The WTO has ruled in favour of the EU on palm oil biodiesel. What now for soy?

The World Trade Organization is not always known for siding with the environment. But earlier this month, in a landmark case related to deforestation, the WTO ruled in favour of the EU’s decision to cease classifying palm oil biodiesel as a renewable fuel, following a complaint made by Malaysia. On the same day, palm oil-producing powerhouse Indonesia suspended its own complaint on the same issue.

Make no bones about it, this is a groundbreaking win for EU environmental policy.

This ruling bolsters the EU’s ability to take progressive, climate-based action on contentious international trade issues. It sets a strong precedent for phasing out other deforestation-driving biofuels currently used on the European market, namely soy.

Much like palm oil, soy biodiesel emits up to twice as much carbon as fossil dieselonce deforestation and land use change is taken into account. It is heavily linked to the destruction of carbon-rich ecosystems and human rights abuses in South American countries.

Until now, however, the European Commission has shied away from making a decision on whether soy biodiesel should receive the same fate as palm, most likely to avoid further disputes at the WTO with top soy exporting countries, such as Argentina.

These concerns are by no means unfounded. In a 2022 letter seen by Transport & Environment (translated extract), Argentina’s permanent representative to the EU reached out to all three European Institutions regarding the soy decision. The letter expressed serious concerns over the possibility of a soy biodiesel phase out and that such a decision would go against the EU’s WTO trade obligations.

With two WTO palm biodiesel lawsuits from Malaysia and Indonesia already on their plate at the time, one can understand why the Commission would have taken heed of this warning, postponing any decision on potentially phasing out soy.

The story then continued in February 2023 during Mercosur Deal negotiations in Brussels. According to Argentine media, Argentina’s (now former) Minister of Foreign Affairs Santiago Cafiero alluded to the Renewable Energy Directive (RED) specifically during the talks, taking issue with its clause to examine the 10% threshold that allows biofuel crops linked to indirect deforestation to still count as renewable. He expressed concerns that lowering this threshold would induce a phase out of Argentine exports of soy biodiesel, a sticking point in trade negotiations.

It is important to note that the European Parliament advocated specifically for lowering this threshold in the trilogue negotiations of the RED, which took place in the same year.

The decision on whether the EU will phase out soy will be decided in the revision of the delegated act on indirect land use change. This delegated act supports the RED by determining the aforementioned threshold, as well as declaring what percentage of biofuel crops cause indirect land clearance in high-carbon stock lands, such as forests and peatlands.

The Commission is now six months late in making this revision and has not given any official communication on the reason for this delay. With the EU-Mercosur deal now seemingly dead in the water and last week’s WTO’s ruling in favour of the EU, an alleviation of trade pressure means the Commission now has no more excuses to not proceed with the revision and ensure a phase out of soy.

While the EU still needs to adjust some elements of its policy based on the ruling (mainly on updating the data used for classifying biofuels ‘high risk’ and the criteria defining what can be certified as ‘low risk’), it is clear that concerns of a similar WTO case on soy being brought against the EU from top exporter countries should no longer be an obstacle, as it has been until now.

Now is finally the time for the European Commission to phase out soy biofuels from our renewable energy targets. It has no more excuses.

Tags: World Trade Organization, environmental policy, Indonesia, EU, Malaysia, WTO, biodiesel, palm oil, deforestation, soy