This third entry in our blog series about the Asian biomass market focusses on the supply of PKS and challenges with sustainability certification.
Palm kernel shells (PKS) are garnering a lot of attention in the Asian Pacific biomass market. However, it remains difficult to assess just how much PKS is produced, let alone what volume may be available to the biomass industry. PKS is a waste product of palm oil production and, until recently, its primary use has been for energy generation in palm oil mills. But its use abroad is now increasing, particularly in Japan where PKS imports have risen over 4000% since 2012 to 1.1 million tonnes in 2017.
We estimate that at least 14 million tonnes of PKS was produced in 2017 in Malaysia and Indonesia (the world’s largest producers of palm oil) but understanding how much of that is available for export is a complex question. Our estimates suggest that around 10% was exported in 2017 so why is the remainder not being utilised and can its usage be increased?
Currently exports are limited by overseas demand but if demand was to increase (as is expected), the two main barriers preventing further exports would be its use by palm oil mills for energy production and the distance of mills from ports. The transportation of PKS is frequently the largest associated cost with purchasing PKS for export. Mills are often positioned far away from ports and although the logistics are set up to transport the lucrative palm oil, little is in place to transport the waste products, which until recently have almost exclusively been used or disposed of on site.
However, if the Japanese government was to introduce PKS sustainability criteria into its subsidy scheme it could prove a significant barrier to its use in the future. Sustainability certification is not currently needed for agricultural residues, including PKS. Instead, users must demonstrate traceability and that its use does not impact current consumption in the country of origin. But Japan has recently introduced sustainability criteria for palm oil and is interested in how other countries ensure the sustainability of agricultural residues, so could look to add criteria later.
The introduction of sustainability criteria for PKS would make it very difficult to source even the 1.4 million tonnes currently exported, based on current certification levels for palm oil. The uptake of sustainability certification by palm oil plantations and mills is very limited and it is unlikely there would be enough incentive for them to obtain certification to sell a product they consider waste. All palm oil used under the Japanese Feed-in-Tariff subsidy scheme must be certified by either the Roundtable on Sustainable Palm Oil (RSPO), an internationally-recognised voluntary scheme set up in Malaysia in 2004, or an equivalent scheme. But in 2017 only around 17% of Malaysian palm oil plantations were RSPO certified and 15% of Indonesia’s.
Another factor which could further limit the uptake of sustainability certification is the EU’s ban on biodiesel produced from palm oil by 2030 under its Renewable Energy Directive II. The EU is one of the largest markets for palm oil, behind China and India, and the only major market driving the push for sustainability certification. Without the EU’s business, the palm oil mills will have even less incentive to get certified.
Sustainability is crucial to ensuring biomass achieves its goals of reducing greenhouse gas emissions and in maintaining public support. The public’s acceptance of PKS is vital to its longevity in the market, so far it has not attracted much attention, compared to the objections raised regarding palm oil. However, the Irish government bowed to public pressure last year, banning the import of PKS for energy production, largely due to the linked controversy with palm oil. As more PKS is used it is very likely the public’s awareness of its existence and use will increase.
The challenge is that because PKS is a waste product of the palm oil industry, and collected from large numbers of individual mills, it will be difficult to trace back to the plantation and prove sustainability.
If there is a way to encourage greater sustainability certification for PKS, it will almost certainly come at a cost. This leads to the question of whether Japanese buyers are able and willing to pay a premium for sustainably-certified PKS?
For more information on PKS supply and the expected growing demand in South Korea and Japan please see Hawkins Wright’s new multi-client report – A Strategic Assessment of Asian Pacific Biomass Demand and Supply to 2030.