Briefing
Vegetable oil markets and the EU biofuel mandate
An important question when estimating the indirect land use change emissions from biodiesel feedstocks is whether vegetable oils replace each other in the market, so that increased demand for one may result in increased production of another. In particular, it is important for the European Commission’s estimation of ILUC factors whether palm oil production increases to meet EU demand for rapeseed oil biodiesel. Data from FAOtat show convincingly that since 2000, increasing rapeseed biodiesel demand has been met not only by increased rapeseed production and area but also by increased palm oil imports.
Expansion in European vegetable oil production has been inadequate to meet biodiesel demand on its own, and palm oil imports have risen dramatically in the same period that biodiesel mandates have been introduced and ramped up. Prices of rapeseed oil, soy oil and palm oil are well correlated, suggesting that the markets for these oils are well connected. It has been argued that expanded rapeseed expansion will have a limited or zero displacement effect on other crops because it is a ‘break crop’ used in rotation with wheat. This contention is undermined by data clearly showing a large drop in the area of other break crops in parallel with increases in harvested rapeseed area.
The modelling of ILUC by IFPRI for the European Commission assumes that vegetable oil markets are fungible, and this assumption is well supported by the data. Based on consideration of FAO production and trade data, there is no reason to believe that IFPRI overestimates the role of palm oil in meeting EU food oil demand when rapeseed oil is displaced to biodiesel production, and there is therefore no reason to believe that the attribution by IFPRI of peat emissions to European biodiesel production is excessive.