Revised RED Promotes Advanced Biofuels & Caps 1G

Today the European Commission released its draft revised regulation of the Renewable Energy Directive (RED). “Trial balloons” were released in the media last week about what the Commission was going to do and noted here, and it seems as if it has stuck to its guns. In short, and among other provisions, the Commission is looking to limit food-based 1G biofuels and promote advanced biofuels and advanced alternative fuels. The provisions include the following:

• An obligation on European transport fuel suppliers to provide an increasing share of renewable and low-carbon fuels, including advanced biofuels, renewable transport fuels of non-biological origin (e.g. hydrogen), waste-based fuels and renewable electricity. The level of this obligation is progressively increasing from 1.5% in 2021 (in energy terms) to 6.8 % in 2030, including at least 3.6% of advanced biofuels. Preferential rules apply to advanced aviation fuels in order to support their deployment in the aviation sector (e.g. their energy content is accounted 20% more). The following table shows progression of the obligations:

Source: European Commission, November 2016

• To minimize the indirect land use change (ILUC) impacts, a cap on the contribution of food-based biofuels towards the EU renewable energy target has been introduced, starting at 7% in 2021 and going down progressively to 3.8% in 2030.

• The Commission says the sustainability criteria for biofuels are improved, including by requiring that (new) advanced biofuels emit at least 70% fewer GHG emissions than fossil fuels.

• An 80% GHG saving requirement has been included for heat and power produced from biomass and biogas (applying to large scale installations with a fuel capacity equal or above 20 MW)

The intention to reduce food-based biofuels in the RED has been well known since the Commission released its Low Emission Mobility Strategy over the summer. But, it still sent shock waves through the 1G biofuels industry. Ethanol industry advocacy group ePure noted:

“A reduction of the limit on conventional biofuels use to 3.8% undermines the existing €16 billion invested in European biofuel production facilities since 2003 as a result of the EU biofuels policy. The proposed phase out of conventional biofuels means that the Commission has now proposed 4 different changes to the targets for renewable energy use in EU transport since the adoption of its first biofuels policy in 2003. The proposal also backtracks on the compromise agreed by the EU institutions as part of the revision of the Renewable Energy Directive in 2015, which Member States have only begun the process of implementing. This permanent policy flux is diametrically opposite to the Commission’s Better Regulation Agenda and has created an impossible policy environment that significantly jeopardises further investments in both conventional and advanced biofuels in Europe.”

The Commission defended its position in the regulation, stating the following:

“A progressive reduction of food based biofuels and their replacement by more advanced biofuels will realise the potential for decarbonising the transport sector. However, in determining the progression of the reduction of conventional biofuels, it is important not to retrospectively undermine the business models incentivised by the existing directive. Therefore the proposed trajectory progressively reducing the share of conventional biofuels aims at avoiding stranded assets and unintended job losses, whilst taking into account the important past investments realised so far, and is also in line with a realistic rollout of advanced biofuels in the market. The exact path of the gradual reduction trajectory set out in this Proposal reflects an informed political assessment of what would constitute a balanced approach to stability of investments and the reduction of greenhouse gas emissions in transport.”

The Commission is trying not to undermine an industry, but isn’t it, just the same? If the Commission effectively blunts a €16 billion industry (and that’s just ethanol alone) within the next 10 years, I wonder if that wouldn’t chill advanced biofuels investment as a secondary effect? If I were an investor, why would I spend good money on an advanced biofuels investment, however attractive, only to question whether the rug would be pulled out years later after some new issue came to light (as is the case here with 1G)? Aren’t there better ways to support advanced alternative fuels?

The revised RED and its impact to biofuels will be covered in more depth in an upcoming report of the Future Fuels Outlook service.