indonesia. Such increasing demand for palm oil is due to palm oil’s relatively cheap price and versatile advantage both in edible and non-edible applications. Along with the increasing demand for palm oil, particularly for the production of biofuel, is a heated debate on its sustainability. Ecological degradation, climate change and social issues are among the main sustainability issues pressing the whole palm oil industry today. Clean Development Mechanism (CDM) projects fulfilling the imperatives of the Kyoto Protocol are starting to gain momentum in Malaysia as reflected by the increasing registration of CDM projects in the palm oil mills. Most CDM projects in palm oil mills are on waste-to-energy, co- composting, and methane recovery with the latter being the most common. The study on greenhouse gases (GHG) in the milling process points that biogas collection and energy utilisation has the greatest positive effect on GHG balance. On the other hand, empty fruit bunches (EFB) end-use as energy and high energy efficiency of the mill have the least effect on GHG balance of the mill. The range of direct GHG emissions from the palm oil mill is from 2.5 to 27 gCO2e/MJCPO, while the range of GHG emissions with all indirect and avoided emissions included is from -9 to 29 gCO2e/MJCPO. Comparing this GHG balance result with that of the EU RES-Directive suggests a further check on the values and emissions consideration of the latter. 3 FOREWORD Most industrialised countries have committed to significantly decrease greenhouse gas (GHG) emissions as a response to the challenge of climate change. The EU, as an example, aims to decrease its GHG emissions by 20% from the level of 1990 by the year 2020. One means of attaining this goal is by increasing the share of transport biofuels to 10%. Thus, the markets of transport biofuels in the EU is expected to develop rapidly for the next 15 years. The European Commission has estimated that approximately 80% of the biofuels demand by 2020 can be produced within the Union and the rest will be imported. Palm oil is becoming a more important raw material for transport biofuels. Compared to other oil plants cultivated in Europe, palm oil has several advantages such as remarkably higher annual oil yield and lower production costs. Along with the rapidly increasing interest on palm oil use for transport fuels, serious concern about the sustainability of palm oil production has also increased and has stirred up new debates. The increasing palm oil production can result to some negative impacts as destruction of forests, emergence of social problems and pollution of the environment. On the other hand, expanding of palm oil production increases the export revenues of palm oil-producing countries and creates new jobs in rural areas. This report presents an updated information and state-of-the-art of the palm oil industry covering production, trends and development, supply chain, stakeholders, and sustainability issues. The first part (Part I) of this report provides a robust overview of the palm oil industry, while the second part (Part II) reviews the clean development mechanisms (CDM) projects in Malaysia as the world’s leading palm oil producer and exporter. The third part (PART III) is a study on GHG emissions and balance in a palm oil mill using a carbon footprinting methodology. Such GHG study using carbon footprinting provides a rational technical approach in calculating the GHG emissions balance and in generating some scenarios for potential emissions reduction. The information and data in Part I and Part II are basically based on desktop research googled from Internet pages or excerpted from latest annual reports, journals, magazines, news clips and conference proceedings. On the other hand, the study on GHG balance is based on best publicly available inventory data gathered from multiple scientific articles on several palm oil mills. The study was carried out from June to December 2008 as a part of the project, Global Forest Energy Resources, Certification of Supply and Markets for Energy Technology, coordinated by the Finnish Forest Research Institute (METLA). The research project was a part of the ClimBus Technology Programme of the Finnish Funding Agency for Technology and Innovation (TEKES). The authors are grateful to TEKES and Neste Oil Oyj for the financial support to this research. Lappeenranta, March 2009 Virgilio Panapanaan Tuomas Helin Marjukka Kujanpää Risto Soukka Jussi Heinimö Lassi Linnanen 4 Executive Summary The global demand for palm oil is growing, thus prompting an increase in production in Malaysia and Indonesia. Such increasing demand for palm oil is due to palm oil’s relatively cheap price (compare to other vegetable oils) and versatile advantage both in edible and non-edible applications. The increasing demand for palm oil is also ascribed to the increasing demand for biofuel as an alternative source of energy particularly in Europe having a mandated biofuel utilisation target. The growth in palm oil consumption has resulted in palm oil dominating the current global oil market. In Malaysia, major players and stakeholders in the palm oil industry form a complex network. Various organisations are busy looking after their own interests in the business and in the supply chain. Leading palm oil industry organisations are considered as active forces in keeping themselves well- represented in high level national decision-making and development programs. Although private ownerships dominate the upstream and downstream production of palm oil, the Malaysian government plays a significant role in the development of palm oil industry in the country. The production of palm oil is not without problems or challenges. The whole industry is partly blamed as a culprit for loss of forest cover and forested areas (deforestation), loss of biodiversity, endangering wild animals and species, soil, air and water pollution, chemical contamination, as well as for land disputes and social problems in Malaysia (also in Indonesia). At the milling factories, the problems of waste and pollution particularly of the palm oil mill effluents (POME) are also of growing concern. There are good existing laws and regulations in Malaysia that cover palm oil being a prime agricultural commodity. Policies are typically more of combining different applicable instruments to regulate palm oil production and the industry as a whole. The National Biofuel Policy in Malaysia is an example of new policy decided upon through multi-stakeholder consultation. The Roundtable on Sustainable Palm Oil (RSPO) and Kyoto Protocol are new platforms in forwarding new policy measures to ensure the sustainability of palm oil. The growth and modernisation of palm oil industry in Malaysia is not without the influence of various research and development efforts of different scientific organisations. The contribution of research to support the development of capacities, technologies and innovations is very much evident by the roles being played by both public and private research institutions. Overall, palm oil industry is expected to expand and grow more in the near future just as the increasing demands in EU countries, China, India and United States for vegetable oils and fats are expected to rise. The increasing demands for palm oil either for food or for fuels is now a heated debate not only within the industry but also in general public at large. Important issues such as price, ecological degradation and climate change, and technical production innovations remain at the centre point of the palm oil dynamics at present and in the near future. Clean Development Mechanism (CDM) projects fulfilling the imperatives of the Kyoto Protocol have started to gain momentum in Malaysia in the recent past. The increasing registration of CDM projects in the palm oil mills is a reflection of increasing interests of various market players in the industry. The three main areas of CDM projects are on waste-to-energy, methane recovery and co-composting, with methane recovery being the most common project area. So far, CDM projects are claimed to have boosted the palm oil sustainability in Malaysia. Other than combating global warming, CDM in palm oil mills can significantly reduce pollution, increase the efficiency of waste management system, and provide benefits resulting from new available technologies that are normally part of a CDM project. 5 Greenhouse gas (GHG) emissions are one key sustainability issue related to palm oil production. POME treatment in open anaerobic ponds is the main source of direct GHG emissions.