THE IMPACT OF THE EUROPEAN UNION (EU) RENEWABLE ENERGY DIRECTIVE (RED II) ON PALM OIL TO THE MALAYSIAN ECONOMY

Abstract

The oil palm industry has contributed significantly to the Malaysian economy and forms its agricultural industry pillar. Malaysia’s total export earnings from palm oil and other palm-based products increased significantly from only RM11.70 billion in 1996 to RM73.25 billion in 2020. The oil palm industry generates income for Malaysia and has also played a key role in improving its citizens’ quality of life. However, over the past decades, the oil palm industry has been the subject of conflicting claims, especially from the European Union (EU), which has criticised the oil palm industry’s reputation and affected the marketability of Malaysian palm oil globally. In May 2019, the EU adopted the Delegated Regulation (EU) 2019/807 of 13 March 2019 supplementing Directive (EU) 2018/2001 (EU Red II) in which defines palm oil as a high indirect land-use change (ILUC) risk, therefore unsustainable feedstock for biofuel production for the EU Member States market. Consequently, the palm-based biofuel feedstock could not be counted towards the EU renewable energy targets. This study has determined the implication of EU RED II on the Malaysian economy via the input-output (I-O) analysis. The findings illustrate that the reduced palm oil export to the EU due to its plan to phase out palm oil from 2021 gradually affects the Malaysian economy and its other sub-sectors. These findings will be helpful to policymakers and industry players as reference resources to assess the influence of the anti-palm oil campaign and the EU policy measures on the Malaysian economy.