Italy Earmarks EUR 4.7bn for Biofuel Incentives in the Transport Sector

(JDSUPRA/McDermott Will & Emery) Transport fuel retailers are obliged to sell a minimum amount of biofuel annually, calculated as a percentage of the energy content of the transport fuel sold in the relevant year. Such obligation can be met by either (1) selling the prescribed amount of biofuel and receiving a corresponding amount of Consumption Release Certificates (CICs), or (2) purchasing the necessary CICs from producers or from other obliged entities that have a CIC surplus.

Because advanced biofuels and biomethane have higher production costs than traditional fuels, the Decree aims to support biomethane producers with a premium to fill the cost gap.

The incentives under the Decree apply up to a yearly maximum of 1.1 billion cubic meters of biomethane.

Consumers will not bear the cost of the incentives under the Decree, as the scheme is fully financed by transport fuel retailers.

The Decree follows and supersedes the Ministerial Decree dated 5 December 2013, which did not have a significant impact on the construction of new biomethane production plants in Italy.

Plants producing biomethane through certain materials (animal byproducts not intended for human consumption; byproducts derived from food; agro-industrial activities; agricultural, livestock and forest management activities) can receive from the GSE an amount of guarantees of origin corresponding to the number of emissions quotas avoided due to the use of biomethane.

These biomethane producers can then sell the guarantees of origin to an obliged entity through bilateral contracts or through a dedicated platform made available by the Gestore dei Mercati Energetici S.p.A. (GME).

Producers of biomethane destined for the transport sector are entitled to receive from the GSE one CIC for every 10 GCal of biomethane released for consumption. Producers’ revenues, therefore, consist of payment for (1) the sale of biomethane and (2) the sale of CICs.

In order to receive the corresponding CICs, the producer must first qualify with the GSE under a procedure that is yet to be implemented and regulated. After a producer is qualified, it must send to the GSE:

Upon verification of the actual amounts of biomethane released for consumption, the GSE will issue monthly the corresponding number of CICs to the producer, which can in turn sell such CICs to the obliged entities.

Producers of “advanced” biomethane (which includes residual biomass, selected organic waste and non-food cultivations, as defined in in Ministerial Decree 10 October 2014) are entitled to different incentives:

The GSE does not assign the corresponding CICs to the producer, but it sells them to obliged entities.

Producers of other “advanced” biofuels are entitled to receive from the GSE a premium of EUR 375/CIC (but not the CIC itself), and they can then sell the biofuels through private contracts with obliged entities. Advanced biofuels entitle the producer to receive one CIC per 5 GCal.

Such incentive is provided for 10 years from the start of the incentive period; after 10 years, the producers will be entitled to receive one CIC per 5 GCal of biofuels.

Biomethane produced through certain materials (e.g., seaweed cultivated in photobioreactors/ponds, straw, used cooking oil) entitles the producer to receive one CIC per 5 GCal. The authorisation title must indicate that the relevant materials entitling the producer to this premium are exclusively used in the plant.

If these materials are used in co-digestion with other materials (which must not exceed 30 per cent of the overall volume), the premium is granted on only 70 per cent of the biomethane produced. READ MORE