Quick quiz: Which country is the world’s third-largest emitter of greenhouse gases, after the United States and China?

The answer, at least in recent years, has been Indonesia. That’s surprising. It’s not the world’s third-largest economy. It’s not an industrial powerhouse. But Indonesia has been clearing its vast rain forests of late, releasing huge stores of carbon into the air. One culprit has been the country’s fast-growing production of palm oil, an edible vegetable oil that’s increasingly being harvested to make biodiesel fuel for cars and trucks in Europe.

This isn’t just a bit of environmental trivia. There’s a fierce battle in the United States over whether the Environmental Protection Agency should allow more diesel made from palm oil to be used by U.S. refineries. Agribusiness groups are lobbying for its use. Environmentalists are trying to block it — with some saying this could be the EPA’s most important climate-change decision of the year.

Here’s the backstory: In 2007, Congress expanded a requirement for U.S. refineries to blend a certain amount of “renewable fuel” with their gasoline. Ethanol or biofuels could count, but they had to be 20 percent cleaner than traditional fossil fuels. And, in January, the EPA released a preliminary analysis suggesting that biodiesel and renewable diesel made from palm oil didn’t quite make the cut, thanks in part to the deforestation effect. (Over the course of their life cycle, the EPA found, palm-oil fuels emitted 11 to 17 percent less greenhouse gases than regular gasoline.)

But the EPA hasn’t fully made up its mind yet. The agency was soliciting comments on its analysis until Friday. And industry groups from Indonesia, Malaysia and the United States have sharply criticized the agency’s analysis. The American Palm Oil Council claimed that the EPA’s conclusion was “based on faulty data and erroneous assumptions.”

Robert Shapiro, a former Clinton administration economist who does analysis for business groups, argued in his comment that it’s “highly speculative” to calculate how, exactly, the production of biofuels will drive deforestation. Efforts to figure out how biofuels indirectly affect land use — by, say, displacing cooking-oil production elsewhere — are still a relatively new area of science. If you remove this from the analysis, Shapiro argued, then palm-oil fuels look considerably cleaner and easily qualify as a renewable fuel. What’s more, he noted, palm-oil producers will likely increase their yields on existing lands in the future, which means they’ll cut down fewer forests.

Palm-oil skeptics aren’t buying it. In a conference call with reporters Thursday, Jeremy Martin, a biofuels expert at the Union of Concerned Scientists, argued that the EPA’s analysis actually understimates the destructive impact of palm-oil production in Indonesia and Malaysia.

For one thing, Martin said, much of the forest area that’s being cleared for palm oil is peatland, whose soils store considerable amounts of methane, a potent greenhouse gas. The EPA assumed that only about 9 to 13 percent of future palm-oil production would occur on peatland, whereas a new study in the Proceedings of the National Academy of Sciences found the number was already above 50 percent. And, Martin said, the EPA was too optimistic about the ability of countries such as Indonesia to enforce their forestry laws.

When all of these factors are taken into account, Martin said, “the emissions of palm-oil -based biofuels substantially exceed the emissions from conventional petroleum diesel.”

There’s a lot at stake in getting this right. Palm oil is a potentially lucrative industry for developing countries such as Indonesia and Malaysia. But Indonesia’s peatlands also contain an enormous amount of carbon dioxide. (To get a sense for the scale, one particularly large peatland fire in Kalimantan in 1997 released more total greenhouse-gas emissions than the entire United States during that period.) And, according to the PNAS study, peatland emissions from palm-oil production are expected to surge in the years ahead. Palm-oil producers also are razing habitats for elephants, tigers, rhinos and orangutans on various islands in Southeast Asia.

Some green activists have placed their hopes in sustainable palm-oil production to navigate these concerns — after all, poorer communities in Southeast Asia aren’t just going to agree to an outright ban. But, increasingly, attention has shifted toward wealthy countries that are artificially inflating palm-oil production with government mandates on biofuels.

The EPA decision will help determine whether the United States increases its imports. For now, the biggest market for palm-oil based fuels is the European Union, which has a law requiring 10 percent of all transportation fuel to come from renewable sources by 2020. The problem with this rule, said Chris Malins of the International Council on Clean Transportation, is that the European Union never considered the indirect deforestation effects from biofuels. The science on this just emerged around 2008, after the E.U. law was largely crafted.

“What Europe did was basically consistent with the best life-
cycle emissions analyses of the past,” Malins said. “But,” he added, “Europe recognizes that there’s an issue here, and there’s an ongoing process to change that.”

Which means that the EPA’s decision could very well influence how governments around the world think about palm oil. In a quiet year for climate policy, that could stand out as a major move.