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Steven Gust, Ilmari Lastikka 9 March 2010

Neste Oil Comments to ILUC modeling assumptions

We appreciate this opportunity to respond to the assumptions concerning the use of palm oil as a 

feedstock for biodiesel or Renewable Diesel production in the simulation of an ILUC value. As was 

pointed our in the simulation, this can be considered to be a DRAFT. ILUC gives a “snapshot” of the 

future taking into consideration a number of key assumptions. We feel that the following notes and 

comments could and should be used when simulating palm oil ILUC. Unfortunately we did not have 

sufficient time to complete our list of comments and they are not yet fully referenced. We hope we 

could discuss these with you in person as the DRAFT version is modified.

1. Size and Effect of the Shock

 Expanding production of palm oil by 18.5 million tonnes by 2020 is not reasonable considering 

the plantation preparation time required, the number of seedlings required and the fact that 

palm oil does not reach full production in the first 2-3 years. On what basis was an expansion 

of 18.5 M t CPO presumed?

 This very large increase of demand of 18.5 Mt would put strong upward pressure on palm oil 

prices. What might be the magnitude of this increase? There is no indication of this in the 

report. Another controlling factor is crude oil prices. What is the assumed crude oil price in 

2020? There is good correlation between crude oil prices and vegetable oil commodity prices. 

These 2 factors taken together could increase palm oil prices by 30 to 70% over historical 

trends. This would reduce demand in traditional markets. This demand reduction in traditional 

markets would free up CPO for energy production and thus reduce the volume required to be 

supplied by new plantations. Depending on the specific market addressed and it’s particular 

consumption elasticity, we feel that 10-20% of the palm oil demand in traditional markets 

could be reduced (4-8 million tonnes per year). This could reduce the need for land expansion 

by 30-40% from your estimate. 

2. Effect of Increased Volumes of Side Products

 As the volume of CPO increases, so does the volume of the side products. This has been 

pointed out in your report. The expanding volume of palm kernel oil (PKO) side products will 

therefore decrease the land required to grow the substitute crop. In your analysis you have 

reduced the need for coconut oil by 3.7 million tonnes thus saving 2 M ha. This land is now 

availble for other crops which would reduce the need to clear land additional land. How much 

of a carbon saving will this bring? This should be credited directly to palm oil expansion. We 

may assume that this 2 M ha will save a combination of natural forest from being converted to 

cropland (1.5 Mha) and savannah (0.5 M ha). How should this credit be included in your 

analysis? 

 A similar analysis must be done for the palm kernel expeller. This animal feed will reduce the 

amount of purpose grown animal feed. What feed would be replaced by the palm kernel 

expeller will depend on the relative market prices. The analyses by E4Tech in their report is 

one example or scenario. For example the co-firing example although having no land impact 

could have a large CO2 saving if this expeller replaced a fossil fuel such as coal. With the new 

emission trading schemes in Europe this becomes a strong possibility. 

3. FFB Yields & CPO Extraction 

 The impact of yield improvement in the presented model is considered to be minor. The FFB 

yield used in the model is 17 t FFB/ha in Indonesia and 21.3 in Malaysia rising to 22.4 in 2020. 

It is well known in the palm plantation industry that yields are dependent on using the best 

strains of palm, optimizing the fertilization rates (both organic from EFB and inorganic 

fertilizers) together with climatic influences. Oil extraction rates at mills also vary from 19% to 
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Steven Gust, Ilmari Lastikka 9 March 2010

21.3%. If we assume that the average FFB t / ha is 20 and an oil extraction average of 20% 

then there would be 4 t CPO/ha / a. We did not find the extraction rate used in your report. 

What value was used and how was it chosen? What percentage of the expanded production 

will use the extraction rated of 20% and what is the lower rate of extraction? At this hectare 

yield the land required would be 4.6 Mha which is significantly less than the 5.9 M ha in the 

report. There is a large body of literature available that the yields could increase to as much as 

6 t/ha. This would then significantly reduce the land requirements further. Taken together 

these would reduce the land required to < 4 M ha.

 Another determining factor when considering yields is the size of the estate and the support 

given by governmental institutions to small land owners. As prices rise, there is a high 

probability that small holders will better manage estates and increase yields and to increase 

for example fertilizer applications. Thus the conclusion that there are currently lower yields in 

Indonesia and Thailand than in Malaysia due to the high relative share of smallholders would 

no longer play a dominating role. Many of these smaller estates which have been started up in 

the late 1980s and early 1990s are now maturing and the new plantations will have 

significantly better yields. 

4. Land use change period 2001- 2007 and government policies

 It is the common practise to use historical trends for land use change patterns. But other 

factors will also effect future land use patterns such as local legislation and international 

treaties and regulation. In the study the trend period of 2001-2007 was used as the basis for 

future land use changes. Here it was assumed that there would be no influence of current or 

upcoming legislation. In both of the main palm oil producing countries of Indonesia and 

Malaysia there has been recent legislative changes to prevent land use expansion to forest In 

addition, the international Round Table on Sustainable Palm oil has only recently started 

operating in the industry and this will have a large impact on land use change and palm oil 

production in the future. We therefore believe that the use of historical trends must be 

combined with existing and upcoming legislation. 



5. Land use change type and government policies

 The land use change type has been taken from satellite images. These images cannot reveal 

whether the land being converted in Indonesia or Malaysia is primary forest or secondary 

logged over forest. These images could also mistake idle land (with large leaf coverage 

bushes) with forest. A more accurate description of land types and correlation with satellite 

images should be performed.

 There was no mention in the report concerning the use of degraded lands in Southeas Asia for 

establishing plantations. There are many unutilized degraded lands, with estimations varying 

from 1 million to 8 million hectares.Why were these degraded lands not considered? 

 In the recent Copenhagen Climate conference, the Indonesian government announced its 

plan to reduce emissions to 26% by 2020 by avoidance of deforestation and implementation of 

REDD (http://www.thejakartaglobe.com/national/climate-conference-a-winner-for-indonesiaofficial/349077 and http://www.nrdc.org/international/copenhagenaccords/default.asp). This 

means using more degraded lands for palm oil expansions which would in fact sequester 

carbon. 
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Steven Gust, Ilmari Lastikka 9 March 2010

6. Land use change driver

 The modelling assumption is that the production of palm oil is the driving force for land use 

change from forest to palm oil production. Many studies have shown that the main driver is 

poverty. It is known fact that the logging industry (legal and illegal) is major converter of 

forests in Indonesia and Malaysia. Thus the carbon stock removed from these forests if put 

into lumber should not be considered as contributing to CO2 emissions. What portion of the 

carbon stock removed will be converted to lumber? It should also be taken into consideration 

that the clearing of the forests is not the primary driver. Forests are cleared for income. The 

question must be raised as to what portion of forests have been converted by logging industry 

before palm oil production was initiated. This would also mean that some of the palm oil 

expansion has occurred on degraded (already logged forest) land where the carbon intensity 

of land use change is positive for palm oil planting.

7. Elasticity of the vegetable oil market

 The model does not include elasticity of the vegetable oil market. Vegetable oil markets are 

global where different oils substitute each other. Therefore the ILUC modelling should take 

this into consideration. 

8. Palm oil plantation C sequestation 

 In the model it was assumed that after 25 years the palm trees would be cut down and burned 

before planting new trees (which would cause GHG emissions from burning). This practice is 

illegal in Malaysia and Indonesia and is also against the rules of RSPO. The standard practice 

in the industry is after the tree have reached 25-30 years is to cut them down and crush them 

with tractor (on the spot and bury them under ground for fertilizing the soil. Palm oil trees could 

also on the future be used for energy to repalce for example coal. Palm oil trees could also be 

used to produce lumber products. Based on this analyses the palm oil plantation should be 

credited with carbon sequestation of 60 t/ha. 

In conclusion we would like to repeat that the outcome of the study would have very different results 

when taking more carefully into consideration the actual developments in Southeast Asia. 

We look forward to meeting with you and your staff in the near future to discuss these points

Best Regards

Steven Gust