The European Green Deal published in 2019 sets out a detailed vision on how to make Europe the first climate-neutral continent by 2050. To achieve this objective, the European Commission presented on the 14th of July 2021, the Fit for 55 Package. This legislative package proposes a revision of all climate and energy regulations to enable achieving an emission reduction of at least 55% by 2030 compared to 1990 levels.
FuelsEurope supports the Green Deal’s ambition for climate neutrality in 2050 and will work with the EU institutions, Member States, and stakeholders, to help create the essential enabling policy framework.
In June 2020, FuelsEurope published the “Clean Fuels for All” describing the strategy of the refining industry’s transition, which thanks to the progressive adoption of low-carbon technologies using low-carbon and sustainable, renewable feedstocks, has the potential to substantially cut GHG emissions from refineries and fuels.
Fit for 55 Package: Importance of the transport sector
With the transport sector being responsible for almost a quarter of Europe’s GHG emissions, its decarbonisation has unique challenges but is also a precious opportunity for the EU economy to:
- Develop and deploy innovative low-carbon technologies in vehicles and in fuels/energy;
- Create economic value for the transport ecosystem and to help the relevant EU industries achieve world-leadership.
Contribution of low-carbon liquid fuels
There is widespread recognition of the fact that low-carbon liquid fuels are a key instrument for the decarbonisation of aviation, maritime and long-distance road transport. However, road transport at large, including passenger cars and vans, is an essential trigger for unlocking the production of these fuels at an industrial scale. The uptake of electrification will require time to turn over the vehicle fleet and to put in place the distribution infrastructures. During the transition of passenger cars and vans to EVs, low-carbon liquid fuels are the most efficient way to cut emissions from vehicles with an internal combustion engine and to allow the optimisation of the implementation plan of infrastructures for electricity and hydrogen.
The transition should carefully address the societal aspects deriving from changes in employment pattern, skills requirements and inequalities between EU regions and sectors of society. No one should be left behind, and access to affordable mobility should be protected as one of the fundamental rights of all citizens.
FuelsEurope’s recommendations regarding the Fit for 55 Package
Building on the recommendations of the Clean Fuels for All and ahead of the publication of the EU Commission’s “Fit for 55 Package”, FuelsEurope developed specific regulatory proposals for the decarbonisation of transport.
Renewable Energy Directive
The revision of the Renewable Energy Directive creates the best opportunity to make it the primary regulatory instrument to drive the effective and efficient decarbonisation of road transport fuels and the development and deployment of renewable fuels, including from biological, non-biological origin, captured or recycled origin.
The regulation should also express the RED target in Greenhouse Gas (GHG) terms, expressed as GHG reduction percent of the yearly average of the fuels on the market with respect to the reference of the same quantity –in energy terms -of 100% fossil fuels. The reduction of GHG is calculated on a Well-to-Wheel (WTW) basis, where the reference value for 100% fossil fuel is 94 gCO2eq/MJ.
Overlapping policy instruments should be avoided and therefore FuelsEurope calls for the discontinuation of the FDQ/7A which should be replaced entirely by the revised Renewable Energy Directive.
Emissions Trading for Transport Fuels
Bringing road transport into the EU ETS is unlikely to be effective, as this will not trigger a sufficiently high carbon price to incentivize the necessary investment in the development and scale-up of low-carbon fuels, in the short/medium term.
We recommend implementing a tailor-made Road Transport Fuels ETS, alongside but separate from, the current main EU ETS. Such a scheme would be market based, technology-neutral, and would provide a transparent price signal that is high enough to trigger investment in low-carbon transport fuels. In the longer term, the Transport Fuels ETS should merge into the main ETS, as carbon prices in the respective schemes converge, consistent with achieving a more uniform cost of carbon across the economy.
Design Elements of ETS for Transport fuels:
- Scheme: cap and trade, with cap defined in absolute tons of CO2;
- Combustion (TTW) emissions from fuels;
- Reduction of manufacturing GHG emissions from the use of CCS/CCU and green/blue hydrogen-related emissions in refineries. Only the portion attributable to manufacturing of fuels, and without double-counting in the main ETS;
- Compliance mechanism: supplying low-carbon fuels (e.g. by blending) or buying allowances;
- Obligated parties: fuels suppliers (road);
- Cap trajectory: starting point set at the actual combustion emissions from road transport. Thereafter, the cap would progressively decrease over time, consistent with achieving the desired emissions reduction in transport (a priori linear based on a LRF). This trajectory is expected to provide and sustain a sufficiently high carbon price, without any market intervention;
- Sustainable Low-Carbon Fuels all deemed zero emissions (tank to wheel) similar to electricity, hydrogen used in vehicles;
- Carbon price ceiling: applied as a “safety valve” against excessive costs. A ceiling price of 475 euro/ton of CO2 would be consistent with the penalty carmakers have to pay under the vehicle CO2 regulation;
- No free allowances: scheme applies equally to importers and domestic fuel suppliers, thus no carbon leakage concerns;
- Verification system needed to ensure a level playing field;
- To qualify for compliance, the low-carbon fuels must meet the sustainability standards established in RED II.
Energy Taxation Directive
Revision of the Energy Taxation Directive in the Fit for 55 package will be key to achieving the increased emissions reduction ambition.
- We support a reform of fuel and energy taxation as enabler for very low or zero taxation for low-carbon fuels and energies and to ensure a level playing field for all energy sources;
- A need to transform the road transport volume-based excise taxation into a taxation base consisting of primarily, or wholly based on the emitted combustion CO2;
- If the Commission desires to tax aviation and maritime fuels, coherence with road fuels and energy taxation should be ensured;
- Heating fuels and energies taxation should be made coherent with transport fuel and energy taxation but with special emphasis related to regional specificities as well as social considerations;
- The review is an opportunity to harmonise the way in which several clauses related to the use of fuels and energy in manufacturing processes are handled.
Since aviation is primarily a global industry, global commitments are preferred over regional initiatives to ensure the competitiveness of the aviation sector and its supply of fuel. The unprecedented impact of the COVID-19 outbreak on the aviation sector has created the need for support to both ensure quick recovery while maintaining the transition to a sustainable aviation sector.
Implementing the use of sustainable aviation fuels requires a combination of several policies aiming at promoting a faster development and deployment of sustainable aviation fuel. FuelsEurope supports measures on obligations on sustainable aviation fuels targeting volumes, energy, CO2 emissions, or carbon intensity.
The ability to trade compliance certificates uniformly and across the EU between obligated parties is necessary to allow a cost-effective compliance for all participants involved in the introduction of sustainable aviation fuels.
Coherence between the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and the EU ETS for aviation should be aimed for to avoid double regulation for international aviation. If free allowances under the EU ETS for aviation are reduced or eliminated, competitiveness safeguards should be provided.
There may be a need for a number of policy levers to enable the development and investments in sustainable aviation fuels and a practical implementation of sustainable aviation fuels.
Shipping is the backbone of international trade and commerce and an indispensable driver of EU prosperity. Curbing the rising GHG emissions from this important sector, and thus realising the EU Green Deal’s ambition of climate neutrality by 2050 whilst remaining prosperous and competitive, will need practicable and science-based policy solutions.
The full-scale deployment of technologies for the production of low-carbon fuels requires policies providing clear, stable and strong regulatory signals to investors. To facilitate a reduction of GHG emissions from shipping specifically, we strongly believe the following principles are necessary determinants of success:
- Given the international market structure of the shipping sector, global approaches should be the primary lever to drive the reduction of GHG emissions. We hence invite the EU to collaborate closely with its partners in the IMO, as well as endeavour to avoid climate ambition gaps between the EU and the rest of the world in the maritime sector, and regulatory overlap with the IMO energy efficiency design index and ship energy efficiency management plan;
- To curb the GHG emissions from the shipping sector efficiently, any policy regime should consider GHG abatement along the full value chain of marine transport, from efficient ship design and ship operation, over low-carbon port infrastructure, to sustainable marine fuels;
- As part of any basket of policy solutions, establishing a market for low-carbon marine fuels will be an essential component. Key enablers of such a market would be a sufficiently high carbon price, predictable regulatory framework, investment certainty, a well-to-wake consideration of shipping emissions to support their long-term sustainability, as well as a technology-neutral approach;
- If the EU wishes to move ahead of the international community with regard to shipping decarbonisation and create the enabling conditions for a low-carbon marine fuels market, it should do so in a manner that avoids carbon leakage, safeguards the competitiveness of the EU shipping sector and marine fuel industry, and avoids frictions or redundancies between global and national policy schemes. This could include a dedicated and stand-alone cap & trade system, regulation on sustainable marine fuels through carbon intensity requirements, and policy levers that provide investment support, which may include fiscal measures.
Read the full proposal regarding the Fit for 55 package here.