Palm Battling Image Problem Seeks to Tap Green Energy Demand
(Bloomberg) -- Japanese scientists are encouraging Southeast Asia’s palm oil producers to chop down trees to help save forests.
Japan International Research Center for Agricultural Sciences and IHI Enviro Corp., a subsidiary of IHI Corp., have developed a way to process scrapped palm trees into methane gas and wood pellets to be sold as feedstock to power generators. The system intends to help palm companies earn income while waiting for new trees to mature and curb their reliance on expanding plantations to boost output.
Concerns about palm oil’s environmental impact have prompted the European Union to propose restricting its use in renewable fuels after 2020. Farmers in Malaysia and Indonesia, which account for 85 percent of supply, have been accused of illegally using slash-and-burn methods to clear land for plantations, destroying rainforests. Producers typically need to replant oil palms after a couple of decades when they become unproductive and plant small areas slowly because they won’t get any revenue from those trees for three to five years.
“Our project is aimed at reducing the negative impact on the environment of the palm oil industry, and making it sustainable,” Akihiko Kosugi, project leader at JIRCAS’s biological resources division, said in an interview. Currently, scrapped trunks are mostly left on plantations and their high sugar content mean they became sources of harmful insects that spread diseases to living trees, according to Kosugi.
Read more on the EU’s plan to remove palm oil from its biofuels mix
Under the system, trees older than 25 years are cut down and replaced, reducing the need to expand plantations. A pilot plant in Kluang in Malaysia’s Johor state started operations this year with the capacity to produce 10,000 tons of pellets a year from a maximum 50,000 tons of old palm trunks. JIRCAS estimates about 29.5 million tons of old palm trunks will be available annually in Malaysia if 5 percent of its areas are replanted.
Trees experience a sustained drop in yields after 20 years, according to Bloomberg Intelligence analyst Alvin Tai. Older palms are also more vulnerable to fungi which causes rot and eventually kills them. The share of trees more than 19 years old was about 30 percent in both Malaysia and Indonesia last year, according to Aurelia Britsch, head of commodities at BMI Research, citing data from the 11 top producers.
As well as making pellets, sugar from scrapped palm trunks can generate methane gas for power generation. Sugar from 1 ton of trunks generates an average of 96 kilowatts of power a day, according to JIRCAS. The system costs more than 1 billion yen ($9.3 million) to buy and install and JIRCAS and IHI Enviro are also considering offering the technology for a licensing fee.
Acquiring greenfield plantation land “is very rare nowadays due to the scarcity of suitable land,” Sime Darby Plantation Bhd, the world’s largest palm oil grower by area, said in an email.
The average cost of replanting on an existing plantation is around 15,000 ringgit ($3,856) a hectare, Zakaria Arshad, Group Chief Executive Officer of Felda Global Ventures Holdings Bhd, said in an interview. Greenfield expansion, including building mills and infrastructure, costs about 32,000 ringgit. Acquiring a brownfield site can cost between 50,000 ringgit and 80,000 ringgit per hectare, he said. The company is targeting replanting about 15,000 hectares this year.
Pellets from the trunks could be shipped to Japan as feedstock by renewable energy plants, where they could replace palm oil, said Tomohide Sugino, the head of JIRCAS’s planning division. Renewable energy output will increase 78 percent in the year beginning April 2027, with solar to provide about two-thirds.
The project can also benefit smallholders, who control about 40 percent of palm areas in Indonesia and Malaysia and have difficulty funding replanting, Sugino said. Changing the industry’s image as a forest destroyer would also help promote long-term consumption, he said.
Consumers are seeking sustainably-produced palm oil and more traceability in supply chains. U.K. supermarket chain Iceland said this month it will stop using the oil in its own label foods by end of 2018 until it can guarantee palm oil isn’t causing rainforest destruction. The Council of Palm Oil Producing Countries said the move is discriminatory and misleading.
©2018 Bloomberg L.P.