Regulatory Changes for Biofuels in Germany – or “Much Ado about Nothing”

Earlier this year, the German government announced a number changes to the ways that obligated parties would be regulated from 2015 onwards.

In short, obligated parties would no longer have a volumetric quota (x% of fuels distributed to be “renewable”), but would instead have a carbon saving quota (set at 3% GHG, from 2017 at 4.5% GHG and 7% GHG from 2020). Alongside this came some other changes, such as paving the way for green electricity and hydrogen as an energy source for road transport, and the removal of “double counting” incentives for certain biofuels.

The last change in particular has been the source of much confusion and uncertainty in the biofuels market, not helped by the slow pace at which detailed auditing and verification guidance has been made available to the industry. In reality, the impact on most biofuel supply chain operators will be far less dramatic than many have feared.

The Fuel Quality Directive – a reality at last?

The changes announced in Germany are of academic and political interest in as much as they are more or less the first concrete manifestation of the Fuel Quality Directive (Directive 2009/30/EC of 23 April 2009) or FQD in national policy. So far the Renewable Energy Directive (Directive 2009/29/EC of 23 April 2009) or RED, which is broadly similar in scope, wording and detail, has been the principal piece of European carbon reduction policy. European Directives are not “law” that is binding on economic operators in national markets until that national market passes enabling legislation.

Whereas the RED has been implemented more or less throughout Europe and is regarded as the authoritative statement on biofuels in road transport, the FQD has still not been implemented across the EU. On 7 October, 2014, the European Commission published a revised proposal to implement Article 7a of the Fuel Quality Directive (FQD). The FQD is one of the key EU policies that were adopted as part of the climate and energy package in 2009. It has a 6% target to reduce carbon intensity from transport fuels by 2020 compared to a 2010 baseline. The German proposals, however, more or less implement the aims of the FQD.

Under the RED as it is currently implemented, operators are obliged to substitute a proportion of the fuel they produce with renewable biofuels. This percentage is gradually increasing (with a target of 10% replacement by 2020). Furthermore the “renewable” threshold (the “binary” classification of whether a fuel may be considered a renewable or not) is also rising: At present a biofuel is considered to be renewable if it offers a 35% GHG saving relative to its fossil fuel equivalent. In January 2017 this threshold will rise to 50% GHG saving, and in January 2018 it will go up to 60% for new installations.

Specifics of FQD and German legislation carbon accounting

Under the FQD, and under the new German rules, the existing renewables requirement is supplemented by a “hard” carbon saving target across the whole range of fuels distributed by an operator. In other words, the “binary” classification of a biofuel as “renewable” is only part of the story – the actual GHG emissions saving that a fuel achieves has to be taken into account.

Because of this, biofuels such as rape seed biodiesel (RME), which offer a default GHG saving of only 45%, will provide operators with fewer carbon accounting savings per litre or ton than biofuels such as used cooking oil biodiesel (UCOME), which offer a default GHG saving of 83%. This will eventually result in a price differential between fuels like RME, PME, SME and UCOME, because operators will only have to use about half the quantity of UCOME to achieve the same carbon saving.

For supply chain operators producing biodiesel from waste, this effectively cancels out the impact of end of double counting in Germany.  As a biofuel produced from waste, in markets where double counting is allowed, UCOME can be counted twice towards a renewable obligation. Although Germany will no longer allow double counting as of 1st January 2015, at this stage there is no indication so far from France, the UK or Netherlands (the other principal double counting markets) of any move to change.

Actual or Default values – what should I use?

As an auditor, this is the second most frequent question I have been asked since the German rule changes were announced earlier this year. Although  definitive auditing and verification guidance has still not been made public by the German authorities, my understanding (confirmed though informal discussion with the BLE) is that there are no changes to whether an operator may use actual or default values.

In other words, if you are a UCO or UCOME supply chain operator, then you will still be entitled to use default values for transport and conversion in the UCOME pathway. While the transport default value is unrealistically generous (particularly for UCO imported from outside Europe), the conversion default value more or less cancels this gain out.  On the other hand, if you are a RME producer, you may be able to achieve substantial savings through calculation of an actual GHG value.

To some extent this is old news: The default value of 45% means RME is considered a renewable now but will cease to be a renewable biofuel from 31st December 2016, unless an actual calculation demonstrates a better than 50% net saving. What is new is that, under the German rule changes, biodiesel conversion units producing biodiesel from anything except waste have an incentive to produce these GHG calculations immediately.

ISCC/REDCert DE – Should I stay or should I go?

This is the number one question that any ISCC or REDCert auditor has had to field over the last three months. There has been a lamentable lack of guidance from the regulators and a lot of confusion. ISCC finally published an update last week (ISCC system update 11 December 2014) which provided some guidance, but questions still remain in many economic operators’ minds.

ISCC/REDCert DE are national schemes that are used by operators to demonstrate compliance with German national rules. They are not compulsory – you can also demonstrate compliance by means of ad hoc verification and audit – but having an ISCC DE or REDCert DE certificate is by far the easiest way for a company outside Germany to demonstrate compliance with German national rules, even taking into account that the audit burden for collectors and conversion units is substantially higher than for EU voluntary schemes.

None of this changes after 1st January 2015: If you have a ISCC DE or REDCert DE certificate you are at something of an advantage selling into the German market. However, the principal reason for having an ISCC/REDCert DE certificate up until now has been that this was the only way to prove compliance with 36. BImShV requirements and was therefore the only way to gain access to double counting for biofuels from wastes. Since double counting will cease, there is no longer a direct economic advantage to having a DE certificate. ISCC/REDCert EU operators will be still able to sell their products into Germany (as they can now), but at much the same price as ISCC/REDCert DE operators.

One quick word of caution, however – until the restriction on the use of animal fats for biodiesel is explicitly lifted, only “UCO entirely of vegetable origin” can be used for biodiesel destined for the German market.

Summary

So what is the net impact of these changes on different economic operators in the biofuels market?

First and foremost, these changes only impact the sale of biofuels in Germany. If you are operating outside of the German market, or are trading material that is not destined for the German market, then there is no change.

If you are operating either in or with materials that are destined for the German market:

  • If you are a collector or first gathering point for wastes you may consider cancelling your ISCC DE or REDCert DE certificate. You may be better off waiting until the final guidance to auditors is published later this week, or at least deferring the final decision until your certificate is due to expire, since there is still scope for some limitations remaining on the import of certain materials under EU voluntary schemes. You may also wish to consider whether your ISCC/REDCert EU self declarations, mass balance and storage systems allow the segregation and identity preservation of pure vegetable UCO as any deficiency could still compromise your ability to sell ISCC EU or REDCert EU material into Germany. There is no obligation at this point to calculate actual GHG values.
  • If you are a conversion unit producing biofuels from primary products such as grain, you may have a lot to gain from undertaking a GHG calculation and audit for your plant. This is something you can do yourself based on raw material data, process and energy inputs, conversion rates and allocation factors, or you may feel more comfortable commissioning a consultant to do this for you. Your ISCC or REDCert auditor will review the calculation with you. There is no change to the treatment of upstream GHG values – in other words you can continue to use the proofs of sustainability that you receive from first gathering points, whether they state actual or default values. If you are producing biofuel from waste, you can still do a GHG calculation, however the payback on the investment in that calculation is substantial less than for biofuels from grain.
  • If you are a trader, either with or without storage, then you don’t necessarily need to make any changes to your systems.  However you can expect that more and more materials that you trade will have actual GHG values rather than defaults, and these values need to be carried through your mass balance system. If actual values are used, you will always have to add incremental GHG for transport though your custody: If the material uses default values, then generally you do not need to add a transport component.

Disclaimer: This information is provided freely on the basis of information available at the date of publication. The author can accept no responsibility for loss or error arising from subsequent changes to published legislation or guidance.

Stephen Oliver is a freelance consultant and accredited auditor for ISCC, REDCert, RSPO and other RED systems. If you would like to have any advice relating to the changes discussed in this article, or would like to have a GHG emissions calculation for your operation, please contact him using the contact form.

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About Stephen Oliver

I am a management consultant/non-executive director and charity trustee based in Switzerland.
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