24 Nov 2020, 11:42

CO2 reduction and biofuels in Germany's transport sector - implementing the RED II directive

No greenhouse gas reductions since 1990 – that is the unfortunate balance of Germany's transport sector. While the climate targets are clear, the way to reach them remains subject to fierce debate. One major part in decarbonising the transport sector could be played by the reformed legislation on greenhouse gas quotas in fuels which is based on the EU's renewable energy directive (RED II). But while the environment ministry preparing the bill puts a focus on electric mobility, hydrogen and advanced biofuels, the existing biofuel industry cries foul and renewable proponents warn that all available technologies will be needed if significant CO2 reductions are to be achieved. This factsheet explains the contents of the environment ministry's first draft bill and describes the most common criticism of the proposal.

Emissions from the transport sector have not fallen in Germany since 1990, making it the only sector that has not achieved any greenhouse gas reductions. With a clear target of reducing emissions by 37 percent by 2030 embedded in the 2019 Climate Action Law, road transport in particular has become a focus of climate policy attention and the government is putting together a range of new incentives and regulations to cut emissions quickly.

One element of this is the transposition of the European Union’s 2018 renewable energy directive (RED II) into national law. The directive has a sub-target for the transport sector, stating that every member state “must require fuel suppliers to supply a minimum of 14 percent of the energy consumed in road and rail transport by 2030 as renewable energy.” In 2019, the share of renewables in Germany’s final energy consumption in the transport sector was 5.5 percent.

The EU directive sets sustainability criteria and provides for the limitation and specific promotion of individual renewable energy products. It includes greenhouse gas criteria for solid and gaseous biomass fuels based on their risk of causing indirect land use change (ILUC). ILUC occurs when biofuel production takes place on cropland previously used for food or feed crop farming. This may lead to the extension of farming onto areas with high carbon stock, such as forests, peatlands or wetlands. Because of biofuel production, ILUC can thus cause the release of CO2 stored in trees and soil and negate the greenhouse gas savings from biofuel use.

In Germany, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) is in charge of the transposition of the directive. In September 2020, it published the first draft of the “Law on the further development of the greenhouse gas reduction quota” and the accompanying regulation, as well as changes to the Federal Immission Control Ordinance (BImSchV). Companies that supply fuel in Germany are obliged to reduce the greenhouse gas emission of all the products they place on the market by a certain percentage -- this is called the greenhouse gas reduction quota. They fulfil this obligation, inter alia, by placing renewable energy products on the market.

Germany has had a binding quota for biofuels since 2007, but the new legislation is going to replace the term “biofuels” with a more open description of “compliance options.” This is symptomatic of the changes that the environment ministry is introducing, which are – in accordance with the RED II directive – limiting the further expansion of conventional biofuels (e.g. seed oils, biomass fuels) and embracing new technologies, such as advanced biofuels, non-bio power-to-x fuels in aviation and green hydrogen use in refineries, as well as strongly supporting electric mobility.

In more than one instance, the ministry mentions the issue of competition between sectors for advanced biofuels and hydrogen. The availability of raw materials for advanced biofuels, e.g. residual and waste materials, is limited, but these are needed for decarbonisation in other sectors too and there are not yet enough production facilities for these fuels. Hence, while the new law and regulation promote the use of more advanced biofuels, the use of fuels for transport derived from cooking oils will be limited.

Liquid power-to-x fuels should be mainly used in aviation, where they are needed more than in road transport. The reasoning of the ministry is: use biofuels and hydrogen/power-to-x liquids in aviation, shipping and freight transport, which cannot be fully electrified; and use batteries in the car sector, where this is the most efficient alternative. While the use of synthetic fuels (power-to-x) is a possible way to meet the greenhouse gas quota, the environment ministry is of the opinion that since it takes five times as much electricity to power a combustion engine with synthetic fuel than it does to power a battery electric car, this will likely not be a viable option for the passenger transport sector.

With this, the environment ministry also explains why the proportion of biofuels used to power combustion engine vehicles will not be increased much in the next five years. This is to ensure that available technologies (e.g. conventional biofuels), which may be neither particularly good at reducing greenhouse gas emissions nor very cost-efficient, are not incentivised to grow during a period when more promising technologies, such as advanced biofuels, green hydrogen-based fuels and in particular e-mobility, still need time to scale production capacities. By 2026, the ministry expects to have “greater clarity about the availability of certain options that are currently only reaching market maturity.” Once the quantities of certain fuels, such as advanced biofuels and green hydrogen, are known, “the greenhouse gas reduction quota for petrol and diesel can be increased for the second half of the decade so that the share of renewable energy in final energy consumption in the transport sector in 2030 will be significantly higher than the EU target,” the explanation reads. Environment minister Svenja Schulze said in November 2020 that she was aiming for a 20 percent share of renewable energy in the transport sector in Germany by 2030 – instead of 14 percent as required by the EU directive.

Key objectives and targets

The environment ministry states that it wants to shape the future use of renewable energies in the transport sector by:

  • Increasing the share of advanced biofuels, e.g. from residual materials, such as straw and manure, waste
  • Increasing the use of green hydrogen in refineries and aviation – the BMU reckons that to reach the targets set in the legislation, by 2026 an electrolyser capacity of 1 gigawatt (GW) will be needed, increasing to 2.4-3.6 GW by 2030
  • Enabling the production of fluid, power-based fuels for aviation by implementing a mandatory quota
  • Promoting the expansion and operation of charging infrastructure for more electric mobility
  • Limiting the use of conventional biofuels from food and feed crops
  • Limiting the share of advanced biofuels derived from cooking oils because these are available in limited amounts only
  • Phasing out use of palm oil in fuels by 2026

The targets set in the legislation are:

  • A 14 percent share of renewables in the transport sector by 2026 (more than the EU target of 14% by 2030)
  • The greenhouse gas reduction quota should be increased from six percent to 7.25 percent by 2026
  • Limit the share of conventional biofuels in final energy use in the transport sector to 3.2 percent by 2022, falling to 2.7 percent by 2026 – this limits the maximum usage of these fuels to the status quo
  • A 0.5 percent share of synthetic kerosene by 2026, and a two percent share by 2030 in the aviation sector
  • Increase the supplier obligation to include a minimum share of advanced biofuels (mandatory sub-quota) from 0.05 percent in 2020 to 1.75 percent in 2030

Caps and multipliers

The regulation stipulating the implementation of the greenhouse gas quota makes use of a complex system of caps and multipliers to promote certain technologies and fuel types over others. “Within this greenhouse gas quota, biofuels with a more favourable climate balance will count more towards the obligation than biofuels with a less favourable balance,” the draft regulation says.

In line with the RED II directive, the environment ministry has opted to significantly promote electric mobility and charging infrastructure by stipulating that the renewable electricity used in e-cars will be counted four times towards meeting the greenhouse gas reduction quota. Since the legislation obliges fuel suppliers to have a certain share of greenhouse gas reducing renewables in their fuel, suppliers can buy certificates for renewable electricity from charging point operators. Crediting e-car power fourfold will make this compliance option more attractive to fuel suppliers than the use of biofuels; it will also provide non-tax-based funding for charging point operators.

A similar approach is used to promote advanced biofuels (e.g. from biowaste, straw, manure). The regulation establishes a mandatory sub-quota for these fuels. Quantities exceeding this sub-quota are counted double towards the greenhouse gas quota of the fuel mix marketed by the supplier. Thus, the abatement costs for this option of reaching greenhouse gas reductions by the supplier are effectively halved, the environment ministry states.

To promote the use of green hydrogen in refineries (where it substitutes the currently used hydrogen derived from fossil materials), the environment ministry suggests counting it double towards the greenhouse gas quota.

Reactions and criticism

The environment ministry’s draft legislation has elicited strong criticism from the biofuels lobby but also from the renewables industry and many others.

A coalition of eight agricultural and biofuel industry associations (inter alia the German Farmers’ Association – DBV, the Federal Association for Bioenergy – BBE, the German Biogas Association – Fachverband Biogas, the Federal Association of the German Bioethanol Industry – BDBe, the SME association for waste-based biofuel – MVaK and the Association of the German Biofuels Industry – VDB) called the draft an “unacceptable plan to displace conventional biofuels by 2025.” They criticise in particular the “multipliers,” i.e. the proposal to count electric mobility four times towards the quota, while leaving the greenhouse gas reduction quota at the 2020 level of 6 percent until 2025 (it will be increased to 7.25% in 2026, according to the ministry). The biofuels sector fears that counting the e-mobility contribution four times while not increasing the overall quota, will see biofuels from cultivated biomass and even waste-based biofuels pushed out of the market by as soon as 2024. They also argue that combustion engine vehicles will continue to dominate the German car fleet into the 2030s and would only contribute to climate action if powered by biofuels. To this end, the availability of conventional biofuels from sustainable sources should be “steadily increased” by 2030. E-mobility and hydrogen should not be part of the greenhouse gas quota but promoted separately and “without excessive multipliers.”

The German Biomass Research Centre (DBFZ) says in its statement that the reduction of conventional biofuels unnecessarily diminishes their potential to contribute to greenhouse gas reductions in the transport sector. In addition, this step gradually thwarts major opportunities created by an elaborate process to establish effective sustainability certification for agricultural biofuel products, the DBFZ writes. They also criticise the use of multipliers, which they argue do not contribute to actual greenhouse gas reductions even if the quotas in the law are met. The researchers complain that the multipliers disproportionately promote certain technologies rather than allowing for the market to develop the best solutions. They also criticise the BMU’s focus on using green hydrogen (and counting this double towards the quota) in refineries for the production of fossil fuels, since this amounts to promoting “climate-damaging business models for fossil fuels,” while at the same time climate-friendly conventional biofuels and the direct use of hydrogen in power-to-x fuels are not rewarded.

The German Renewable Energy Association (BEE) has calculated that the share of renewables in the transport sector would have to be 50 percent in 2030 (minister Schulze said 20%) if Germany is to reach the climate targets in the transport sector set out in the Climate Action Law. In order to achieve this “all available sustainable technologies musts be used,” the BEE writes. These include renewable electricity, advanced biofuels, biofuels from food and feed crops, non-biogenic renewable fuels and green hydrogen. The BBE suggests the establishment of binding minimum shares for each fuel type.

The Federation of German Industries (BDI) supports the “strategy of limiting the use of biofuels from food and animal feed (so-called first generation biofuels) to the status quo and providing for a phase-out of palm oil by 2026.” The federation is, however, worried about the “missing impulse” for low-CO2 and electricity-based fuels. Also, it argues that the law is not making a significant contribution to the market uptake of green hydrogen. Multipliers should not only be applicable for hydrogen used in refineries but also for electricity-based synthetic fuels and hydrogen. The BDI says that the quota for aviation fuel would create a disadvantage for airlines operating out of Germany and could lead to higher emissions if other operators choose not to refuel in Germany because of its higher kerosene costs. 

Think tank Agora Verkehrswende* agrees in large parts with the ministry’s assessments and decisions. This includes the moderate increase in the greenhouse gas reduction quota by 2026, since this has to depend on the quantities of alternative fuels available. They also say that the draft bill is “going in the right direction” by directing scarce and expensive synthetic fuels to those areas where they are indispensable, i.e. in aviation. Agora Verkehrswende acknowledges that the use of multipliers is to be viewed critically in general as they can interfere with the overall goal of greenhouse gas reduction. However, in the case of electric mobility, the multiplier is acceptable because otherwise e-cars -- due to their superior energy efficiency – would fall by the wayside in a legislation that focuses on the share of final energy use in transport. The use of the fourtimes multiplier is in accordance with the EU directive and “appropriate in the light of the objective of converting road transport to mainly electric operation,” the think tank writes. During the next revision of the RED II directive, the level of the multiplier should, however, be reviewed and if necessary reduced.

The full list of statements from stakeholders is available here.

Timeline

In the middle of November 2020, the environment ministry announced that it had taken some of the criticism on board and had made some (unpublished) changes to the bill. The changes included inter alia a new target of a 16 percent greenhouse gas reduction quota by 2030 for suppliers. The changes are currently under discussion with the other ministries.

By the end of June 2021, the transposition of the renewable energy directive must be completed. The ministry expects the European Commission to ratify this legislation in January and counts on its approval by the cabinet and parliament in February 2021. Some of the criteria for purchasing electricity-based fuels and hydrogen will only be adopted by the Commission in 2021, meaning their transposition into German law will have to follow later.

*Like Clean Energy Wire, Agora Verkehrswende is funded by Stiftung Mercator and the European Climate Foundation.

Picture credit: Dirk Vorderstraße. Licence CC BY-NC 3.0 DE.

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