Investigation: new biofuel law puts palm oil products in your tank that Neste fights to claim as waste

There's a huge amount of money riding on the definition of what is a 'waste product', and what is a 'by-product', and Finland is at odds with other European countries.

File picture of palm oil biodiesel in tubes / Credit: iStock

When politicians decided in February to hike the share of biofuels on Finnish roads, they pumped a controversial ingredient into cars: a palm oil-based product that has already been reclassified due to environmental concerns in Sweden, Norway, UK and France.

Finland’s state-owned oil company Neste stands to make potentially huge sums of money based on the careful legal definition of this product.

PFAD is an ingredient most people have likely never heard of. It’s an acronym for Palm Fatty Acid Distilliate and is one of the most important raw materials for renewable diesel, which the new biofuel law forces on Finnish cars – there’s a target of 30% to be reached by 2030.

Finland remains one of the last countries to still treat PFAD, a secondary product created in the production of palm oil, as ‘waste’ for the purposes of the biofuel industry.

Environmentalists have raised concern about increasing the consumption of biofuel without addressing the issue of whether its component raw materials are themselves sustainable.

File picture showing exterior of Neste headquarters in Espoo, January 2019 / Credit: News Now Finland

Despite heavy lobbying efforts by Neste, both Norway and Sweden have reclassified PFAD, citing environmental issues related to palm oil production. France and the UK have done the same, but Finland’s Ministry of Economic Affairs believes that any reclassification here is not necessary.

With a near monopoly on the production of renewable diesel, it’s in state-owned Neste’s best economic interests to keep PFAD designated as a waste product, since that entitles the company to huge tax reductions and hides the true cost, in emissions, of palm oil production.

Other Finnish fuel companies like St1 and Teboil are crying foul, as they’re essentially forced to buy Neste’s renewable diesel and mix it with their own fuel to comply with the government’s new green targets.

The hidden ingredient of the renewable diesel

Despite promises from the biofuel industry to reduce its dependence on palm oil, by-products like PFAD continue to be one of the most important raw ingredients for producing renewable diesel – especially for Neste, which prides itself on being the world’s largest producer of renewable diesel.

When palm fruit is processed, normal bruising of the fruit causes parts of it to start degrading; and when the palm oil is being refined, these degraded fats are turned into PFAD.

Baby palm oil plants on a plantation / Credit: Neste

Although Neste markets its renewable diesel as being completely made of waste products, this definition relies on the whether PFAD is a classified in Finland as ‘waste’, or a ‘by-product’ of palm oil.

Neste has consistently refused to reveal how much of its biodiesel is made from the disputed PFAD.

“We do not disclose specific usage volumes of each waste and residue material in public for competitive reasons. We have spent years on developing our waste and residue raw material portfolio, and it nowadays provides us with flexibility and a competitive advantage” says Ilkka Räsänen, Neste’s director of Public Affairs.

New data, however, reveals how widespread PFAD has become in the biofuel industry.

In January 2019, the Swedish Energy Agency released numbers on the renewable diesel used in Sweden, one of Neste’s most important markets.

The data shows that PFAD was the most important raw material for renewable diesel, with a share of 39% of all raw materials in 2017. That’s up from just 23% the year before.

Biodiesel refinery in Porvoo / Credit: Neste

Finland among the last to change PFAD classification

Finland is one of the last countries where PFAD is classified as a ‘waste product‘, a label which massively incentivises its usage. Environmentalists have called for such support to be removed from palm oil products.

“PFAD should not be considered a waste residue, and many countries have recognized it” says Carlos Calvo Ambel, Analyst and Manager at Transport & Environment, a pressure group that works to highlight the impact of transportation climate, environment and health.

“So far, only Finland, who owns Neste, and Italy, who has massive interests in PFAD because of the oil company Eni, accept it [as a waste product]. PFAD has environmental impacts, as using it for biofuels causes other industries to use crude palm oil” explains Ambel.

Unsurprisingly, Neste takes a different view.

“PFAD is a rather poorly-known material that is often criticized simply due to the fact that it is derived from the palm oil production process. Any reference to palm oil creates strong emotions” says Neste’s Ilkka Rässänen.

“Palm fatty acid distillate (PFAD) clearly fully meets the definition of EU law of criteria for processing residue. As an undesired impurity that has to be distilled out in order to produce edible palm oil and which represents only 3.5 – 5% of the amount of refined palm oil, PFAD cannot be considered to contribute into expansion of oil palm plantations into illegal areas” he tells News Now Finland.

The EU’s Renewable Energy Directive establishes general criteria for the classification of raw materials in biofuel production, but the list is not exhaustive. The final classification of waste products is currently left to individual Member States: in this case Finland, which owns Neste.

And although Sweden, Norway, France and the UK have already reclassified PFAD from a ‘waste’ product to a ‘by-product’, citing environmental concerns, don’t expect Finland to follow suit any time soon.

“We are aware that some countries have introduced additional national criteria for residue, but Finland has not seen this necessary. On the contrary, Finland is of the opinion that a consistent EU definition is important for the functioning of the internal market” says Vilhartti Hanhilahti, Special Advisor to Environment Minister Kimmo Tiilikainen (Centre).

Image showing the cleaner burning biodiesel fuel on the left / Credit: Neste

Increasing the consumption of biofuel, without addressing the issue of whether its raw materials are sustainable, seems counter-intuitive for environmentalists.

“Finland should decrease the 30% biofuel objective and decrease the maximum contribution of crop biofuels, and not consider vegetable oil-based biofuels sustainable” says Jori Sihvonen, Clean Fuels Officer at Transport & Environment.

“Biofuel policies cannot be set in isolation, and as many different sectors and countries start demanding them, the [sustainable biomass] is spread thinly, thus making 30% requirements difficult to meet, sustainably” says Sihvonen.

Profits at stake for Neste

As PFAD is one of the most important raw materials for renewable diesel, Neste has a lot at stake in how PFAD is classified.

Biofuels made of waste allow for huge tax reliefs. Such biofuels, like renewable diesel based on PFAD, are completely exempt from the carbon dioxide tax in Finland.

To illustrate, PFAD enjoyed 3.2 billion Swedish kroner in tax reductions before it was reclassified as a by-product in Sweden.

When a raw material is classified as a waste, it also allows the majority of its emissions to be discounted in emissions statistics. As waste, the emissions produced during the production of the raw material can be completely ignored, and the emissions are only counted from when PFAD is collected.

In other words, PFAD is treated on paper as if palm oil production is completely emission free. This helps Neste to boast impressive claims about renewable diesel’s ’90 percent reduction in greenhouse gases’.

Environmentalists, however, do not share the optimism:

“If Neste truly wants to be a sustainable company, they should move away from raw materials which cause destruction worldwide, either directly or indirectly” Transport & Environment’s Ambel says

File picture of someone adding fuel to vehicle / Credit: iStock

Neste’s failed lobbying to keep PFAD as waste

Since having PFAD classified as waste brings huge benefits to Neste, the company has been lobbying heavily to stop reclassification.

In March 2016, the Norwegian national broadcaster NRK revealed how Neste had been lobbying the Norwegian Environment Agency to get PFAD classified as a waste product.

Initially, Neste’s lobbying was a successful, and the Environment Agency granted the waste classification. However, after a public outcry, the Ministry of Environment stepped in and ordered a whole new assessment of the raw material. In January 2017, the waste classification was removed, and PFAD was reclassified as a by-product of palm oil.

As reasons for the reclassification, the agency listed PFAD’s indirect greenhouse gas emissions, PFAD having market value and thus not being a waste, and the fact that PFAD has already been classified as by-product in most EU countries.

Last year, Neste attempted the same tactic in Sweden. As Europe’s largest consumer of biofuels, Sweden is one of Neste’s most important markets.

In July 2018, Sveriges Natur exposed how Neste, working with public relations company Westander, attempted to stop the reclassification of PFAD in the Swedish Parliament. Subsequently, Westander faced a backlash as their credibility in the climate area was questioned by the media.

Also in Sweden, the reclassification went through and the Swedish government decided to reclassify PFAD as a by-product in November 2018.

Neste, on the other hand, claims the discussions around PFAD are based on misinformation, and considers the lobbying efforts to be ‘knowledge sharing’.

“As a lot of false information and mis-assumptions circulate around PFAD, we have considered it important to share the knowledge and information we have accumulated of PFAD with decision makers in order to make sure they have as comprehensive picture of the discussed matters as possible” Public Affairs Director Ilkka Räsänen says.

“We have engaged with the politicians to discuss, for example, that in circular economy, all residues and wastes should have an avenue to be utilized, and thus have value. Material that has no value is thrown away, and this should be avoided. The more waste and residue materials we use, the better for the climate.”

Sweden and Norway, however, were not swayed by Neste’s arguments.

Green Alliance on the fence

Unlike their Nordic counterparts, the Green Alliance party in Finland hesitant in their approach towards biofuels based on palm products.

When Sweden reclassified PFAD last November, State Secretary Eva Svedling (Miljöpartiet), said the reclassification of PFAD was the most important decision to increase sustainability.

The Greens in Finland, however, unanimously voted in favour of the new biofuel law in Parliament.

“In the hearings of the biofuel law in question, the Ministry of Economic Affairs and Employment informed the Environmental Committee that palm oil based biofuels will be given up […] so the matter of palm oil was not further discussed” says party chair Pekka Haavisto.

Although the Greens voted in favour of the new laws, they did include three amendments to reduce biofuel use, but couldn’t get enough support in parliament to pass them.

File picture of Neste fuel pumps / Credit: Neste Facebook

The new biofuel supply chain reality puts palm oil in your car

Instead of addressing the environmental issues of palm oil like our Nordic neighbours, and other EU countries, Finland’s new biofuel laws force Finns to use even more palm oil products. The law requires that the share of biofuels in road traffic must reach 30 percent by the year 2030.

Since the law specifically targets renewable diesel, and since it’s the only biofuel that can be mixed with regular fuel in any proportion, the law has already raised questions of fair competition.

Teboil called the new situation ‘intolerable’, and energy company St1 noted that the law gives Neste a monopolistic position. The law’s drafters, however, say that’s not the case.

“Claims on Neste Oyj’s possible monopolistic position were carefully examined in co-operation the Finnish Competition and Consumer Authority. No grounds for the claims could be established. There is no obligation for fuel companies to buy renewable diesel from Neste” says the Environment Minister’s Special Adviser Vilhartti Hanhilahti.

Although there is no explicit obligation to buy from Neste, the new requirements can only be filled with Neste’s products.

And Neste is the only viable global producer of renewable winter diesel in the world.