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TWO interesting news items appeared in my email inbox in the past couple of days to round out what has been a rather hectic month of April for the country and the world at large, and might be portents of some intriguing developments in the next couple of weeks or months.
The first, and less alarming of the two was an update from the Asian Development Bank (ADB) on the progress of its Energy Transition Mechanism (ETM) through April, which has a significant bearing on the Philippines as this country was one of the pilot countries for the program, and it will, or at least should, have a considerable effect on energy development here over the next several years.
According to ADB’s own description, “ETM aims to use concessional and commercial capital to accelerate the retirement or repurposing of fossil fuel power plants and replace them with clean energy alternatives.” The people who write these things do their best, but they are nerds, so to translate for ordinary people, what that means is that the ETM is a financial facility that supports the absorption of a coal power plant operator’s long-term debt, which allows it to be paid off sooner, which in turns allows the company to invest sooner in alternative forms of energy. The ETM program can be applied to any type of power plant, but the focus at the moment is on coal plants, since all but one of the countries involved have more of those than anything else.
The ETM program was originally launched with the Philippines and Indonesia as the pilot countries, with Vietnam quickly added soon after, and it has now been extended to include Pakistan and Kazakhstan. In Pakistan, the focus is on oil- and diesel-fired generation plants more than coal, but the same basic principles of the program apply.
Interestingly, even though the Philippines was the first country to actually implement an ETM transaction in November of last year, that was an entirely private-sector initiative that simply used aspects of the ADB program as an example model. With financing from Bank of the Philippine Islands, Rizal Commercial Banking Corp. and the Government Service Insurance System, among others, Ayala Group’s AC Energy will cut in half the 50-year lifespan of its South Luzon Thermal Energy Corp. 246-megawatt coal plant in Batangas. Out of the P17.4 billion total of the deal, AC Energy will receive about P7.2 billion for reinvestment in renewable energy projects, of which the company has set an optimistic target of 20 gigawatts by 2030.
The first ETM transaction under the ADB program is likely to happen in Indonesia, where details of a deal involving a 660-MW coal plant in Western Java are currently being ironed out. Once this happens, which should be sometime within the next couple of months, there will be two examples — AC Energy’s private sector deal and the ADB-supported deal in Indonesia — that can be applied elsewhere, which should rapidly accelerate the unwinding from coal power.
The ETM program does have its critics, but to the credit of the team at ADB behind its development, they seem to have a good grasp of what the ETM is, and is not. It is not a comprehensive solution, and it won’t result in fossil-fuel plants being shut down immediately, but only gradually over a number of years. What it is instead is one solution among many, and a way to transition away from dirty energy in such a manner as to make doing so an attractive business proposition with a minimum of risk. Governments and the energy industry and development institutions should of course strive to make as much progress as quickly as possible, but as I have said many times and will undoubtedly keep repeating, the only way any progress will be made is if it is done realistically. That is certainly what seems to be happening with the ETM, and so we can accept that it’s probably not perfect so long as it keeps things moving in the right direction.
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Palm oil, which I wrote about earlier this month (“The palm oil problem,” April 20), is still in the news, and becoming an increasing source of tension between the European Union and the world’s two largest producers, Indonesia and Malaysia. Both countries have reacted bitterly to the EU’s recent imposition of new certification requirements aimed at curbing the palm oil industry’s destructive practices of deforestation and conversion of peat lands, rules that will either put much of the existing industry in Malaysia and Indonesia out of business, or force expensive modifications to farming techniques and land use.
In a statement after the vote approving the regulations, Malaysia’s Deputy Prime Minister and Minister of Plantation and Commodities Yab Dato’ Sri Haji Fadillah Bin Haji Yusof complained, “The regulation is a deliberate effort to increase costs and barriers for Malaysia’s palm oil sector, including more than 450,000 smallholders. This ultimately would increase poverty, reduce household incomes and harm our rural communities — outcomes that stand in stark contrast to the EU’s commitments outlined in the UN Sustainable Development Goals. The EUDR (EU deforestation regulation) is unjust and serves primarily to protect a domestic oilseeds market that is inefficient and cannot compete with Malaysia’s efficient and productive palm oil exports.”
The Deputy PM added, “The Malaysian government, working alongside our partners in Indonesia, is considering an appropriate response to this regulation, given the importance of the palm oil sector and the clear intent to impose an unjustified trade barrier.”
Indonesia’s response has been even more interesting. In an op-ed piece for the online EU Observer, Indonesia’s ambassador to Germany Arif Havas Oegroseno accused the EU of “trying to recolonize the Global South.” The ambassador suggested that the EUDR was a form of spying, as it would make use of satellite monitoring of land use, and require farmers to submit their personal data to an EU database. He wrote, “As the Global South and its smallholder farmers are being targeted by the EUDR, the critical question is: Does EU want to recolonize them again with different ways and means?”
The great importance of the palm oil industry to both Indonesia and Malaysia, respectively the world’s number one and two exporters of the stuff, makes their reactions understandable, if not exactly justifiable. The industry in both countries has been notorious for its level of environmental destruction and labor abuse for years, and while both governments have made efforts to improve things on both counts, it is a bit arrogant for them to demand that the rest of the world set aside their own standards.
What is more worrisome is the not-so-subtle indications from both Malaysia and Indonesia that they are willing to engage in a trade conflict with the EU over the palm oil regulations. At a time when global trade and the broader economy are still in somewhat tenuous condition, such an outcome would be harmful well beyond their borders.
But, as it turns out, Malaysia and Indonesia may have an option for peddling the palm oil that the EU no longer wants. In an article last Monday, Eco-Business revealed that an aggressive effort to build up a domestic palm oil industry in India, the world’s largest importer, has completely collapsed. In the northeastern Mizoram state, the center of palm oil in India, the number of hectares under cultivation has plummeted since the support initiative began, from 26,730 hectares initially to just 3,400 hectares. Most of this decline seems to have happened in the span of about a year; according to the state’s agriculture department, the number of farmers listed as palm oil producers dropped from 10,843 to 2,733 between 2021 and 2022.
The biggest reason for the failure was cited as poor infrastructure and excessive transport costs, making imported palm oil comparatively cheaper. With an annual consumption of more than nine million metric tons, India would seem to be a promising market for their Southeast Asian neighbors who are suddenly feeling jilted by their former best customers.
ben.kritz@manilatimes.net
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