The current CO₂ emission standards for new vehicles do not consider renewable fuels

The Renewable Energy Directive 2018/2001/EU (REDII) sets a binding overall Union target of at least 32% renewable energy in 2030, which Member States are obliged to meet collectively, meaning member states contribute to this goal at different rates. Subsequently, each member state has to publish a National Energy and Climate Plan, outlining the climate policies undertaken and planned to achieve this goal.

The revision of the REDII is part of the “Fit-for-55” package and the EU commission has proposed changes on 14th July. Member states have to an overall greenhouse gas (GHG) reduction quota of 13% compared to fossil fuels in the transport sector and are therefore responsible for amending the energy mix of the supply side, obligating fuel suppliers to fulfil this share of renewable energy. Within this target, a sub-quota for advanced biofuels such as biogas of 2.2% in 2030 shall be introduced. Renewable fuels of non-biological origin, so-called RFNBOs, such as eFuels, shall get another sub-target of 2.6%. Renewable fuels used in the aviation and maritime sector have a multiplier of 1.2.

Renewable fuels must however comply with the criteria given by the REDII on sustainability and greenhouse gas emissions in order to be applicable to the 14% quota:

1. Criteria on Greenhouse gas emissions
   The greenhouse gas reduction by renewable fuels used in the transport sector needs to amount to at least 65% for biofuels and 70% for renewable fuels of non-biological origin, so-called RFNBOs, such as eFuels.
2. Sustainability Criteria
   These sustainability criteria include compliance with the principles of the circular economy, a detailed life cycle analysis of all emissions, avoidance of negative impact on the environment and biodiversity, and no additional need for cultivation land. These criteria therefore also limit the use of conventional biofuels to 7% or the value in 2020 plus 1%, with a phase-out until 2030.

However, two delegated acts based on article 27 and 28, which will define renewable electricity supply concept (article 27) and the GHG reduction methodology (article 28) for hydrogen and eFuels are still pending and therefore hindering investments in large-scale hydrogen projects in the EU.

The two EU Regulations that govern the fleet targets for light duty vehicles (passenger cars / vans) and heavy-duty vehicles share the following features:

• Tank-to-wheel approach (“tailpipe” emissions) – Therefore, only the vehicle tailpipe emissions are relevant in the current context, regardless of the origin and CO₂ intensity of the fuel used. 
• Single annual EU-wide fleet target for each OEM – For each OEM, a single EU-wide fleet target applies for each of the segments (cars, vans, and heavy-duty vehicles). Fleet targets are set annually and comprise all new vehicles registered in the same year. 
• Targets are tightened over time – The basic idea is that all OEMs should lower the Europe-wide average CO₂ emissions of their new vehicles each year below an increasingly stringent fleet limit value:

Fleets of heavy-duty vehicles will be regulated from 2025 onwards, with the initial CO₂ target emission-reduction levels to be set relative to a reference period (July 1, 2019 – June 30, 2020). On 17 September 2020, the EC presented its plan to accelerate emissions reductions significantly in the next decade. This will most likely imply even stricter fleet targets.

• Significant penalties for underperformance – Automotive manufacturer (OEMs) must pay a penalty per vehicle if their average emissions exceed the fleet target:
  • For cars and vans, OEMs must pay a ‘penalty’ of 95 EUR/g CO₂/km times the number of new vehicles. 
  • For heavy-duty vehicles, failure to comply with emission targets will result in a penalty of €4,250 per g CO₂/tkm in 2025 and €6,800 per g CO₂/tkm in 2030.

If OEMs do not fulfil their fleet targets as defined in the CO₂ emission standard for new cars and vans, meaning the average CO₂ emissions of all newly sold vehicles in g/km per year exceeds the allowed value, any additional emissions are fined by the EU. These penalties are estimated to reach amounts of 19 – 50 billion Euros in case OEMs miss their fleet target on passenger cars by 10 – 40%. As the fleet targets can be expected to be tightened in the upcoming reviews of the regulation and the CO₂ regulation for trucks will start only in 2025, OEMs missing fleet targets will be more probable, leading to rising penalties.

While selling new battery electric vehicles remains the only way to reach these fleet targets at the moment, a voluntary crediting scheme for renewable fuels is a climate-friendly possibility for OEMs to aid in reaching their fleet goals, using money that would otherwise be lost to penalties to introduce a corresponding amount of renewable fuels into the market and lead to immediate climate protection and CO₂ emission reduction.

Additionally, internal combustion engines can still be sold as their CO₂ emissions are neutralized by introducing their lifetime emissions equivalent in renewable fuels, making them carbon neutral.

The rising demand of several billion litres of renewable fuels annually, triggered by a voluntary crediting scheme for OEMs, would lead to establishing a secure and long-term stable market for fuel suppliers. Only then will fuel suppliers see the necessary business case to invest in more renewable energy plants as well as the production plants for renewable fuels. 

This demand of renewable fuels by OEMs, who can use these renewable fuel credits to fulfil their CO₂ fleet targets, can already now be estimated to amount to up to 25 billion litres by 2030 for new passenger cars, while the introduction of the CO₂ emission standards for new vans will likely spike the demand for renewable fuels even more.

A voluntary crediting scheme for renewable fuels would include a so-called frontloading mechanism: For every newly sold vehicle, the entire lifetime emissions of this vehicle have to be offset upfront, with any double counting being prevented by the Renewable Energy Directive. This effectively reduces CO₂ immediately and can help reach ambitious climate targets in the transport sector sooner. This “frontloading” mechanisms could save up to 215 metric tons of CO₂ until 2030 for passenger cars alone, which corresponds to about 32 % of all emissions in road transport in 2018. This number correlates to the scenario of a 40% gap to the fleet targets of the automotive industry.

Currently, battery electric and fuel cell vehicles are the only option for OEMs to reach their fleet targets, as the tank-to-wheel approach in the CO₂ regulation for new cars guarantees emissions of 0 gCO₂/km, no matter which electricity is used to fuel the vehicle. This excludes other emission reduction options such as renewable fuels, which we cannot afford when trying to reach the ambitious climate goals for the transport sector. To enable an efficient and holistic energy transition and reach our common goal of climate neutrality, we need to use all technologies available to reduce CO₂ emissions as quickly as possible. 

This is also a crucial argument for risk management: Focusing on one technology only makes the OEMs and automobile production susceptible to price changes and shortages in important resources for batteries, as it does not take into account issues like shortages of necessary minerals that are already visible today, as well as missing production capacities in Europe. Another shortage could be the charging infrastructure, which might not develop fast enough in all European countries, as well as electricity prices, which may increase and make electric cars much more expansive. Including the possibility of crediting eFuels within the EU CO₂ emissions standards for cars and vans would give the affected industries more options: They would not have to rely on the carbon reducing potential of just one technology but would be able to minimize and allocate their risks accordingly and efficiently, therefore increasing the effectiveness of the CO₂ emission standards. 

Right now, the main choice available to customers who want to switch to climate-friendly mobility is electric vehicles. While BEV prices have become more affordable over the years, buying a new car, no matter how cheap, is simply no option for a lot of households. With a voluntary crediting scheme for renewable fuels, already existing vehicles with an internal combustion engine can continue to be driven without rising fuel prices, while their emissions decline with the amount of renewable fuels brought into the market. Economic mobility concepts for example natural gas vehicles with biomethane are still possible with an introduction of a voluntary crediting system.

Additionally, some use cases like heavy duty or long-range transport, especially in remote areas, are hard or impossible to electrify according to current technological standards, as well as lacking a sufficient and standardized charging infrastructure. For those use cases, renewable fuels are a more affordable option than complete electrification, as they have the same chemical properties as fossil fuels and can be used to substitute these while making use of existing infrastructure and propulsion systems.