23 Jan 2019 (Bloomberg Environment )  -

• European Union must propose rule on biofuel crops that cause deforestation or other land-use change by Feb. 1

• Palm oil would be phased out as biofuel feedstock in EU, U.S. soybean farmers could benefit

U.S. soybean companies could be the big winners if an upcoming European Union rule on sustainable biofuels goes through.

The rule, which the European Commission—the EU’s executive arm—is required to propose by Feb. 1, would define which feedstocks used in biofuel production are sustainable in terms of forest clearance and other land-use changes.

Feedstocks identified as causing high levels of indirect land-use change (ILUC) will be capped and wouldn’t count toward EU biofuels targets after 2030.

The main feedstock in the line of fire is palm oil from Indonesia or Malaysia, where it is linked to widespread clearance of tropical forests to make way for plantations.

It is “pretty sure” that palm oil producers will lose out under the rule, “basically because of Indonesia, where there is tremendous land-use change,” Gernot Klepper, senior researcher and head of environment and natural resources research at Germany’s Kiel Institute for the World Economy, told Bloomberg Environment.

While palm oil faces phaseout, soybeans from the U.S. could take their place as a feedstock for EU biofuel. The EU forecasts that soybean imports from the U.S. will increase from 39 percent—or 2,439 metric tons in marketing year 2017-2018—to 75 percent, or 5,182 metric tons, in 2018-2019.

When the commission makes its sustainability judgment, it is likely to find the U.S. “one of the least risky countries in the world,” said Stephanie Searle, fuel program lead at the International Council on Clean Transportation in Washington.

Minimum Biofuel Requirement

The requirement for an EU ILUC rule was triggered by a law on renewable energy, finalized last December, stipulating that the EU must meet at least 32 percent of its energy needs from renewable sources by 2030.

The law also specifies that by 2030, 14 percent of transportation fuel consumed in the EU must come from renewable sources, including liquid biofuels and biogas.

To prevent environmental damage, the law also requires specific standards for low- and high-ILUC biofuel feedstocks, with the amount of biofuel from high-ILUC feedstocks capped at 2019 levels and then phased out through 2030.

Trump also threatened tariffs on the EU. To head off the threat, European Commission President Jean-Claude Juncker went to the U.S. in July 2018 and promised to promote increased EU purchases of U.S. soybeans.

There is some evidence the move is already working in terms of the soybean oil in biodiesel in the EU: A Belgian study that a group of nonprofit organizations released Jan. 21 found that the amount of soy oil in biodiesel in Belgium increased tenfold in 2018, while the amount of palm oil dropped.

The European Commission has started a process to recognize U.S. soybeans as a sustainable feedstock for EU biofuels. In December 2018, it published a draft decision acknowledging that the U.S. Soybean Sustainability Assurance Protocol met EU biofuels sustainability criteria.

Recognition of that program applies under the current rules, which will be replaced by the new renewable energy law and associated indirect land-use change rules.

From the point of view of limiting deforestation related to palm oil, the EU ILUC rule might make little practical difference, according to Anja Lillegraven, Indonesia team leader at the Rainforest Foundation Norway.

Global demand for palm oil is growing and the EU rule might “reduce the increase in demand but it will not decrease the demand,” she said.