While all green fuels are required to produce fewer GHG emissions than conventional fossil fuels, e-fuels and biofuels are in general treated separately by the regulatory frameworks as they have different production processes and requirements.
Criteria for regulatory frameworks for e-fuels and biofuels
Current EU requirements aim to reduce GHG emissions from transport fuels compared to conventional fossil fuels by 50-70% depending on the fuel type. The requirements also include specific targets for different stages of the value chain.
E-fuels are defined in RED II, article 2 (36) as renewable liquid and gaseous transport fuels of non-biological origin (RFNBOs). They must be produced using renewable energy sources, and still meet the GHG reduction requirement of 70% compared to a fossil fuel comparator. For renewable electricity, there are specific requirements for sourcing. It is distinguished between electricity sourced from a directly connected installation and electricity taken from the grid.
The most important requirements are:
Electricity from a directly connected installation:
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Connected installation came into place within 36 months of fuel production facility
- It is connected by a direct line or takes place in the same installation.
Electricity taken from the grid:
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Bidding zone with over 90% renewable electricity in the previous year
- Bidding zone requirements: Emission intensity below 18 gCO2e/MJ and signed renewables power purchasing agreement (PPA) with geographical and temporal correlation or specific electricity consumption conditions during an imbalance settlement period.
This is where it gets complicated
In the proposed Hydrogen and Decarbonised Gas package, another definition of e-fuels is used, namely low-carbon hydrogen and its derivatives. Final requirements are still pending agreement among EU institutions, and the expected enforcement is currently unknown.
Low-carbon fuels are produced from non-renewable sources, with the production of hydrogen and synthetic gaseous and liquid fuels required to achieve a GHG emission reduction of 70% compared to a fossil fuel comparator. Despite the comparator not yet being defined, developments are expected by December 31, 2024, when the Commission will adopt delegated acts under Article 83 to specify the methodology for assessing greenhouse gas emission savings from low-carbon fuels. Requirements for CO2, water, and other inputs have not been set but as we await the final version of the regulation, this may change.
E-fuels can also be produced according to criteria laid out in the new EU Taxonomy. This framework establishes a list of environmentally sustainable activities to facilitate sustainable investments, where an activity is considered sustainable if it substantially contributes to at least one of the six environmental objectives while doing no significant harm to any of them. As reporting requirements become more stringent, investors will increasingly seek to align their portfolios with the EU Taxonomy, which covers the manufacturing of e-fuels and biofuels and imposes stricter production requirements than the RED and the Proposed Hydrogen and Decarbonised Gas Market Package. Consequently, there will be a growing demand for taxonomy-aligned investments in H2 and its derivatives.
The same set of regulations apply for biofuels, where requirements differ depending on the regulation. The main differences between the regulations are related to GHG reduction targets (depending on regulation between 50%-70%), biomass sustainability criteria which are not applicable for all regulations, and limitations for feedstock from food/feed crops which are only limited for RED II aligned biofuels.
This means that market participants must consider both GHG reduction requirements and the implications of feedstock selection on certification. Navigating these regulatory nuances is crucial for compliance and success in the biofuels industry.
The table below provides a summary of the requirements in different frameworks.