The Swedish government proposed to cut the country's greenhouse gas (GHG) reduction quota mandate for gasoline and diesel to 6pc for 2024-26, from the previously legislated 30pc for diesel and 7.8pc for gasoline in 2024. This could see the share of HVO blended in the country's diesel pool fall below 1pc by volume, Swedish Bioenergy Association's (Svebio) program director and biofuel expert Tomas Ekbom told Argus.
Why has the government decided to slash the mandate?
The new Swedish government, which is formed of a coalition of three liberal-conservative moderate parties, has proposed to cut biofuels obligation to reduce fuel prices at the pump in response to growing pressure from Swedish voters.
Before the last election, around 400,000 people created the country's largest Facebook group advocating for a reduction in fuel prices at the pump. They gathered momentum and pushed members of political parties in interviews to commit to reduce costs. Therefore a lot of pressure has been made on the coalition to deliver on the promises.
How does the legislative process work?
The government recently published an official memorandum and interest groups will have to send a referral response by 25 August.
The feedback could prompt some changes in the proposal, which will then be sent to the Swedish Governmental Council on Legislation, to fit it with current legislations and legal framework. The proposal will then go to the parliament, where the government coalition has the majority, for decision. The legislation should come into effect on 1 January 2024.
What does this mean for Sweden's ambitions to reduce emissions from domestic transport by 70pc by 2030 compared with 2010, and to cut emissions in the sectors covered by the EU Effort Sharing Regulation by 63pc compared with 1990 by the end of the decade?
Sweden may have to reduce forest harvesting to increase the amount of carbon captured in order to achieve its 2030 targets if the transport mandate is reduced.
The government anticipates a growth in transport electrification to reduce emissions. However, if these measures are not sufficient to enable the country to reach its 2030 targets, Sweden might need to purchase carbon emissions rights within the ETS system from other EU member states, possibly increasing the cost of decarbonisation.
It is also unclear whether Sweden will need to adjust its 2030 commitments if the EU's revised Renewable Energy Directive (RED III) introduces a 42.5pc target share in final energy consumption by 2030 [up from the current 32pc target]. The latest government proposal does not include requirements for GHG emissions reductions for 2027-30.
Do you expect the proposal to translate into law? What are the main challenges that the government could face in the process?
Cost could be one of the main pitfalls of this proposal. 2030 emissions reduction targets still need to be met, and costs could grow if Sweden needs to purchase emissions reductions elsewhere.
And to increase the amount of carbon absorbed by forests, owners may need to reduce harvesting and the government could have to compensate them. Interested parties could also argue that a reduction of the mandate could jeopardise the domestic industry and increase unemployment.
At the same time the average citizen normally drives a [gasoline] or diesel car, so a reduction of prices at the pump is beneficial. The forest industry also uses a lot of fuel, and while they welcome the development in the biofuels market, they are not pro high fuel prices.
Sweden blended around 1.27mn m³ of hydrotreated vegetable oil (HVO) with diesel in 2022. If the mandate is reduced, what will the effect be on the HVO market?
If the mandate is cut to 6pc GHG emissions reduction for diesel, it means that the target could very well be reached only by blending Fame biodiesel [which is subject to a 7pc blend wall] and there will be very little room or need for HVO.
Currently HVO accounts for around 30-33pc by volume in the road transport diesel pool in Sweden but the share could drop below 1pc with the new mandate. On the other hand we have HVO100 sold as alternative to diesel which has had a tremendous success until the quota mandate was enforced in 2018, and could rise again with the available volume of HVO not needed in diesel.
HVO100 product is tax exempt and used to be the largest biofuels markets before mandates were introduced. Increasing the use of HVO100 could help companies become carbon neutral.
Do you think the HVO100 market can absorb the 1.27mn m³ of HVO that were previously blended with diesel?
No, not in such a short timeframe because it relies on voluntary consumption and companies have recently disfavoured HVO100 when the price went through the roof and availability became short.
But I think that aviation will happily take on a lot of the volumes as SAF [sustainable aviation fuel] if HVO can't easily find a way into the road transport sector. And biofuels demand from shipping is growing as well.
Will Sweden be able to replace the missing HVO volumes with an equivalent amount of MK1 diesel considering this grade is only produced by a handful of refiners in northwest Europe?
If the mandate is reduced to 6pc, Sweden could need around 1.5mn t/yr of extra diesel.
Because of Sweden's arctic climate we need a winter-diesel quality and not all refineries in the world can produce it. We have three oil refineries but with the EU ban on Russian-origin diesel and growing demand from China some oil companies have said that there could be a shortage of winter diesel in Sweden, especially because the change would take place in such a short timeframe.
