Biofuel Restrictions and Indirect Land-use Change: What Does the WTO Say?

The European Union (EU) discourages the use of environmentally unsustainable biofuels in the transport sector. On 26 April 2024, the World Trade Organization (WTO) adopted a panel decision in EU and Certain Member States-Palm Oil (Malaysia) regarding the legality of the EU's measures that gradually exclude palm oil-based biofuels from its renewable energy targets by 2030. While the panel accepted the concept of origin-neutral differentiated treatment of biofuels based on varying levels of indirect land-use change (ILUC) risk, gaps in the EU's implementation led to violations of certain multilateral trade rules, disadvantaging palm oilbased biofuels compared to rapeseed oil-and soybean oil-based biofuels. Moreover, a French tax scheme incentivising fuel blending with sustainable biofuels was found to be discriminatory but not an illegal subsidy. As the first WTO ruling addressing national responses to biofuelinduced global deforestation and associated GHG emissions, this landmark decision reaffirms that the right of States to regulate in the public interest must be exercised in a manner that respects their trade obligations. It also underscores the equal importance of both the design and implementation of trade regulationseven well-intended climate-related measuresin avoiding unjustified trade barriers.