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Research Report

Biofuels in Malaysia: An analysis of the legal and institutional framework

Melissa Chin
Copyright Date: Jan. 1, 2011
Pages: 40
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Table of Contents

  1. (pp. vi-vi)

    In Malaysia as of 2010, the area of oil palm plantation was 4.85 million ha covering 14% of the total land area in Malaysia. Sabah still has the largest area planted with oil palm of any state, accounting for 1.4 million hectares (ha). Sarawak registered a 9.5% increase in planted area in 2010, the highest in the country, and the state now accounts for 0.9 million ha of oil palm plantation (Choo 2011).

    Palm oil prices went above MYR3000 towards the end of 2010 and remained high in early 2011 (MPOB 2011). Although experts expect the price to soften somewhat...

  2. (pp. 1-1)

    Amidst concerns over energy security, volatile fuel prices and rising greenhouse gas emissions, many countries are turning towards biofuels as a more environmentally friendly alternative to fossil fuels. The introduction of legislation mandating the use of biofuels in the energy mix, for example in the United States and the European Union, has stimulated the demand for vegetable oils, for use as biodiesel. Although providing new economic opportunities for producer countries, this development is not without its controversies. The expansion of agricultural land for the cultivation of biofuel feedstocks raises concerns about deforestation, biodiversity loss, land conflicts, competition with land for...

  3. (pp. 2-5)

    This section provides an overview of the state of biofuel development in Malaysia. As ethanol is currently not produced in Malaysia for use as a fuel (Hoh 2009) this report focuses specifically on biodiesel, with palm oil as the feedstock of choice.

    The high global demand for palm oil is driven by its wide variety of uses, such as cooking oil, food additive, industrial lubricant, cosmetics ingredient and most recently as a feedstock in biodiesel production (MPOC 2007). As a feedstock for biodiesel, palm oil has distinct advantages over other oils (Ramli et al. 2007). Firstly, oil palm is the...

  4. (pp. 6-8)

    The National Biofuel Policy was formulated in 2005 following stakeholder consultations, and was based on earlier research findings by the Malaysian Palm Oil Board (NBP 2006).⁵ The Ministry of Plantation Industries and Commodities (MPIC) is responsible for both policy development and implementation. At the time the policy was formulated, the government was motivated in particular by the need to stabilise the CPO price and exploit new export market opportunities. The policy was eventually launched in March 2006 and is underpinned by five strategic thrusts, with short-, medium- and long-term implementation periods. The policy was expected to bring the following main...

  5. (pp. 9-17)

    Palm oil is the primary biofuel feedstock in Malaysia; hence, it is also worthwhile to look at the legislation and policies that govern the Malaysian oil palm industry. At the federal level, the Ministry of Plantation Industries and Commodities (MPIC) is the primary authority responsible for overseeing oil palm plantations, mills and refineries. The Ministry of Human Resources regulates wages and health and safety standards, whereas work permits and issues related to illegal migrant workers fall under the purview of the Ministry of Home Affairs (Lopex and Laan 2008). The Ministry of Natural Resources and Environment regulates issues related to...

  6. (pp. 18-20)

    The major stakeholders in the Malaysian palm oil industry are briefly summarised in Figure 3. The development of Malaysian plantation and commodity sectors, with respect to crops such as palm oil, rubber and wood, falls under the Ministry of Plantation Industries and Commodities (MPIC). Three other organisations actively involved in the palm oil industry are the Malaysian Palm Oil Association (MPOA), the Malaysian Palm Oil Board (MPOB) and the Malaysian Palm Oil Council (MPOC).

    The Malaysian Palm Oil Association (MPOA) was established in 1999 through the merger of four major plantation associations: the Rubber Growers’ Association; the United Planting Association...

  7. (pp. 21-22)

    Despite 56 licences being issued under the Biofuel Industry Act 2007 (Dompok 2010), Malaysia has only 25 biodiesel plants, with many of them operating below their installed capacities. Within the Sabah Palm Oil Industrial Cluster (POIC), for example, eight biodiesel licences have been issued but only two plants have been constructed and are operational, whilst the rest have been put on hold (Bilson, personal communication). In 2009, biodiesel production was reportedly below 10% of the domestic total installed capacity (Hanim 2009b).

    According to the Malaysian Palm Oil Association (MPOA) Chief Executive Officer, Datuk Mamat Salleh, a financially viable biofuel programme...

  8. (pp. 23-23)

    The outlook for the Malaysian biodiesel industry hinges upon whether substantial government subsidies or incentives are forthcoming in the near future. In February 2010, the government decided to push back the implementation of the B5 mandate to June 2011. Even with this mandate, it is unlikely that domestic demand will be sufficient to sustain the industry. The industry is extremely vulnerable as a result of fluctuating palm oil and petroleum prices and restrictive biofuel policies in key consumer markets. Whether or not palm biodiesel will be acceptable under the EU-RED will depend on negotiations between the Malaysian government, the RSPO,...