Jakarta. The European Union (EU) announced plans to revise its biofuel policies after the World Trade Organization (WTO) ruled that parts of its Renewable Energy Directive (RED II) unfairly discriminated against Indonesia's palm oil exports. The ruling, published on Jan. 10, is seen as a major win for Indonesia in its long-standing dispute with the EU over biofuel trade restrictions.

While the WTO upheld the EU’s right to pursue climate and environmental goals, it identified flaws in how RED II was implemented. Specifically, the WTO found the EU’s Delegated Act—which classified palm oil as a high-risk source for indirect land-use change (ILUC)—to be inconsistent with international trade rules. French tax incentives that excluded palm oil-based biofuels while favoring rapeseed and soybean alternatives were also deemed discriminatory.

In its statement on Jan. 10, The EU has pledged to address these shortcomings, which were already under review as part of its regulatory framework, and align its policies with WTO obligations. The adjustments are expected to be finalized within 60 days unless the ruling is appealed.

Indonesia, the world’s largest palm oil producer, has argued that RED II unfairly targets palm oil while benefiting European-grown biofuels. The ruling strengthens Jakarta’s position in ongoing trade negotiations and broader disputes over EU policies, including the European Union Deforestation Regulation (EUDR), which was recently delayed until December 2025.

“This victory proves that Indonesia can fight and win against discriminatory practices,” Chief Economic Affairs Airlangga Hartarto said in Jakarta. “It also underscores the legitimacy of palm oil-based biodiesel alongside other biofuel alternatives like rapeseed and soybean.”

The WTO also criticized the EU for failing to properly assess data used to classify palm oil as high-risk and for weaknesses in its certification process for low ILUC-risk biofuels. These findings bolster Indonesia’s efforts to ensure fair treatment of its exports, especially as 41 percent of the country’s palm oil industry is supported by smallholder farmers.

Airlangga called the ruling an opportunity to strengthen cooperation with Malaysia, another major palm oil exporter, to prevent further discrimination. “This clears the path for resolving trade issues, including the stalled Indonesia-EU CEPA,” he said, referring to the Comprehensive Economic Partnership Agreement.

The dispute, initiated by Indonesia in 2019, has drawn international attention to the tension between trade liberalization and environmental protection. A parallel case brought by Malaysia resulted in a similar WTO ruling in April 2024, further pressuring the EU to revise its policies.