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Sweden’s reclassification of Pfad could be delayed

23 Nov 2017, 6.35 pm GMT

Sweden's reclassification of Pfad could be delayed

London, 23 November (Argus) — Sweden's proposal to limit palm-based biofuels by reclassifying some feedstocks as co-products rather than residues could be delayed from the planned 1 July 2018 implementation date.

Concerns from Sweden's opposition party about suddenly limiting the supply of widely-used feedstock palm fatty acid distillate (Pfad) and inadvertently targeting other feedstocks which are considered highly sustainable led to calls for an impact assessment prior to committing the policy to legislation.

Primarily the Swedish government is trying to limit the use of Pfad for biodiesel production amid public pressure and concerns over the greenhouse gas (GHG) savings currently calculated for Pfad-derived hydrotreated vegetable oil (HVO) biodiesel, by reclassify Pfad as a co-production of crude palm oil production rather than a residue. But in doing so it might adversely affect other feedstocks such as domestically produced tall oil fatty acid (TOFA), and reduce Sweden's ability to meet its ambitious proposed biofuels targets.

Sweden's opposition party has suggested the government undertakes an impact assessment to review the proposed reclassification policy and more clearly define the features of this legislation, in order to better prepare the market. This would likely delay the proposed implementation date.

Pfad is a commonly-used feedstock for the production of hydrotreated vegetable oil (HVO) biodiesel, a drop in renewable diesel fuel which is used in relatively large volumes in Sweden as HVO is exempt from energy tax. The reclassification of Pfad to a co-product would force distributors to provide its GHG footprint back to the plantation, incorporating land use change (LUC) and indirect land use change (ILUC), which would reduce the GHG savings of Pfad-derived HVO biodiesel and make the product less competitive.

Some Pfad is currently not traceable back to a certified source, according to market participants, meaning alternative supply would be required to meet current demand. It is expected that this policy would push palm oil-derived HVO biodiesel out of the Swedish market altogether, a market source told Argus.

But it is unclear which feedstocks would replace Pfad and whether there is sufficient supply at suitable prices to produce the amount of HVO biodiesel required for Sweden to achieve its proposed diesel GHG savings for the coming three years.

As the legislation has not been finalised and it is unclear whether this impact assessment will go ahead, [Finnish refiner] Neste is not currently speculating on the outcome of this policy or what raw materials would be used instead of Pfad for HVO biodiesel production, Neste's director of corporate communications Kaisa Lipponen told Argus. Neste is the largest producer of HVO biodiesel in Europe.

The objectives of the proposed impact assessment would be to identify how much Pfad would be taken out of the market and what feedstocks could replace it. Palm crude oil, TOFA) and used cooking oil have been highlighted as the most likely feedstocks to replace PFAD, according to market sources. But a reclassification of PFAD would likely also result in reclassification of other feedstocks such as TOFA, technical corn oil (TCO) and free fatty acids (FFA), to avoid breaching EU law. But these products are broadly considered more sustainable than palm-derived feedstocks. But if Pfad-derived biodiesel is able to provide traceability and high enough GHG savings, then it could still be used to produce HVO biodiesel for Sweden.

Reclassification of palm oil feedstocks is currently expected to begin from 1 July next year, pending final approval and enshrining into law in the upcoming budget, along with the GHG savings mandates for biofuels. But an impact assessment would likely push this implementation date back and could derail the policy altogether.

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