EU new palm oil rule seen to be setting up clash with Malaysia, Indonesia

Malaysia has set a 5% tax on CPO export this month after a four-month suspension. The tax was calculated based on the palm oil reference price of RM2,409.66 per tonne for May. Any price above RM2,250 incurs a tax

BRUSSELS: EU negotiators on Thursday agreed to phase out the use of palm oil in transport fuels from 2030, setting up a clash with producer countries such as Malaysia and Indonesia.

A text of the deal, seen by Reuters, leaves the wording on details of curbs on palm oil "yet to be agreed", with EU sources saying the matter remains politically sensitive.

Limits on conventional biofuels in transport will be frozen at the national level at 2020 but must not surpass 7 percent, the text says.

Green lawmaker Bas Eickhout, one of the negotiators in tough talks that ran until the early morning, said the use of palm oil would be capped at 2019 levels until 2023 and reduced to zero by 2030.

"That is quite a victory. There is no precedent for a phase-out of the use of specific crops," said Eickhout.

The European Parliament caused an outcry among palm producers in Asia when it called in January for a total ban on palm oil use in road fuel, as part of its negotiating position for talks with member states to hammer out the final deal.

Indonesia, Malaysia and Thailand, which produce the majority of the palm oil imported into Europe, had warned ahead of Thursday's agreement they would retaliate against what they called protectionist measures, if a ban was introduced.

A 2015 study funded by the European Commission found that palm oil and soybean oil had the highest indirect greenhouse gas emissions because of the deforestation and the drainage of peatlands associated with their cultivation.

"Governments now have no more excuse to force drivers to burn food or palm oil in their tanks after 2020," said Laura Buffet at campaign group Transport & Environment.

Palm oil has been used increasingly as a feedstock for biofuels because it is cheaper than locally produced rapeseed oil. Half of the EU's 6 billion euros ($7 billion) worth of palm oil imports are used for biodiesel, according to data from Copenhagen Economics.

Thursday's agreement is part of a broader legislative package aimed at reducing greenhouse gas emissions in the European Union by at least 40 percent below 1990 levels by 2030.

This is part of the bloc's commitment to the Paris Agreement, which aims to keep global warming well below 2 degrees compared to pre-industrial levels. ($1 = 0.8579 euros) - Return