Can green trade barriers save the environment?
Unlike India, which began evangelising oil palm to farmers about 20 years ago, Malaysia has been growing it for much longer. Photo: Riddhi Tandon
What Malaysia’s experience with Sustainable Palm Oil tells us about tropical deforestation — and CBAM.
Oil palm is hard to miss in Malaysia. Its plantations are visible along the highway between Kuala Lumpur International Airport and Kuala Lumpur itself. A few days later, when CarbonCopy travelled to the eastern province of Sabah in Borneo, oil palm was omnipresent there as well.
Flying over Sabah’s forested interior, we saw large geometric patches, each a much lighter shade of green than the surrounding forest, carved into what was once one of the biggest tropical jungles in the world. Those, too, are oil palm plantations.
The scene is similar elsewhere in Sabah, too, like the land abutting the Kinabatangan river. Other provinces, like Sarawak in Borneo and Kelantan and Pahang in peninsular Malaysia, are said to be no different.
Little here is a surprise. Unlike India, which began evangelising oil palm to farmers about 20 years ago, Malaysia has been growing it for much longer. First introduced to the country by the British, it began to be planted as a cash crop in the 1960s. Since then, as a conservationist in Kota Kinabalu, the capital of Sabah, told CarbonCopy, it has spread like wildfire. Oil palm plantations now occupy 17% of Malaysia’s area — and account for about 4% of the country’s GDP and a little over a fourth of its exports.
In recent years, however, a dark cloud has settled over the sector. Like India, thickly forested Borneo was logged intensively during colonialism. Thereafter, plantations for rubber — and then for oil Palm — came up on these deforested tracts.
After independence, as oil palm, cheaper than other oilseeds, found its way into biofuels, cooking oil markets, processed foods and cosmetics, these processes of deforestation and cash crop plantation continued, albeit under local elites. With that, like clear-felling of rainforests for cattle ranching and soy, oil palm’s growth, too, is decimating Malaysia’s rainforests and pushing indigenous communities and biodiversity, including Sumatran tigers and Orangutans, into extinction.
Some of this history has been coming back to haunt oil palm growers. A clutch of nations, whether motivated by their own oilseed growers or ecological concerns, are trying to rein in the sector — chiefly through trade barriers that will only let sustainable palm oil through.
Under the 2023 EU Deforestation Regulation (EUDR), anything not forest-friendly will lose access to the EU market with its large buyers like Unilever and Nestle. In tandem, to protect their businesses, oil palm growers, too, have rolled out initiatives like Roundtable on Sustainable Palm Oil (RSPO), which certify environmentally and socially responsible palm oil. Apart from RSPO, Malaysia and Indonesia, the two biggest growers and exporters of Palm Oil, have their own sustainability certifications — Malaysia Sustainable Palm Oil (MSPO) and Indonesia Sustainable Palm Oil (ISPO).
A large question lies here. Alongside timber trafficking and cattle ranching, cash crops like oil palm and soybean are the biggest reasons for the world’s tropical forest loss. And so, can such trade barriers help curb deforestation?
As this article will show, the short answer to that question is “No”. The reasons run deep – including the political clout of the oil palm industry; the limited scope of Sustainable Palm Oil drives; the poorer economics of Sustainable Palm Oil; the risk that un-sustainable palm oil will simply be sold to other countries; and so on.
A test-case for sustainability certifications
In its design, the sustainable oil palm push is similar to CBAM (Carbon Border Adjustment Mechanism, which taxes/blocks high-carbon exports to the European Union). It has consequently resulted in similar blowback from both Malaysia and Indonesia. The latter, for instance, has criticised Regulation on Deforestation-free Products (EUDR) as “regulatory imperialism,” saying the EU is “[building] walls” at a time Indonesia is trying to facilitate trade.
A yet larger question lies here. What does Malaysia’s response to sustainable oil palm tell us about trade-linked attempts to fight climate change? Do these work?
The old truism of an immovable body running into an unstoppable force comes to mind. On one hand, after China and India, the EU is the third-largest market for Malaysia and Indonesia. Any drop in exports to the EU would hurt both countries. On the other hand, the oil palm sector enjoys massive political clout in both countries.
In Malaysia, logging conglomerates like Samling Group and Rimbunan Hijau, both amongst the world’s biggest timber conglomerates, have moved into oil palm. “That is how this works,” Clare Rewcastle Brown, the editor of The Sarawak Report told CarbonCopy. “First you do logging. And then, you plant some cash crops like rubber or oil palm.”
As activist Lukas Straumann writes in Money Logging: On the trail of the Asian Timber Mafia, both firms started from Sarawak, Sabah’s sister-province in Borneo, and grew on the back of extensive logging. As this report in The Ecologist says, “In 2010, Sarawak accounted for 25% of tropical log exports, despite the fact that only 0.5% of the world’s tropical forests are in Sarawak.”
Both firms have subsequently diversified into oil palm. Rimbunan Hijau, started in 1976 in Sarawak, moved into oil palm in 1988, setting up its first plantation in the province that year. Samling, set up in 1963 in Sarawak as well, produces oil palm as well, chiefly through a subsidiary called Glenealy Plantations (Malaya) Berhad.
Both firms have political connections. Samling has been linked to Sarawak Chief Minister — and, thereafter, governor — Abdul Taib Mehmud. Rimbunan Hijau has political links as well. “The (Rimbunan Hijau) Group has been linked to both Taib Mahmud’s own political party, Persaka Bumiputera Bersatu (PBB) and its coalition partner Sarawak United Peoples Party (SUPP),” wrote The Sarawak Report. Similar links have also been suggested by a 2004 Greenpeace report. Other oil palm exporters in the country — like IOI Corporation and Gentings Plantations — have also attracted scrutiny over their political links.
These firms are not outliers. Last December, news portal Malaysiakini wrote about an oil palm plantation coming up near Pahang National Park in peninsular Malaysia. The firm running it (PASB, PKNP Agro Tech Sdn Bhd) was chaired by Pahang’s former head of government. It wasn’t the only one. “Checks found that of the 28 Pahang oil palm plantation projects that were approved by DOE (Department of Environment) from 2001 to 2023, most have political or royal affiliations,” it wrote.
This political economy, as CarbonCopy learnt, is a key determinant of how campaigns like sustainable oil palm and policies like EUDR work on the ground.
The big question about compliance
In 2019, given mounting concerns over deforestation, Malaysia’s federal government capped the expansion of oil palm plantations across the country. Not only did it ban conversion of natural forests to oil palm plantations from December 31, 2019, it also capped nationwide oil palm cultivation area at 6.5 million hectares and ordered plantations to comply with MSPO standards.
Provinces and oil palm growers, however, responded to these decisions in diverse ways. “Big palm oil companies working on land cleared a long time ago pushed for EUDR as they are already compliant,” Adam Farhan, the co-founder of Malaysian think-tank RimbaWatch told CarbonCopy. “These are also the firms already exporting to Europe.”
Other growers, however, expanded to new geographies like Papua New Guinea and began setting up fresh plantations in old-growth forests there. “These are firms with no intention of exporting to Europe,” said Farhan. “They are the ones exporting to China and India. India is buying a lot of palm oil from Papua New Guinea.”
One reason for this divergence lies in the economics of sustainable oil palm. A March 2025 study published in Nature found that sustainability pushes like RSPO have reduced efficiency at Malaysia’s oil palm plantations. In effect, the most competitive parts of the palm oil trade are the ones taking root on freshly deforested forests.
With that, the market for oil palm has split into two — one flowing to markets like Europe; the other, elsewhere. In the longer-term, as Nature warned, “The continued decrease in plantation production efficiency may push oil palm producers to outsource their production to non-certified third-party suppliers to make up for the long-term loss in plantation efficiency.”
Provinces diverged in their responses as well. “Malaysia’s moratorium on new oil palm without MSPO certification is an indirect ban on oil palm,” said Farhan. “But this is a federal level commitment and hard to track at a local level. We have environmental impact assessments still being approved for oil palm plantations in forests.”
This point about continuing deforestation also comes up in Malaysiakini’s report. Reporting on a plantation in the province of Pahang, it wrote: “Despite the government restriction, deforestation for the PKNP (more on this below PKNP Agro Tech Sdn Bhd (PASB)) plantation did not cease on Dec 31, 2019.” Satellite images, instead, showed that around 529 hectares of forestland had been cleared since the 2019 ban. “At this rate, more than 2,000 hectares of the remaining forest lands will be gone in a matter of years – the equivalent size of 3,737 football pitches,” it wrote. On the ground, as both provinces and Oil Palm growers respond to EUDR, RSPO and MSPO, reporters and activists like Farhan are seeing one more trend. “Firms are citing oil palm as the reason but just clearing the forest for timber and thereafter abandoning the land or planting other crops that are less contentious — like coconut,” said Farhan.
In Pahang, as Malaysiakini has reported, PASB (PKNP Agro Tech Sdn Berhad), a subsidiary of state-owned Perbadanan Kemajuan Negeri Pahang (PKNP), cleared the forest, but didn’t subsequently maintain the oil palm plantation. It wasn’t the only one. After proposing a plantation of 8,499 hectares, a firm called YP Olio, too, continued logging after MSPO’s forest clearing ban and then put up this land for sale.
And then, there are other land uses. Timber is one. Take Sarawak. “Unlike… oil palm, the Sarawak government appears committed to aggressively expand its timber plantations,” The Diplomat wrote in 2021, saying the province wanted one million hectares under industrial forest plantations. “Although it refers to these as “planted forests,” the process of establishing them involves clearing natural forest to make way for one particular type of tree, in many cases a non-native species,” it wrote.
According to RimbaWatch, nearly 1.5 million hectares of forests across Malaysia are at risk of being replaced with tree plantations. “That’s more than three times the size of planned oil palm concessions in the country,” wrote The Diplomat.
A clutch of other firms, CarbonCopy was told, are logging forests and sowing plantations in the hope of afforestation credits. More recently, growers have also begun embracing data centres. “Palm oil companies are earmarking some of the vast tracts of land they own for industrial parks studded with data centres and solar panels,” Bloomberg reported last month, adding: “A Maybank report in 2024 estimated profits from large-scale solar operations to be more than 50 times the average profit from palm oil cultivation.”
In other words, EUDR, RSPO and MSPO or not, deforestation is set to continue. In a dispiriting parallel with India, though, little of this deforestation is accepted by state forest cover numbers.
As with India, forest cover figures in Malaysia have seen little change over the past two decades even as the country’s GDP doubled. Sabah promised in 2020 to boost “totally protected areas” (forests) to 30% by 2025. As for Sarawak, it promised in 2018 to keep 80% of its land under primary and secondary forests. Even back in 2013, however, Global Witness had pegged pristine forest cover in Sarawak at below 5%. “They try to pretend over half of East Malaysia is still forested whereas NGOs say less than 5% is undamaged forest,” said Brown.
Hidden inside these trends is a larger critique of current pro-environment trade barriers.
Endgame
What does Malaysia’s experience with green trade barriers tell us?
Self-monitoring, as sectors like microfinance in India and carbon offset schemes elsewhere demonstrate time and again, doesn’t work. Apart from low visibility on whether the auditing and certifying firms are doing their job well, business pressures also result in a dilution of norms. While Malaysia’s deforestation cut-off date is December 2019, RSPO, however, allows deforestation after its cut-off date of November 2018 “as long as remedy and compensation procedures are applied”. “The cut-off year for deforestation is being constantly changed,” charged Brown.
That is just the start. As industry-led initiatives, RSPO and MSPO only oversee oil palm. This leaves other vectors of deforestation like logging, timber plantations and — now — data centres intact. For this reason, too, these schemes are a non-solution. They serve industry more than forests.
EUDR comes with its own questions. When a region — as opposed to all countries — adopts a green measure, what the world gets is a readjustment of trade flows. As this article gets written, sustainable palm oil is moving to Europe. Palm oil from Papua New Guinea and elsewhere, as Farhan said, is flowing to countries like China and India. As things stand, in the wake of EUDR, Malaysia struck a deal with China to double its palm oil exports. “Europe is by far the largest consumer of sustainable palm oil in the world, accounting for 45% of total global use of certified sustainable palm oil,” adds a RSPO report. “At the same time, the consumption of palm oil is increasing in other parts of the world where the market for sustainable palm oil products is still in its infancy.”
With that, all one gets is rolling deforestation. For this reason, EUDR is more effective as a trade barrier than an anti-deforestation measure. This criticism applies to CBAM as well. All it will do is direct green steel to Europe and carbon-heavy steel elsewhere. There, too, some firms will find competitive advantage in embracing CBAM, while others find benefits in turning to other markets. All of this underscores the need for multi-lateral action on planetary issues. Given regulatory capture, measures by individual countries won’t work. Nor will trade- or industry-imposed barriers. What the world has to do is get global arrangements like the International Tropical Timber Organisation (ITTO) working better.