Reducing Emissions in the Plantations Sector

These contributions have been made by speakers participating in the Plantation Sector Roundtable Series “CAN Malaysia achieve net zero emissions by 2050?” which start on Wednesday 4 August 2021.

Theme: Optimising Resource Use (Session 2)

Potential Value Proposition From The Downstream Segment As An Economic Driver For The Palm Oil Industry by M R Chandran (Advisor to RSPO & Chairman IRGA Sdn Bhd )

Value-additive potential of downstream activities in a resource-based industry

The inherent price volatility and uncertainties of the commodity market make it patently clear that Malaysia cannot solely depend on palm oil as a commodity. It is imperative for the industry to increase investments in value-added downstream activities.

Malaysia’s long-term agribusiness strategy should be to boost value-added processes in the downstream sector through a regulatory framework and fiscal incentives. The downstream sector can safeguard the upstream operations by ensuring uptake of crude palm oil (CPO) and palm kernel(PK) for palm-based downstream activities. These include transformation of CPO and PK and by-products into value-added products like oleochemicals, biodiesel, specialty oils and chemicals, phytonutrients and Fast Moving Consumer Goods (FMCG).

Full integration across the entire value chain

While the downstream segment must be developed to become a major economic driver for the palm oil industry, the growing interconnectedness of the various segments of the value chain, makes it important to have a 360-degree view of the entire downstream value chain. The industry cannot work in suboptimal silos. Full integration/cooperation across the entire value chain is a necessity and everyone has to play their part. Mitigation of market access risks by effective management of negative social and environmental impacts is largely dependent on upstream activities. An integrated approach is thus essential.

Upstream sector is a vital component of supply chain for downstream operations

While downstream value-addition is critical, ensuring an adequate and reliable supply of raw materials at competitive prices is crucial for the development of the value-added downstream sector. The upstream sector is thus a vital component of the supply chain, as feedstock disruptions can have serious implications for downstream operations. For example, the rubber, timber and cocoa industries in Malaysia suffer from shortage of domestic raw materials and are dependent on overseas feedstock for their downstream activities.

Improving sustainability

The increasing global demand for sustainability makes it imperative to increase productivity. Oil palm sustainability starts with the upstream sector. Getting it wrong at the upstream affects the entire value chain. Investing in agriculture to increase productivity has to be an essential part of the strategy to energise the downstream sector.

One of the key issues and challenges facing the industry is stagnant or declining productivity. The average national oil yield at a low of 3.6 tonnes of CPO per hectare means we have not moved far from the 1960s despite continuous improvement in planting materials.

Nationwide testing of oil palm has shown an unbelievable 13% contamination with lower yielding non-tenera palms. This is currently resulting in annual losses of more than RM 1 billion. It is thus imperative to plant it right. This is especially so since the oil palm has an economic lifespan of 25 years.

Purity testing to ensure only high yielding tenera seeds/seedlings are planted is thus key to enhanced productivity and sustainability. Previously, there were no tools for predicting the shell phenotype but the current availability of such tool should be leveraged.

As recently iterated by the Hon. Minister of Plantation Industries and Commodities at the Opening Address of the Oils and Fats International Congress 2021 (OFIC2021), it is increasingly evident that unless, DNA testing for seed quality is a regulatory requirement, Malaysia is unlikely to see significant increase in palm oil yields. The Hon. Minister also articulated the importance of revising the SIRIM standard for planting material.

Palm-based renewable energy source as an economic and sustainability driver

Palm biodiesel is a valuable downstream product with important implications for sustainability and the economy. However, it is disheartening that Malaysia is lagging behind Indonesia in both implementation and R&D on the use of palm oil as a sustainable energy source. Malaysia is heavily dependent on fossil fuels, with coal accounting for about 43% of its energy mix in 2019. Coal extraction and coal-fired power plants are among the biggest contributors to greenhouse gas emissions.

Malaysia should demonstrate greater commitment to its biodiesel mandate as a renewable energy source, and move towards B30 by 2024. Hydro-treated vegetable oils (HVO) are second-generation biofuels that have great potential in Malaysia. In contrast to methyl ester-based fuels, it is a “drop-in” fuel that can be used without any blending. Not only can it be exported to colder climates, but it can also be sent to low carbon markets, and holds the promise of being turned into jet fuel. Waste cooking oils should also receive greater attention.

Downstream value-addition and a circular economy

The concept of Circular Economy – reducing waste and creating value from waste aims at an environmentally-friendly shaping of economic systems. It is based on the Cradle to Cradle, as opposed to Cradle to Grave principles and would result in economic, environmental and social benefits through the creation of new businesses and job opportunities based on zero waste technologies.

Valorization of palm oil mill by-products, an example of extraction of natural products from agro-industrial waste is attractive from both socio-environmental and economic aspects. The extraction of phenolics from the aqueous waste stream of palm oil milling is one such example which integrates health with socio-environmental and economic aspects. It is heartening that this innovative technology developed by MPOB caught the attention of Mexican investors and the world’s first commercial oil palm phenolics production plant is in operation in Mexico. The absence of buy-in of this technology by players in the Malaysian oil palm industry shows the risk averseness of the industry to new home-grown technologies and reluctance to do things differently.

Absence of buy-in of home-grown technologies and missed opportunities

In general, the downstream value addition technologies developed locally by MPOB and other research institutes is an area the industry has failed to fully capitalise and may be a missed opportunity.

The absence of buy-in of cutting edge technologies by players in the Malaysian oil palm industry shows the risk averseness of the industry to new home-grown technologies and reluctance to do things differently. The commercialisation of Oil Palm Phenolics by the Mexicans is just one example. While technology initiatives continue to intensify, they are often thwarted by a lack of adoption rather than the merits of the technology.

Three factors are responsible for lack of buy in:

· High uncertainty or risk

· Large fixed costs

· Long lead times for project development or long payback periods.

Government intervention

· While it may not be practical for the government to intervene in all cases, it may be necessary for the government to sponsor and work with the industry in the commercialization of high impact strategic projects which have large investment cost.

· DNA testing for seed quality should be a regulatory requirement and the SIRIM standard for planting material revised. Provide assistance to smallholders to plant only tested seeds.

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· It is important for the government to continue sponsoring basic and applied R&D because of the potentially high payoff. Clinical and pilot trials are very expensive but a necessary pre-requisite for successful commercialization.

· The oil palm industry is one of the most taxed industries. At least a fraction of the taxes collected should be channeled back for R&D and commercialization activities in oil palm.

How can the Oil Palm Industry reduce its carbon foot print to facilitate a 50% reduction in carbon intensity by 2030? by Dr Harikrishna Kulaveerasingam (Sime Darby Plantations)

A significant impact on reducing carbon intensity can be achieved by addressing methane evolution from Palm Oil Mill Effluent (POME) ponds.

An overall reduction of about 40%-50% of the plantation industries carbon foot print can be achieved by addressing this issue. In larger mills of 60t/hr or greater, methane captured from POME treatment ponds can be utilised after suitable treatment to run generators to produce renewable electricity for the grid. Currently Green incentives to support funding of these initiatives via banks exist, however, the process of application is both complicated and time consuming.

We can accelerate adoption of these initiatives by simplifying the application for Green financing through making it automatic. The economics are favourable for larger mills that are close to existing power line infrastructure.

However, the mills that are further away from power line infrastructure, the economics are no longer favourable and therefore there is a need to incentivize Tenaga to extend the grid to these areas to connect to this renewable energy resource.

Another alternative would be to compress the gas into cylinders and transport it for utilisation at other sites and in this case, Gas Malaysia would need to be incentivised to do so.

Indonesia has a programme where biogas producers are able to obtain tax deductions (I believe 200%) up front over the life of the assets, which has had a positive impact on adoption by the industry.

Optimising Resource Use: Palm Bioenergy by Ir. Qua Kiat Seng (Monash-Industry Palm Oil Education and Research Platform)

In June 2021, Ir. Qua published an article in The Edge titled “My Say: When Malaysia embraces net-zero carbon emissions”.

He observed that the palm oil industry is quite well placed to meet the challenges of net-zero carbon emissions. The palm oil mill is an excellent example of a self-sufficient production unit in terms of energy when it uses its own biomass and biogas. This circular economy is net-zero carbon and any excess biomass or energy delivered outside the mill makes it carbon negative.

The Monash-Industry Palm Oil Education and Research Platform (MIPO) will share the highlights of a yet-to-be published paper “Potential of palm bioenergy in achieving Malaysia's renewable energy target and climate ambition in line with the Paris Agreement”, where the focus is on the total energy potential of palm biomass in Malaysia. Energy is selected as it is the largest contribution to GHG emissions.

Theoretically, palm bioenergy could make up 64% of the total primary energy supply. A model energy mix was suggested where solid biomass products play a key role. This suggested mix could contribute to a 35% renewable energy share in the primary energy supply and a 54% greenhouse gas intensity reduction based on 2005 levels. However, it is to be noted that energy is not the only potential use of biomass.

Ir. Qua will conclude by suggesting some policies and actions that could be taken to drive Malaysia towards the net-zero carbon emissions goal.

Theme: Conservation of Carbon Sinks and Biodiversity (Session 3)

Datuk Darrel Webber will share his thoughts on the following policy recommendations:

I. Increasing carbon sequestration:

Seek tax incentives to the sector for retiring plantings on peat within the next 2 years. (CARBON)

Establish a Malaysian Emissions Trading Scheme (ETS) that will soak up carbon credits generated by the plantation sector (such as those generated by trapping GHG from Mill Effluent ponds). Malaysia is ONLY major economy in the region that does not have a plan for an ETS. (CARBON)

Provide tax incentives to Malaysian plastics manufacturers to use biomaterials from the plantation sector. (REDUCING PLASTICS and CARBON)

II. Conservation of biodiversity:

Seek tax incentives to the sector for establishing corridors or “stepping stones” that link up larger forest patches. (BIODIVERSITY)

Provide tax incentives to plantations to maintain/expand swamps, wetlands, mangroves in their landbanks. These areas sequester more carbon (4-12 times!) than terrestrial forests. (BIODIVERSITY and CARBON)

Government/BURSA to insist that the sector provides full disclosure on its climate related liabilities. This will hasten the need for action by the sector. (CARBON and BIODIVERSITY)

Datuk Darrel fully prescribes to the “DO NO HARM” approach to deforestation but is not convinced that the palm oil sector in Malaysia and Indonesia will be key drivers for deforestation going forward, however, to reduce these possibilities, he would suggest the following policies:

Remove as many politicians as possible out of GLC boards.

GLCs should have at least one independent board member who knows something about sustainability/climate.

EPF/KWSP to have a firm policy to not support deforestation in the GLCs that they are invested in.

Stop further licensing of independent mills that have NO evidence of a reliable supply base.

MPOB to stop issuing licences to smallholders that do not have legal claim to lands.

There are a whole host of other economic threats that may continue to drive deforestation in Malaysia such as population growth, mining, horticulture and “food estates” which are beyond the mandate of this panel.

For example, some state governments do not understand the opportunity costs of keeping forests and a high intensity carbon economy. Such States need to understand such costs and work out ways to offset it to pursue a low carbon, high forest, future. One such path is to monetise the carbon assets of the states.

To facilitate this, Datuk Darrel would like us to consider:

-Federal Government incentivises states to publish opportunity costs in maintaining the status quo of a high forest, high carbon economy. And based on this, prepare a roadmap for a high forest, low carbon economy.

-The Federal government needs to make clear the proportion of the individual state CARBON assets can be monetised by the State itself and what proportion will be needed to support Malaysia’s commitment to the UNFCCC Paris Agreement.

-Encourage / support enlightened State governments to take a Jurisdictional Approach a.k.a. “landscape approach” to transforming economic sectors to a more sustainable development pathway.

Do register for the series of Round Table sessions here. Highlights and links to recordings of previous sessions available here.