The Malaysian stock exchange hit a new all-time high in trade earlier this morning, but I do not believe it is something to celebrate for the people of Malaysia. Indeed, it looks like the have-nots of the emerging Asian country are going to have even less because of this.

The new index high was as a result of soaring palm oil prices, which drove investors into the plantation sector.

The Malaysian plantation sector sub-index jumped 207.1 points or 2.4% to 8,774.05, compared with a mere 4.1 points, or 0.3%, for the broader Kuala Lumpur Composite index, which closed at 9,566.87.

However, this record-causing jump in palm oil prices came on the day that the Malaysian government announced that it was planning to do something about the country’s new cooking oil crisis.

Prime Minister Datuk Seri Abdullah Ahmad Badawi pledged that the government would ensure there is enough supply of cooking oil for all Malaysians.

"We are having an important meeting to discuss the current shortage of cooking oil in the country… we don't want housewives to start complaining about this."

So, the impact of biofuels is going to hit the Malaysian poor hard. Not only that, it is causing significant environmental damage outside the forests as well.

Soaring palm oil prices prompted the Malaysian government to postpone the launch of its palm-blended diesel plan. The reason? Palm oil exports are more lucrative so the transition to less emitting fuel has been put on ice in favour of cold, hard cash.

Subsidy is always wasteful

But this presents yet another problem for the country and its people. The Malaysian economy gets by because of massive fuel subsidies. The country spends around $4.5 billion a year on fuel subsidies, which is about 10% of total government revenue. Indeed, fuel prices in this country are the lowest anywhere in Asia.

However, cheap fuel prices may benefit the economy, but it has done nothing to curb emissions. According to UN data, CO2 emissions in Malaysia rose by 221% between 1990 and 2004, the highest increase among the world's top 30 carbon dioxide emitters. When fuel is that cheap, wastage is massive. There is no incentive to be efficient with something that is as cheap as chips.

Over the course of this year, rises in the price of oil will have to be shouldered by the government or passed down to consumers. This is not very appetising ahead of elections in 2009. If they cut fuel subsidies, they will suffer at the polls. If they keep subsidising fuel to the same extent in the hope of pleasing the electorate wastage will continue and government finances will be crippled. The rainforests have almost gone and pollution levels are rising faster than ever.

The causes of this economic and environmental madness are the targets imposed by the EU and the Americans. If these targets did not exist, the rainforest would not have been decimated, the Malays would have environmentally friendly fuel and the housewives of Kuala Lumpur would not have to complain. Until those targets are removed, the situation is going to get much, much worse, but as far as the rainforests go, it’s probably too late now anyway.

Biofuels eh? Don’t you just love ‘em… P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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