Biofuels are one of the renewable energy sources that present an alternative ‘clean’ energy to fossil fuels. However, their increased demand and use has led to concerns about their impacts on sustainability and climate change. Regulators worldwide attempt to regulate biofuels and their impacts in their domestic policies. In 2018, the European Union revised its original Renewable Energy Directive (RED) to integrate both sustainability criteria and the so-called indirect land use change (ILUC) for biofuels. The crux of the matter is that the EU Commission classified palm oil as the only biofuel feedstock crop with a high ILUC-risk. Consequently, it cannot be counted by the EU Members in attaining their specific targets of renewables transport and it will have to phased out by 2030. Palm oil is one of the most effective source materials used to produce biofuels, but the industry has attracted criticism as their activities are linked to widespread deforestation and the loss of biodiversity. As palm oil is not produced in the EU but imported, this policy measure is likely to have a significant impact on trade. This article seeks to analyse whether the ILUC policy as an environmental process and production method (PPM) measure with extraterritorial reach can be contested as breaching World Trade Organization (WTO) rules of non-discrimination under Article III of the General Agreement on Tariff and Trade (GATT), and whether the measure can be justified under the general exceptions in Article XX of the GATT.