The EU legal framework for reducing CO2 emissions in the road transport sector separates responsibility along the supply chain:
Fuel suppliers are responsible for emissions from transport fuels from the original energy source (“well”) to the vehicle (“tank”). They are subject to regulations such as the revised Renewable Energy Directive (“RED”) and further regulatory requirements that essentially focus on the quantities of fuel consumed.
Vehicle manufacturers (often referred to as Original Equipment Manufacturers, “OEMs”) are responsible for direct emissions from the vehicle, i.e. on the way from the tank to the wheels. The main element regulating emission reductions are the CO2 emission standards for new vehicles. OEMs have to fulfill a certain average fleet target for the yearly sold new vehicles.
Production of renewable fuels
Renewable fuels are supplied to customers at the fuelling station (typically as blend)
Renewable fuel credits are issued and entered into the Union database
OEM (automotive manufacturer) buys credits from the fuel supplier and reports them to the Union database – accounting separation between credits counted towards RED obligation and CO2 standards for new vehicles to avoid double counting
OEM requests crediting against fleet targets – authorities verify the amount of credits bought by OEM
Equivalent reduction amount of CO2 saved by renewable fuels from the CO2 emission standards of the OEM
Fuel suppliers are responsible for supplying renewable fuels, which generates credits that OEMs can buy to credit against their CO2 emission standards. In principle, the same certification and verification process as for RED renewable fuel targets can be used to credit renewable fuels against CO2 emission standards.
Authorities ensure that sustainability criteria are met and that credits are only used once. This involves national and EU authorities which are responsible for implementing RED (particularly the Union database for renewable transport fuels) and authorities involved in CO2 emission standards. As existing certification mechanisms are used, no significant administrative burden will arise.
Timing in a crediting system for renewable fuels: In a detailed approach the consultancy, Frontier Economics, has demonstrated how the timing of the verification of the RED and the CO2 standards emission obligations can be solved. In most member states the renewable fuels amounts, which are brought into market, are reported before the Commission finally notifies OEMs of fleet emissions.
If the automotive industry misses their targets by 10 to 40% the voluntary crediting system would lead to:
A voluntary crediting system can lead to several environmental, customer and strategic advantages:
- No double counting – only additional renewable fuels, which are not used to fulfill the obligation of the fuel industry (RED), are considered
- Inclusion of RED sustainability criteria – Only renewable fuels certified to meet the RED sustainability criteria will be eligible for the crediting system.
- Accelerating climate protection: By verification of the compensation of the whole CO2 footprint at the registration of the vehicle (frontloading) the CO2 reduction is brought 5-6 years forward
- Many lifecycle analyses show that an ICE supplied with renewable fuels can be at least as climate-friendly as a BEV with renewable electricity. By introducing a crediting system, we estimate up to 215 million tons of CO2 avoidance in the near term. See here
- Investments in innovative technologies to positively contributing to the decarbonization instead of administrative penalties
- Economic advantages of the automotive manufacturer will be passed to the customer in a tight market. The customer will save up to €1.000
- The proposed system allows to direct renewable fuel credits to individual vehicles (vehicle-specific approach). For that reason, the customer can benefit of vehicle tax (passenger car) and truck toll exemption
- For short ranges and low payload the electric mobility can be chosen for long ranges and high payload the climate-neutral internal combustion engine is still possible.
- It is a voluntary option – A voluntary crediting system is only chosen if it has advantages compared to other solutions
- No upfront investments needed because vehicles fuel technologies are developed and an appropriate infrastructure exists.
- In terms of risk management, there is a backup solution available that increases flexibility if electrification faces major challenges
- The electrification won’t slow down because renewable fuels are only applicable in use cases, in which customer won’t chose electric solutions in the near term
- Economic gains from maintaining highly qualified workforce and technological lead in the internal combustion engine production
- The ban of the fossil internal combustion engine is still possible in 2035 but additional solutions appears for suiting different vocational market demands.
- Build regulatory bridges between unconnected climate regulations in the transport sector to link the different decarbonisation opportunities along their life cycle. Without a stepwise development towards a more holistic regulatory framework, the climate targets cannot be reached.
- Accelerate the emission reduction in transport. A voluntary crediting system for renewable fuels in the CO2 emission standards for new vehicles stimulate the production of additional amounts of renewable energy and, therefore, adds an important contribution to meet the climate targets.
- Unlock the investment capacity of the automotive industry. Without a crediting system for renewable fuels there is almost no incentive for investments of the fuel industry into renewable fuels and therefore, climate protection potential is left out. Without significant production capacity for renewable fuels, the automotive industry has no other choice than to electrify everything – an option that is at least risky.
- Multiply the solutions rather than narrow them down. A crediting system will primarily be attractive for use cases, in which customers demand high ranges and/or payload. A complete electrification of those use cases while discarding other technological alternatives is detrimental to the environment and will lead to unnecessary expenses. Therefore, a crediting system isa supplement to the electrification, not a substitution.
- Support a market-driven solution. A crediting system enables a high regulatory willingness to pay of up to 2 €/l. Innovative fuel technologies require a target market in the beginning for their ramp-up. The road sector can be the locomotion of expansive technologies like eFuels. In comparison to electrification, the capital comes out of the market and not from the taxpayer – a clear economical advantage.
- Allow flexibility to reach targets. The automotive market will need flexibility and time to adapt to the progressive uptake of EVs. Electrification comes with opportunities but also unsolved challenges. The European automotive industry needs a safety net, i.e. an alternative, voluntary option for OEMs to reach the emissions reduction objective.
Renewable fuels are climate-friendly fuels made from renewable resources. They include sustainable biofuels made from crops, residues and waste materials; and e-fuels, synthetic fuels made from hydrogen and carbon dioxide. As these fuels are similar or identical to conventional fuels like kerosene, petrol or diesel, they can replace fossil fuels while still using existing infrastructure.
By bringing a higher share of renewable fuels into the market, anyone who drives a vehicle with an internal combustion engine will significantly and measurably reduce their CO2 emissions, as more and more fossil fuels will be replaced by climate-neutral renewable fuels. This is especially important, as the large existing fleet of vehicles with internal combustion engines as well as heavy-duty vehicles are not addressed by the current ramp up of electric vehicles, can however make a significant contribution in reducing emissions in the road transport sector.
No, in contrast to an electric vehicle whose life-cycle CO2 emissions always depends on the electricity used and battery production, the whole carbon footprint of an ICE vehicle is compensated by additional amounts of renewable fuels, leading to immediate further CO2 reduction. Additionally, this frontloading brings the CO2-reduction 5 to 6 years forward and could make short-term climate goals more achievable. The necessary investments in renewable fuels also have a positive impact compared to the current approach, where OEMs missing their fleet targets would have to pay penalties without immediate ecological benefit.
No. With increased quantities of renewable fuels being added gradually to conventional fossil fuels, and production costs falling owing to economies of scale, renewable fuels would be affordable for consumers in every phase of the market ramp-up. This will be aided by the review of the Energy Taxation Directive, which proposes low minimum tax rates for renewable fuels while abolishing subsidies for fossil fuels, thereby giving renewable fuels a price advantage.
Yes, we have to know which sector is responsible for which target of CO2 reduction. But without links between the fuel and vehicle regulations, the needed diversity of different renewable energy carriers required to decarbonise the different types of vehicles could not be developed, making a holistic energy transition of the transport sector less probable and missing out on economies of scale. Regulations in the transport sector have to grow together to achieve the best solutions for the whole lifecycle of fuels.
As the RED focuses mainly on the supply side of fuels, it needs to be complemented by adequate measures on the demand side. In order to incentivize sufficient investment, both have to come together to provide an attractive business case for producers of renewable fuels and customers. Production plants run 20 to 30 years, and the renewable fuel targets in the regulations on aviation and maritime are not sufficient to stimulate investments and make economies of scale possible. Therefore, a level-playing field for all technologies and a holistic consideration taking into account the whole life cycle of fuels in the CO2 emissions standards are needed.
No, the more efficient a vehicle is, the fewer renewable fuel credits have to be purchased. Cost-efficient technical measures will always be chosen first. Only if a renewable energy carrier is cheaper than technical efforts, then it is worthwhile for automotive manufacturers to consider the fuel.
No. This debate misses the core of the problem that needs to be tackled – and loses sight of the real goal of greenhouse gas reduction and climate protection. Both technologies can make a meaningful contribution and perfectly supplement each other, as different use cases are addressed. Only if large batteries and expansive infrastructures are needed to satisfy customers or electrification is impossible or impractical, the crediting system comes into play. By using renewable fuels, this existing fleet can be made climate-neutral, too. This would particularly help lower-income households to make a contribution to climate protection without incurring additional conversion costs. A crediting system for renewable fuels would therefore be complementary to e-mobility, not incompatible with it.
The automotive manufacturing companies are split on this issue – some are in favour of crediting renewable fuels, some are against it and push for an all-electric approach. As current regulations favour a tank-to-wheel view on GHG emissions, leading to electric vehicles being considered as "zero emissions", and OEMs (Original equipment manufacturers) have access to massive subsidies for electrification of vehicles, developing BEVs is the most economical and reliable way to reach the fleet targets set in the CO2 emission standards. OEMs are concerned that increasing the options to achieve their emissions reduction targets will lead to higher fleet targets. With the new Commission proposal of cutting GHG emissions by 100% in 2035, this concern should not exist anymore. Nevertheless, the focus needs to be on effectively reaching CO2 targets and using all available options to make climate-neutral road transport possible as early as possible. In the end, it is a voluntary crediting mechanism, meaning that OEMs are not obliged to use it. OEMs can still follow an all-electric strategy.
The political dedication to electrification in the road sector as the sole solution to transport emissions is quite a risky strategy. Will the charging infrastructure expansion keep pace with the number of new electric vehicles? What about the structural economic dependency on non European battery materials? Will the battery price always decrease? How will the electricity price develop with an increasing share of fluctuating renewables in the system? Will the customer accept limitations of the mobility behaviour? Will all customers be able to afford electric vehicles?
Having only a single solution to climate neutrality leaves too many questions open and leads to a number of insecurities without appropriate risk management. A crediting system for renewable fuels could aid in stabilizing this path towards climate neutrality and act as a safety net.
The crediting mechanism applies to all Renewable Energy Directive certified fuels. The RED sets clear sustainability criteria for all renewable fuels. These include compliance with the principles of a circular economy, a detailed life cycle analysis of emissions, and avoidance of negative environmental and biodiversity impacts. Conventional biofuels can be certified as sustainable, although their contribution to RED targets is limited to 2020 levels plus 1% and capped at 7%. Sustainable biofuels and e-fuels would meet additional demand triggered by the crediting scheme.
There are no loopholes. Only additional amounts of renewable fuels count and it is voluntary for the automotive industry. There is no double counting. The methodology has been well-developed with further involvement of legal expertise, and enjoys broad support, visible for example in a recent letter of over 220 scientists, associations and companies to the European Commission. Its economic feasibility has been proven by publications of Frontier economics.
The global potential of renewable energy is huge and renewable fuels are easy to store and transport. Better site conditions for renewable energy, for example in sun- and wind rich regions, compensate technical efficiency losses. A windmill in Patagonia runs 270 days a year, while the same windmill would only run 66 days in Germany. Those sites are not in competition to the electrification because we will never have a powerline e.g. from Patagonia to Europe. Therefore, additional renewable energy potentials are exploited, which would otherwise not be used. From a global perspective, renewable energy is not a limited resources and investments will help to build up new renewable energy plants worldwide.
If Europe wants to be frontrunner in a hydrogen economy, we have to start now with attractive business cases. The road sector is such an attractive target market, with high willingness of pay of up to 2 €/l. A crediting system could be a locomotion of the technical development, which is needed in order to make affordable renewable fuels for aviation and maritime sector possible, where the willingness to pay is much lower. Also, lot of jobs can be generated here. According to the latest study of the German institute of economics a European eFuel industry could build up 1.2 million jobs. If you don’t use the road sector to accelerate a hydrogen economy we will lose the race in a global perspective.
The prospects for large-scale industrial production of renewable fuels depend heavily on the political and regulatory framework. Renewable fuels have been extensively researched and the technical conditions are in place to allow the construction of large-scale industrial plants in the medium term. However, this will only happen if there is security for investors in this sector, and an openness to technology among policy makers that permits a level playing field for the use of innovative climate protection technologies. Production could be on stream as early as 2025.
- Battery Electric Vehicle
- Carbon Correction Factor
- European Effort Sharing Regulation
- European Emission Trading System
- Fuel Quality Directive
- Greenhouse Gas
- Heavy Duty Vehicle
- Internal Combustion Engine
- Original Equipment Manufacturer
- Plug-in Hybrid Electric Vehicle
- Renewable Energy Directive
- Total Costs of Ownership
- Used Cooking Oil
- Worldwide Harmonized Light Vehicles Test Procedure
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