Sustainability requirements in Japan could increase pellet demand

By Erin Voegele | April 04, 2019

The Japanese government is reportedly considering enacting a policy that would require palm kernel shells (PKS) to be meet sustainability criteria. A new FutureMetrics whitepaper considers the implications of such a policy and predicts it could increase demand for wood pellets.

According to the whitepaper, published March 29, FutureMetrics has learned the Japanese Ministry of Economy, Trade and Industry (METI) is considering sustainability requirements for PKS. “According to information that is informally circulating, it appears that the requirement of sustainability, legality, and traceability for PKS is under serious discussion and is likely to be imposed on current and new PKS procurement,” wrote authors William Strauss and Yoshinobu Kusano in the report. “The exact regulation wording is as yet not known. Furthermore, FutureMetrics is not sure if these rules will be applied to already signed contracts for PKS or not. However, it appears very probable that Japan is moving toward a more rigorous set of requirements on biomass fuel procurement.”

The whitepaper explains Japan is currently the world’s primary buyer of PKS, purchasing 68 percent of total PKS exports last year. Those exports came from Indonesia and Malaysia. South Korea and Thailand also purchase PKS exports.

The paper explains PKS is a primary fuel for many independent power producers in Japan that plan to generate power with the benefit of the feed-in-tariff (FiT), which is part of the country’s policy for low-carbon generation. Many of these projects also use industrial wood pellets in their fuel mix. The whitepaper also notes some major Japanese utilities cofire pellets and coal to lower carbon intensity or improve calculated thermal efficiencies. FutureMetrics said it expects pellet demand from these utilities to increase significantly over the next 10 years.

The paper explains that existing sustainability requirements for wood pellets in the EU and U.K. mean that nearly all of the pellets produced in major producing nations are already certified under one of several recognized and accredited certifying bodies. As a result, when Japan finalizes its sustainability requirements for biomass fuels, pellets produced by many of the producers in the U.S., Canada, Europe, Austria, Russia and South America will already have the credentials to be legally considered as qualifying fuel in FiT supported independent power producers and utility plants that cofire, FutureMetrics said in the paper. This, however, is not the case for PKS. The paper outlines several specific reasons why producing sustainability certified PKS could be difficult.

If the Japanese government requires certification of imported PKS, FutureMetrics predicts that a portion of the current PKS imports from Malaysia and Indonesia will be curtailed, at least in the near-term. The paper shows industrial wood pellets would offer a viable option for their replacement. “In the near to medium terms, after METI requires sustainability certification for imported biomass derived fuels, unless there are exemptions for PKS, the demand for industrial wood pellets in Japan will increase significantly and quickly,” wrote Strauss and Kusano.

A full copy of the whitepaper, titled “What Happens if Japan Requires Sustainability Credentials for Palm Kernel Shell (PKS)?” can be downloaded from the FutureMetrics website