Renewable Fuel Blending Mandates: European Union

Overview

Under the EU’s Renewable Energy Directive (RED) III, which came into effect in November 2023, at least 42.5% of the bloc’s final energy consumption must come from renewable sources by 2030. For the transport sector, the goal is to reach a 29% contribution from renewables for road and rail, or alternatively, a 14.5% reduction of emissions intensity. The target includes a minimum share of 5.5% from hydrogen and advanced biofuels with at least 1% of this share being met by renewable fuels of non-biological origin, such as green hydrogen and e-fuels.

To comply with the targets for transport, EU member states are accelerating policy efforts with renewable fuel blending mandates to boost biofuel usage in road transport.

Impact

Governments have implemented blending mandates in all EU member states, but they all differ in their design and implementation. EU-wide, advanced fuel consumption surpassed 2% of final energy consumption in road transport in 2021, up from nothing in 2010.

The EU’s RED III targets are designed to encourage countries to use more-sustainable types of renewable fuels in road transport. Conventional biofuels – which are produced from food and feed crops, including fuels derived from sugarcane or corn-based ethanol and animal fats – made up two-thirds of the total biofuels used for road transport in the EU in 2021.

Advanced biofuels are derived from non-food-based feedstocks, such as agricultural and forest residues, and select waste materials. They are nearly identical to their fossil-fuel counterparts in both chemical and physical properties, making them ‘drop-in’ fuels that are, in theory, fully fungible with fossil fuels.

Since producing conventional biofuels requires land-use changes and other resources, they are considered ‘higher emitting’ than their advanced counterparts. As such, RED III discounts their contribution to the renewable transport target, capping the total at 7% by 2030. By contrast, advanced biofuels can be counted at a premium rate toward the renewable share target, a rule intended to boost uptake of these fuels. In some EU member states, the 5.5% mandate can be met by double counting, making the target effectively 2.75%.

Opportunity

Due to the widespread success of fuel-blending mandates in road transport, the policy mechanism is now being explored in hard-to-abate sectors, such as aviation. The aviation sector accounts for 2-3% of global CO2 emissions, or 14% of emissions from transportation.

Sustainable aviation fuel, known as SAF, comprises liquid hydrocarbon fuels, either derived synthetically or from biogenic feedstocks. It has near-term potential to reduce emissions from flights, while electrification and hydrogen are still a long way from mainstream usage in commercial aircrafts.

In recent years, governments have begun to discuss and introduce specific SAF blending mandates for airlines. Norway was the first country to introduce a SAF mandate in 2020 – a 0.5% blend with traditional jet fuel, which will increase to 30% by 2030. The European Commissions rolled out 2% SAF mandate from 2025, rising to 6% by 2030, as part of its Fit for 55 package.

By 2050, the EU will increase the mandate to 70%, signaling reduced demand for traditional jet fuel, especially if electrification technologies take off in tandem. These mandates have incited mainstream airlines to begin setting SAF blending targets, usually at 10% by 2030, to comply with impending legal standards.

Blending mandates could, however, result in unintended consequences. Mandates drive up demand, acting as a signal for producers to supply the market. But there could be production barriers for producers, such as capacity switching costs and compliance hurdles. Policymakers can pair mandates with supply-side incentives, like production subsidies or credits, to ensure that supply keeps pace with increasing demand.

Source

BloombergNEF, European Commission