Agency Warns Sweden May Miss CO2 Targets with Biofuel Cut

by Simon Johnson (Reuters) Sweden will struggle to hit its 2030 emissions targets, a government agency warned on Monday, after the country's minority coalition cut the biofuel that must be added to diesel and gasoline.

The right-wing Sweden Democrats-backed coalition government has already cut fuel taxes, raised tax breaks for people driving to work and ended new electric vehicles subsidies.

Mixing in biofuels from renewable sources is a way to reduce emissions from cars, but the government said at the weekend it will cut the required amount of biofuel to 6% in 2024 and for it to remain at that level until the end of 2026.

Under current rules diesel has to contain 30.5% biofuel and petrol 7.8%. The percentage was meant to increase each year.

The decision was motivated by the cost-of-living crisis amid soaring inflation. Sweden has some of the highest diesel and petrol prices in the world, mainly due to heavy taxes. The move was criticised by the Swedish Environmental Protection Agency.

"A year ago we were on track to with a high probability reach all of our 2030 goals but with this decision the conditions have worsened significantly," Stefan Nystrom, the agency's Director of Department of Climate told Reuters.

"The transport policy goal of a 70% reduction in emissions until 2030 becomes more or less impossible to reach," he said.

The government says people who live in the countryside are penalised by the regulations.

"The rules for the biofuel mix have not been an effective climate policy," the government and the Sweden Democrats said in the Dagens Nyheter newspaper on Sunday.

The party had wanted biofuel levels to be cut to zero and threatened to bring down the government if that did not happen.

Diesel currently costs around 20.3 Swedish crowns ($2.00) per litre and petrol 18.8 crowns. The government said reducing the amount of biofuel will cut the cost of a litre of diesel by 5.5 Swedish crowns.

The opposition was also critical of the move, with Marta Stenevi, leader of the Green Party, saying on Twitter the move would push "the entire bill to our children".

The warning comes after the government last week published an official memorandum suggesting the cuts to Sweden’s biofuel mandate after pressure mounted from Swedish voters as the country’s largest Facebook group advocated for a reduction in fuel prices at national forecourts.

The proposal, first revealed in May by the right-wing Sweden Democrats-backed coalition government, states that the greenhouse gas reduction obligation will be reduced to the EU minimum of 6% for gasoline and diesel, where it will remain until 2026.

The reduction of 34 percentage points for diesel and a 6.5 percentage decrease for gasoline “is not cost-effective and the timing is wrong as new hydrotreated vegetable oil (HVO) capacity is coming on-stream this year and next in the order of millions of tonnes,” the director of Svebio’s BioDriv program Tomas Ekbom told Fastmarkets Agriculture.

Meeting the target, therefore, could potentially only be feasible by blending fatty acid methyl-ester (FAME) biodiesel - which is subject to a 7% blend wall - and there will be “very little room or need” for HVO - also known as renewable diesel, Ekbom said.

After the Swedish Council on Legislation has processed the proposal, it will then go to the country’s Parliament for an official decision to be taken, with the legislation expected to come into effect on January 1, 2024.

“Because of Sweden’s arctic climate, we need a winter diesel quality and not all refineries in the world can produce it,” Ekbom said, adding that there could be a shortage of winter diesel in Sweden, “especially because the change would take place in such a short timeframe.”

Meanwhile, the potential reduction could also mean a reduction in forest harvesting to increase Sweden’s carbon capture volumes.

“The government anticipates a growth in transport electrification to reduce emissions,” Ekbom said, adding, however that 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 European Union’s Emissions Trading System (ETS).

Consultancy Stratas Advisors last year estimated that a reduction in the GHG reduction mandate to 6% from the current 30.5% in biodiesel from 2024 onwards would slash demand for renewable diesel in Sweden by two-thirds, equivalent to 1.2 billion liters compared with 1.8 billion liters of demand based on the current requirement. READ MORE