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May 2017

TGAP Reform Proposed To Downplay Palm Based Biofuels

A 65-page report released last week by the Ministries of Environment and Agriculture called “Sustainability of palm oil and other vegetable oils,” calls for new measures for segregation of palm oil used in the biofuels complex. Palm-based biofuels would count only for 50% of their energy content.

The report was ordered after the publication of the law of “biodiversity re-conquest” in August 2016. The article 47 of this legislation suggests that the reform of the tax system should extend to vegetable oil “in a context of contestation against palm oil” use in France.

What’s new in this report is that three axes of thinking previously supported by authorities to handle the palm issue are abandoned: 1) heavily taxing palm oil, 2) focusing on palm oil used by the food sector, and 3) strengthening sustainability criteria applied to biofuels feedstocks. It is clear that policy designers understood that a tax segregation for palm oil is not workable in a real world. Similarly, they recognize that imposing stricter sustainability criteria can only be done at the Union’s level.

Because palm oil demand in France is mainly driven by the biodiesel sector, authors of the study recommend acting on this particular segment. They advise to reform the way the biodiesel mandate works, so as to strongly diminish the incentive to use palm-based biofuels. They propose that PME and palm-based HVO would account only for 50% of their actual energy content. It would be like a double counting scheme for waste-based biofuels, but instead of using a factor 2, the factor applied to palm-based biofuels would be 4 times lower (0.5).

Despite the recent change in government, we believe policy designers will follow the thinking behind this proposal in the coming weeks and months. The measure would be less drastic than a simple hike of the tax applied to palm oil (the “Nutella tax”) but far more efficient to cut palm oil use in France. We’ll follow the Ministry discussions on this topic very closely.