Analysis: EU Biofuels 2020 Policy Framework Headache for Blenders

by Chrysa Glystra (S&P Global Platts) EU RED II rules raise mandates every year; EU member states choose how to implement directive; Mandates becoming increasingly difficult to meet -- ... Next year marks the beginning of a revised Renewable Energy Directive (RED II) running through to 2030, which will raise biofuel mandates year after year.

In 2020, the Fuel Quality Directive setting a greenhouse gas reduction target is also due for completion. However, the implementation of such EU-wide directives is typically subject to individual Member State enforcement, resulting in a plethora of different approaches and a complex operating environment for market participants.

RED II set a 32% target for renewable energy by 2030 and a 14% target for renewable energy in transport. A key difference to the previous directive is the cap for crop-based biofuels at Member States' 2020 levels, with a maximum of 7%, as well as a freeze of palm oil use at current levels, phasing it out in transport by 2030. RED II also includes minimum targets for advanced biofuels at 0.2% in 2022, to reach 3.5% by 2030.

Most European countries will have higher blending mandates in 2020 than in 2019, with notably the Netherlands, at the center of the Amsterdam-Rotterdam-Antwerp trading hub, increasing its biofuels mandate to 16.4% from 12.5% on an energy basis. Germany, the largest biofuels consumer in Europe, has a GHG-based mandate, and will raise the reduction target to 6% from 4%. The UK introduced a dual mandate in 2019 both on a volume and a GHG basis, increasing to 9.75% from 7.25% and to 6% from 4%, respectively. Other countries with GHG-based mandates include Sweden and the Czech Republic, but all other countries have either a volume- or energy-based mandate. Typically if these targets are not met, there is a penalty, which acts as an incentive for compliance as biofuels are usually more expensive than their fossil-fuel equivalents.

However, there is as of yet no clear indication as to how and whether it will be enforced across the EU, especially in countries that do not meet it by default through their national blending mandates.

Even just based on RED II, however, ambitious mandates are becoming increasingly difficult to meet. This is largely due to blend-wall limitations because most countries allow for E5 or E10 (5% or 10% ethanol) gasoline blends and B7 (7% biodiesel) diesel blends. As a result, based on current fuel blends available at the pump, fuel suppliers cannot blend greater volumes of biofuel per liter of gasoline or diesel sold. A greater uptake of E10 across Europe could help, as it would instantly double the volume of ethanol that can be blended.

Market participants are looking at other ways to meet their mandates, including hydrotreated vegetable oil and waste-based double counting material. However, both of these are considerably more expensive options and there are questions around adequate feedstock availability.

When it comes to GHG-based targets, market participants are also examining the possibilities for upstream emission reductions, achieved before raw materials for gasoline and diesel reach a refinery or storage facility. For example, these would include reducing flaring of associated gases in crude oil production or efficiencies in the logistics chain. READ MORE