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Fit for 55: Biofuel sector burdened with high-flying, full-sail ambition

10 August 2021 Cristina Brooks

The EC's proposals for biofuels in its "Fit For 55" package of policies attempt to correct past mistakes, but they call for tough reforms in sectors with a low appetite for change.

The EU must rapidly grow the share of renewable fuels and electricity used by cars, trains, ships, and planes to reach its newly legislated carbon neutrality aim.

Today's renewable transportation fuel frontrunner is biofuels—of which around 80% is biodiesel made from food crops like rapeseed—but its carbon-cutting benefits are hamstrung by the use of crops imported from overseas, which results in deforestation that devastates carbon sinks. This may be why the EU has decided to ease off supporting those crops and reshape markets for biofuels in the proposed revision of the Renewable Energy Directive (RED II) published on 14 July.

While IHS Markit analysts see crop-based biofuels as the current leaders in the decarbonization of transportation under RED II, under the proposed revision as it is currently worded, states may need to reduce their crop-based biofuels consumption in favor of fuels that use alternate feedstocks.

The EC would also like to see, for example, ships and cars use electricity, and new advanced biofuels that come from feedstocks like waste or "energy crops," specific types of trees that grow on land that is not devoted to arable use, or algae, recycled carbon fuels, and electricity-based fuels such as green hydrogen. The EC's proposal seeks to make its fuel wishlist a reality even though these fuels are high in cost and low in availability.

Raising RED again

Rounding off a decade of renewable energy and biofuels growth, the adoption of a revised RED would mark the third time since 2009 that targets have been revised upwards. Now, the transportation targets are being upped because the existing ones are not high enough to put the EU on a carbon-neutral path.

Under prior versions of RED, member states were assigned specific renewable electricity and renewable fuel targets for transportation. The 2030 bloc-wide target for renewables as a share of energy in transportation is 14%. The EC suggested in the July proposal that this is far too low: The bloc will need to reach not 14% but 27-29% by 2030.

Thanks to the combined efforts of states and despite a few laggards, the EU was expected to achieve its bloc-wide 2020 RED target for electricity, and the progress towards the RED target for the transport sector is similarly uneven. The EC in October 2020 expected to exceed its overall 10% renewable energy in transportation target for that year despite 11 states not fulfilling their mandatory obligations.

The stubborn transportation sector is still transitioning at "the slowest pace," according to the EC. The vast majority of transportation in the EU relies on fossil fuels, and sector-wide emissions are increasing, the EC said in the proposal.

Advanced biofuel, e-fuel targets praised

Today, member states meet their RED transport targets by passing laws promoting the use of biofuels, but in the future, electrification of transport may play a bigger role.

Several of the Fit For 55 proposals, including a credit mechanism in the latest RED revamp, would significantly aid the electric vehicle charging market.

But the overall target that counts both electricity and biofuels is set to change. The RED revisions change the metric for the RED transport target, replacing the current 14% renewable energy consumption target in 2018's RED II with a 13% GHG intensity reduction target for the fuels and electricity used for transport. The EC says this will "stimulate an increasing use of the most cost-effective and performing fuels, in terms of greenhouse gas savings, in transport."

While this target may not look ambitious at first, the EC regards this as "increasing the ambition level of renewables in transport." This is partly because the proposed target counts GHGs and partly because it captures the whole transportation sector, including ships and planes, whereas only road and rail transportation are currently regulated. The metric aligns with what some in the biofuels industry called for in 2020.

Campaigners have said the 13% GHG reduction target will encourage both environmentally sound and damaging activity. "The new targets in the revision of the RED II are certainly very ambitious. They're much higher than what was already in the RED II, which is good in some ways and bad in some ways," Stephanie Searle, fuels program director at the International Council on Clean Transportation (ICCT) campaign group, told Net-Zero Business Daily.

One target that is green is the sub-target within the GHG reduction target that would see advanced biofuels increase from at least 0.2% in 2022 to 0.5% in 2025 and 2.2% in 2030, Searle said. This is because advanced biofuels are mostly cellulosic biofuels like wheat straw that do not create damaging carbon sink impacts through Indirect Land Use Change (ILUC). "So, increasing the ambition on that front is a good thing, although it may be difficult for the market to meet," said Searle.

The series of advanced biofuel targets proposed would replace a previous 0.5% advanced biofuels target for 2020, which many member states did not meet.

Searle acknowledged that the new advanced biofuel targets would mean changes for the biofuel industry. "The Commission is not really trying to stimulate a 100% new industry, but a mostly new industry and it's going to take really dramatic growth to reach those targets by 2030," said Searle. "It depends on member states. This is a directive, not a regulation, and member states have to implement it. If member states implement it well, those targets can be met. If member states don't implement it well, the targets will be missed."

Searle supports a proposed 2.6% sub-target for Renewable Fuels of Non-Biological Origin that includes renewable-power origin liquids and gases, like hydrogen, that to date are not widely used as fuel. The target excludes blue hydrogen, which is not usable for compliance with any part of the RED proposals, said Searle.

Food-based biofuel crop cap a negative

No one disagrees with the idea that burning biofuels releases less emissions than fossil fuels. In the case of biodiesel when compared to diesel, it's 41% less.

The debate is around biofuels made from feedstocks that displace agriculture such as food or animal-feed crops, which leads to the clearing of forests that would otherwise be carbon sinks to grow those crops. The EC estimated that 51% of land used to grow biofuels for EU consumption in 2018 was located in non-EU countries. EU centers of biofuel production are in Romania, Poland, and France.

To deal with this ILUC issue in the proposal, a cap of 7% on food-based biofuels like palm, rapeseed, and soy will be carried over into the new target. The target existed under the previous RED II and discourages the use of feedstocks like palm due to their impact on forests in Indonesia and Malaysia.

Searle argues the proposed cap on food-based biofuels is bad for the climate because while the cap would stay the same, it would cover almost all transportation fuels, thus allowing for greater volumes of food-based biofuels to be used. "It's not a great thing, because we know food-based biofuels are linked with significant land-use change emissions and many types of food-based biofuels are actually worse for the climate compared to petroleum, and some of the types of biodiesel in particular," said Searle.

The proposal also includes an exception for crops grown abroad during the winter in Europe, so-called intermediate crops like corn. "There is the risk that a very large amount of just 'business-as-usual' food-based biofuels could sneak in around the 7% cap as intermediate crops, and the issue is that with the large 13% target, there is more draw for these unsustainable pathways. We've done the modeling recently, and we found that we'd actually get significant GHG savings with a slightly lower target of 11% because you'd have less of a draw for these unsustainable pathways," said Searle.

The EC is aware of the problem and has made modest efforts to solve it. It passed a 2019 Delegated Act to set out rules for certification of low-ILUC-risk biofuels and planned to legislate for the gradual phase-out of high ILUC-risk biofuels like palm oil by 2030. In last year's renewable energy progress report, the EC lamented that ILUC emissions "cannot be measured precisely."

The EC believes that voluntary programs certifying the sustainability of biofuels, including 13 schemes already approved under the RED, can be used to certify low-ILUC biofuels, although they do not allow tracing from production facilities.

But in 2016, an investigation by the European Court of Auditors found such schemes were "not fully reliable" due to weak oversight. In June, the EC opened a consultation on new standards that would apply to all voluntary schemes, acknowledging a willingness to improve its biofuel sustainability framework.

Change on the horizon for biofuel, shipping, aviation industries

Encouraging the greening-shy shipping industry to start using biofuels, the EC's 14 July package included policies supporting RED's renewable aims for the maritime sector.

Measures that boost biofuels' use in shipping include the RefuelEU Maritime minimum lifecycle GHG reduction, bunker fuel taxation in the Energy Tax Directive, and the inclusion of shipping in the EU Emissions Trading System, IHS Markit analysts explained in a recent presentation.

What is more, the advanced biofuel target in the RED will contain a 1.2 multiplier, which will mean a "double counting" (more or less) of ships' and planes' use of such fuels towards that target. As a result, not only shipping but also the aviation sector is expected to form a new large source of demand for biofuels.

Umbrella network Transform! Europe released a statement decrying the land-use effects of a "boom" of biofuel use by ships. But the RED aviation proposals won favor with other campaigners.

The proposal denies crop-based biofuels with feedstocks such as soy and rapeseed inclusion in the definition of sustainable aviation fuels (SAFs) used to meet proposed aviation targets and restricts their use for maritime fuel targets. "From an environmental point of view, the targets in that [ReFuelEU Aviation] regulation are really good, because it doesn't include food-based biofuels," said Searle.

Waste biogas would only make a limited contribution to the target because there are few CNG vehicles in use, she added.

Advanced biofuel cellulosic ethanol might be spurred, but probably for use in sectors like aviation rather than for vehicles because the EC wants to phase out internal combustion engines in favor of battery electric vehicles. "I expect we'll still see some growth in that industry, but it may be limited now by the forecast for transitioning all gasoline cars to electric vehicles …. Hopefully, we will see significant growth in other types of cellulosic biofuel technology that can produce drop-in fuels for diesel and jet fuel," Searle said.

Yet, concerns remain that the riddle of sustainable biofuel supply must be solved by ill-prepared sectors.

The lack of harmonization between sustainability criteria for aviation and shipping sectors bothers the biofuel trade body, the European Biodiesel Board. "The Commission proposes different sustainability regimes and limits on feedstocks for biodiesel in the aviation and maritime proposals …. This would cause substantial market disruptions, possibly decreasing overall sustainable fuel use and imperiling European transport decarbonization efforts," it said in a statement.

The European Waste-to-Advanced Biofuels Association is concerned about aviation outbidding other sectors for limited biofuel supplies. It said this would "completely" distort the market and "divert more than half of feedstocks" towards aviation, undermining climate mitigation efforts in the road and maritime sectors.

The EC's impact assessment for the policy concludes that bio-LNG and biodiesel combined will meet the bulk of EU maritime energy mix, but those prospective buyers are skeptical. Shipping sector trade bodies have protested that the fuels are not yet widely available.

Posted 10 August 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

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