Analysis: EU biofuels legislative overview
The following article was published on 12 August 2015 for subscribers to Argus' online biofuels service. Argus Direct is the premium method of accessing Argus prices, news analysis and fundamentals data. It also offers access to downloadable Excel files of key data including historical prices. plant capacity and utilisation rates and demand statistics. Contact us to arrange a trial
London, 12 August (Argus) — The EU 2020 climate and energy strategy sets a 10pc target of renewables in road transport fuels, as part of the Renewable Energy Directive, and a 6pc reduction of greenhouse gas (GHG) intensity of transport fuels, as part of the revised Fuel Quality Directive.
The EU Agriculture and Fisheries Council formally adopted the so-called "ILUC" Directive on 13 July 2015 in order to prepare "the transition from conventional biofuels to biofuels that deliver substantial greenhouse gas savings", implementing a quantification and reporting system to monitor emissions caused by indirect land use change (ILUC) from 2017.
The legislation, amending the Renewable Energy Directive as well as the Fuel Quality Directive, limits the share of crop-based biofuels to 7pc of the final consumption of energy in 2020.
Member-States have 18 months to set a sub-mandate for advanced biofuels that would be double counted towards the 10pc overall target, although the reference target of 0.5pc is non-mandatory.
The legislation was originally introduced by the Commission by 2012 and first set a 5pc cap on conventional biofuels. It failed to pass in the previous parliament in 2013.
In February 2015, the European Parliament's environment committee called for a 6pc cap, but Bulgaria, the Czech Republic, Estonia, France, Spain, Hungary, Poland, Romania and Slovakia opposed the adoption of any cap lower than 7pc.The parliamentary committee unsuccessfully argued for a binding sub-target of at least 2.5pc by 2020 on advanced biofuels.
Member States must transpose the Directive into their national legislation within 24 months of its adoption.
Since 1 January 2015, Germany has replaced its 6.25pc biofuel blend rate in energy terms, in which waste and residue-based biofuels were double-counted, with a 3.5pc quota for GHG reduction. The quota will be raised to 4pc in 2017 and 6 pc in 2020.
This new legislation has triggered an overall drop in German biofuels consumption in the first months of 2015. Under the new framework, first generation biofuels are less effective in achieving the necessary GHG savings. Conversely, it supported the incorporation of more second generation biofuels, although smaller volumes were needed to achieve the 3.5pc quota.
The drop was more marked for ethanol as its consumption was also driven down by decreasing gasoline consumption. Producers reported that the drop in the consumption of biodiesel could amount to 120,000-200,000t this year.
Up until June 2015, Belgium had a blending mandate of 4pc of bioethanol in volume, and of 6pc for biodiesel. The latter had to be fulfilled by fatty acid methyl ester biodiesel, known as fame. Only 1.5pc of the 6pc mandate could be fulfilled with other types of biodiesel. This difference of treatment was struck down in May by the Belgian Constitutional Court, and the decision was effective from June 2015. Although there currently is no blending mandate in place for biodiesel, producers are still blending, with the expectation of a new mandate effective by the end of the year.
Double-counting was made possible by the 2013 legislation but any double-counting biofuel has to be approved by the government.
France's blending mandate is 7pc by energy content for ethanol, and 7.7pc for biodiesel. Advanced biofuels can be double-counted up to 0.25pc for bioethanol, while this cap is fixed at 0.35pc for biodiesel. Non-food-crop based biofuels, including used cooking oil and non-food grade tallow are included in this double counting system. Biofuels providers have benefited from fiscal incentives to support investments. But this system of incentives will end on 31 December 2015.
On 22 July, the National Assembly finally adopted the bill on Energy Transition for Green Growth. According to the bill, an advanced biofuels blending mandate will be part of the government's multi-year energy plan. The government will also be able to set the list of conventional and advanced biofuels. MPs defined "advanced biofuels" as biofuels that pose no threat to food production and that have no or low-ILUC impact. The bill set a 15pc renewable energy target in transport by 2030, although there was no indication as to how this would be achieved.
During discussions over the Growth and Activity Bill, MPs tried to trigger a more formal change in French biofuels policy, in order to further support the development of tallow and used cooking oils, considered as advanced biofuels. Although these attempts failed, the debate is likely to re-emerge during the Finance Bill for 2016, to be discussed in the autumn. The government was concerned that such changes would lead to increased imports, and require a change in biofuels fiscal policy in the middle of the fiscal year. Worries over a different treatment of advanced biofuels over conventional ones were also brought up by government representatives.
The 2008 UK Renewable Transport Fuel Obligation (RTFO) is a scheme requiring that fuel suppliers of over 450,000 l/yr meet a 4.75pc quota of renewable supply, measured in volume. Renewable fuels have to comply with sustainability criteria in order to be taken into account under the scheme. Biofuels produced from wastes and residues are double counted.
To meet the obligation, fuel suppliers may redeem Renewable Transport Fuel Certificates (RTFCs) issued to fuel meeting the sustainability criteria, or pay a sum to ‘buy-out' of their obligation. For 2014-2015 — year 7 of the RTFO — 69pc of the 809mn RTFCs issued were to double-counted feedstocks.
A reform for implementation in time for year 10 of RFTO (April 2017) is planned, and ministers should agree on an approach by the end of 2015, according to the Department of Transport. But no clear direction has been announced yet. A combination of biofuels and electricity could be used to meet the 10pc RED requirement. Sub-targets for advanced biofuels, ranging from 0.5pc to 1.5pc, are among the scenarios considered.
Official statistics showed a drop in UK biofuels consumption for the first quarter of 2015, with biodiesel and bioethanol accounting for 2.9pc of all UK road transport fuel consumption.
Since 2015, Italy has enforced a blend rate of 5pc in energy terms for ethanol and biodiesel. Biodiesel from waste products, such as used cooking oils and tallow, are double counted. An advanced biofuels blending mandate, for waste and non-food feestocks biofuels, at 0.6pc by 2018 and 1pc by 2022, made Italy the first EU country to set a legally binding mandate for advanced biofuels.
But certification requirements do not allow substantial imports of used cooking oil to meet the sub-mandate, and this in turn is driving the prices of other waste-based biofuels up, and increasing the demand for tallow methyl ester (TME).
A 20pc cap on double-counted biofuels was removed in February 2014. It is expected that double-counted biofuels will account for up to 5pc in 2015.
Spain's biofuels target is 4.1pc of road transport fuel by energy content. Targets were reduced from 6.5pc in 2013. There are also sub-targets of 4.1pc of biodiesel in diesel, and 3.9pc of ethanol in gasoline. There is currently no double counting system in place.
A government bill proposes to raise the blend rate to 5pc in 2016 and 2017, 6pc in 2018, 7pc in 2019 and 8.5pc in 2020 in energy calorific terms. This is expected to be finalised and officially adopted this year.
The Spanish government said it wished to introduce a sub-mandate for biofuels made from waste oils and fats by 2020.
A biofuels mandate of 7.5pc by energy content is in place for 2015 and 2016, set to increase to 9pc in 2017 and 2018 before reaching 10pc in 2019 and 2020. Fuels from waste, residues, non-food cellulosic material and lignocellulosic material count double.
Poland's biofuels blending mandate is 7.1pc in energy terms until the end of 2016. This can be reduced to around 6pc for blenders who buy 70pc or more of their feedstock from local suppliers.
A draft bill would introduce a double-counting system starting on January 2016 and running to the end of 2017. Waste and residue-based, including used cooking oil and tallow, biofuels could be concerned. The draft bill received mixed feedback from stakeholders and is expected to be reworked. Refineries and blenders judged the double-counting cap too low, while biofuels producers said it was too high and risked encouraging imports rather than strengthening the demand for domestically-produced biofuels.
Denmark enforces a biofuels blending mandate of 5.75pc in energy terms, in place since 2010. No double-counting system is currently in place.
The June general elections saw the victory of the centre-right opposition over the Social Democrat government that had made declarations in favour of second generation biofuels, including agricultural waste based biofuels, and was considering the adoption of a sub-mandate for advanced biofuels. The change brings uncertainties as to the timeline and the extent of the Danish move towards advanced biofuels.
The Netherlands currently imposes a biofuels quota on suppliers who sell more than 5,000 litres/yr of road transport fuel. The current quota is 6.25pc in energy terms and it is set to increase by 0.75pc each year in order to achieve 10pc in 2020. Fuel produced from wastes and residues, and from lignocellulose, counts double toward targets.
For more information about the Argus Biofuels online service, which includes access to data such as historical prices. plant capacity and utilisation rates and demand statistics, contact us to arrange a trial