The role of renewable liquid fuels: does Europe have untapped potential? (April 25)

Speakers: Willem “Tom” Van Ierland, Michał Kubicki, Catherine Banet, Philipp Offenberg, Lars Peter Lindfors
Moderator: Stefano Porciello

On the 25th of April, PubAffairs Bruxelles organised an afternoon of discussion on the potential of renewable liquid fuels in light of the Green Deal Industrial Plan and the Net Zero Industrial Act with Mr Willem van Ierland, Head of Unit, Low Carbon Solutions, European Commission, DG CLIMA; Mr Michał Kubicki, Policy Officer, Sustainable and Intelligent Transport, European Commission, DG MOVE; Professor Catherine Banet, Head of the Energy and Resources Law Department, University of Oslo and Research Fellow at CERRE, Mr Philipp Offenberg, Senior Manager, Breakthrough Energy and Mr Lars Peter Lindfors, Executive Vice President for Innovation, Neste.

The debate was moderated by Stefano Porciello, Correspondent for MLex Market Insight.

Stefano Porciello opened the event by welcoming attendees and introducing himself and the speakers. He then gave a brief synopsis of the context from which the topic of discussion has arisen. He highlighted the centrality of the transport sector to the process of decarbonisation within the European debate today by referencing the negotiations on aviation decarbonisation, with special regard to renewable liquid fuels, and the topical debate on combustion engine phase-out. In this connection, the moderator presented the first topic of discussion, which fuels can help with the decarbonisation process in Europe and what are the regulatory hurdles they face.

He subsequently directed this question to all the speakers and invited them to share their perspective on whether Europe has untapped potential, how this potential could be utilised and whether further policy actions would be needed to do so.

Willem van Ierland took the floor first and highlighted the relevance of the moderator’s questions. He answered that, indeed, renewable fuels, such as advanced biofuels, renewable fuels from non-biological origins (RFNBOs) or so-called “e-fuels” all have a purpose and a role to play in pursuit of the green transition, especially in hard-to-decarbonise sectors. Mr van Ierland attested that the wave of updates to the regulatory framework which characterised the 2030 period and is now coming to an end, has been setting up an environment conducive to the penetration of these fuels.

Within this context, he explained that DG CLIMA has worked on important features of this policy framework, notably the Renewable Energy Directive and the Emissions Trading System (ETS). He deemed these files as building blocks which have allowed the European Commission to expand carbon reduction legislation to include more aspects of the transport sector. He highlighted the Commission’s awareness of the need for innovation and deployment of new technologies and used the fostering of innovation, as an example of a policy question the European Commission has taken into consideration in order to facilitate such advancement.

The moderator subsequently directed the same question to Michał Kubicki, asking for his perspective on these matters as a coordinator of the Renewable and Low Carbon Fuels Value Chain Industrial Alliance (RLCF).

Michał Kubicki agreed that, in terms of sustainable transport, renewable liquid fuels constitute a large part of the question of decarbonisation, especially for the aviation and maritime sectors, as effective zero-emission alternative solutions are not yet available. He echoed Mr van Ierland’s arguments by stating that the European Commission’s initiatives are compelling the transport sector to decarbonise while trying to find the most effective solutions. Mr Kubicki indeed prescribed a combined effort for the two aforementioned sectors, in which the limited available resources should be allocated to areas in which they make most sense.

While road transport has made progress towards the transition to zero-emission technologies and the question of infrastructure for refuelling and recharging has garnered momentum, aviation and maritime transport modes still have great potential for improvement which must be exploited, he added. He then explained that the European Commission’s impact assessment for the RefuelEU Aviation and Fuel EU Maritime legislative initiatives demonstrated that these sectors would require about 5 times more sustainable fuels than what is available now.

The RCLF Alliance, he specified, was set up to stimulate this required growth and to build a bridge between various actors in the value chain and with the investors. In fact, the current state of play of renewable fuels requires this potential to be unlocked through commitments from the industry and the strong regulatory framework contained in the Fit for 55 package.

The moderator then forwarded the question to Peter Lindfors for an industry perspective and asked whether he agreed with what the European Commission’s representatives had set out.

Lars Peter Lindfors opened by introducing himself and Neste’s purpose and mission, with special regard to the question of innovation and sustainability. He explained that, as all the other panellists’ organisations, his company is engaged in the fight against climate change and in cultivating a healthier planet by highlighting that Neste is a global champion in innovation and a world leader in renewable liquid fuels for transportation and aviation, ranging from green hydrogen to renewable fuels from non-biological origins (RFNBOs), among others.

However, he also cautioned that due to the scale of Neste’s aspirations and as there is no one-size-fits-all option in sight, all solutions which contribute to the joint effort to combat climate change need to be embraced. In terms of the transport sector, he clarified that, although electric vehicles are of importance, renewable fuels are similarly needed.

He conveyed Neste’s understanding that hard-to-decarbonise sectors would take a prime focus in the European Commission’s legislative efforts, but reiterated that, given the magnitude of the undertaking, no decarbonisation technological pathway should be left out.

Stefano Porciello involved Philipp Offenberg in the discussion and asked his perspective on a selective allocation of resources where they are most needed.  

Phillip Offenberg introduced his organisation’s mission, role and overarching goals, which consists of scaling up the technologies needed to achieve net-zero emissions, ideally, by 2050. He stated that Breakthrough Energy’s working assumption is substantially in harmony with that of the European Commission, namely to electrify what can be electrified, while focusing on renewable liquid fuels when it comes to the aviation and maritime sectors.

Phillip Offenberg subsequently praised the work EU institutions have executed in the domain of transport during this mandate and expressed his optimism regarding the European process of clarifying the path ahead towards decarbonisation. Yet, he also pointed out the remaining gap with respect to achieving net-zero targets.

He also warned of the potential for supply shortages, for example, in sustainable aviation fuels and, most pressingly, with e-fuels. He also said that the question of cost is non-negligible due to what he termed “a high green premium” cost gap between mature fossil technologies and the cleaner ones, which amounts from two to ten times more in favour of fossil fuels. Hence, he attested that the focus now should be on decreasing the gap, which, in turn, would improve the accessibility of newer and cleaner solutions.

In this connection he highlighted the importance of some instruments such as the EU Innovation Fund in order to level down the costs of new technologies, while adding that the difference between the CapEx and the OpEx of renewable fuels is to be addressed further. He also stated that, in his opinion, the European Hydrogen Bank is also a valuable tool that can be extended to other domains.

He concluded his answer by mentioning the Inflation Reduction Act (IRA) as, according to the speaker, the performance-based tax credits and subsidies system, has proven to be a valuable means to develop both e-fuels and biofuels, a fact which further emphasises that the main challenge is making a cost-effective environment for cleaner fuels.

The moderator then sought an academic perspective from Professor Catherine Banet and asked whether there is untapped potential for renewable liquid fuels and what she felt could be done to untap it.

Professor Catherine Banet began by briefly describing the policy approaches which could be adopted, namely a market-based approach or an interventionist one. She highlighted that EU member states may have different preferences concerning the general policy approach and added that, the EU legislative endeavours have aimed to achieve consistency and level the playing field among different fuel options, as well as to ensure that the emission reduction potential is reached.

She also pointed out that the valuable progress made by EU policy-making, monitoring policy consistency and policy actions’ effectiveness is an endeavour which should continue. She subsequently said that the formation of alliances and a renewed legislative framework are two phenomena which go hand in hand.

Professor Banet subsequently explained that the overarching goals of levelling the playing field between different fuel options and ensuring the maximum emission reduction potential should be combined with the possible options available at a local level. This perspective is incorporated into the Net Zero Industry Act (NZIA), she clarified. Professor Banet closed her argument by stating that this incorporation designates another step toward  completing the legislative framework and should further untap the emission reduction potential.  

The moderator then moved the conversation along to bring up the dimension of the Net Zero Industry Act (NZIA) and its strategic technology list. As renewable liquid fuels are not present on the list, he asked Peter Lindfors how this fact would impact the industry and if the renewable fuel sector would eventually need further actions from EU legislators.

Lars Peter Lindfors affirmed that, from an industry standpoint, levelling the playing field is an essential feature for the successful development of renewable liquid fuels. He also specified that a level playing field is essential for legislators to ensure that targets are achieved and for companies and researchers to find the most effective solutions..

Indeed, he certified Neste’s satisfaction with the inclusion of renewable liquid fuels in the NZIA, but returned to his previous point, that there is an urgent need to utilise all available solutions within the decarbonisation process. In this connection, he took the example of the recent adoption of the RefuelEU initiative to demonstrate the need to increase renewable liquid fuel production and argued that this need should be reflected in the Net Zero Industry Act (NZIA).

Mr Lindfors subsequently proceeded to describe Neste’s operations in this regard. Whilst working with existing scalable feedstock pools, he highlighted other options which Neste is investigating, such as that from agricultural or forest waste or, from a circular economy perspective, plastic waste from the chemical industry.

He subsequently reiterated Neste’s calls for a legislative review which would consider these new resource pools, given their relevance and agreed with Phillip Offenberg’s statement that cost-efficiency has emerged as a focal point and exhibited Neste’s hopes for a policy setting which would allow innovative solutions to be embraced.

The moderator turned the debate back to Philipp Offenberg and asked him what the impact of excluding renewable liquid fuels from the list of strategic technologies would be. Subsequently, he circled back to the speaker’s mention of possible supply shortages and asked what the EU could potentially do to remedy this situation.

Philipp Offenberg addressed the NZIA first and posed the question of whether the non-inclusion of renewable fuels from the NZIA strategic list was significant by acknowledging the fact that there are some benefits in being included, however cautioned that it was still to be seen how these benefits would play out practically. Indeed, inclusion in the NZIA list would provide certain technologies more political attention, but there are currently no specific provisions for extending public funding, he added.

Regarding possible solutions to supply shortages, he recommended displaying some funding instruments which could better address the question of CapEx and OpEx of innovative solutions, as is the case with the EU Innovation Fund. He similarly recommended taking inspiration from the United States’ IRA, which he defined as simple and clear by nature. However, he also deemed the European Commission Hydrogen Bank set up as a step in the right direction in this regard.

Stefano Porciello subsequently asked Willem van Ierland to weigh in on the last comments regarding the significance of a technology’s inclusion in the NZIA list and petitioned him on whether the European Commission would act to further target the renewable fuels sector.

Willem van Ierland began his response to the first part of the question by stating that it is imperative to analyse the details of what has been proposed in order to make that judgement. Certainly, he affirmed, the NZIA would bestow some added benefits to the listed technologies, however they will be not be limited to these technologies. In this respect, he explained, the nuance arises in areas such as permitting, skills and the process of implementing projects, particularly in terms of timing. He also added that the significance of this nuance could be debated.

He continued by stating that renewable liquid fuels are omitted from the annex, but they are included in the schemes to promote renewable energy and sustainability and resilience within that context. The annex itself is aimed at ensuring the EU has the manufacturing capability to become carbon independent. The European Commission believes biofuels are linked to the endeavour behind the set-up of the aforementioned building blocks. Mr van Ierland concluded this part of his answer by testifying to the balanced nature of the European Commission’s proposal.

In response to the question of whether the European Commission will act further in the future, Mr van Ierland argued that, presently, the EU executive body is facing a considerable amount of work on legislative implementation. As far as DG CLIMA is concerned, the innovation front is a focal point, and more resources will most certainly be allocated to it over time. This pathway, he continued, will, in turn, intensify and diversify the domains which will benefit from this process. He took the example of hydrogen auctioning and the tenderisation and valorisation it aims to provide and added that this was another aspect of EU policy-making the European Commission would most likely be examining in the foreseeable future.

He concluded by returning to Mr Lindfors’ point regarding biomass waste and its potential for biofuel production and pointed out that soon in Europe there will be an obligation to collect biomass waste separately, which he conceived could be another building block towards the scale-up of renewable fuels.

The moderator turned to Michał Kubicki to ask about the European Commission’s stance on biofuels and sustainable fuels. He followed this by asking if there was more EU institutions could do in terms of decarbonising aviation in light of the risk that the EU could be lagging in terms of production.

Michał Kubicki affirmed that the RCLF Alliance has been set up to address those potential issues. The Alliance, he explained, focuses on mobilising efforts at value chain scale to coordinate investments, an action which, in the past, was impossible under the past approach of the EU’s competition law. This instrument intends to offer new tools to allow industry to be more open and, as a result, address the need to ramp up production, he confirmed. At present, 200 companies are fully subscribed to the Alliance, but more will be needed in the future, he added.

Moreover, he argued that the Alliance, in some aspects, goes beyond the NZIA, as it also constitutes a platform for dialogue between member states, implementation and monitoring of projects, as well as facilitation, awareness and discussion around the question of investments on low carbon fuels. Mr Kubicki concluded, this tool is complementary to the European Commission’s public funding opportunities and legislative framework.

Stefano Porciello asked to what extent EU institutions can further improve the EU business environment for both renewable fuels and sustainable development.

Willem van Ierland elaborated on both his and Mr Kubicki’s statements regarding the policies which they have worked on so far. Mr van Ierland attested that EU policies have been focused on creating demand, and, in that manner, they have indeed improved the EU business environment. Additionally, he reiterated his previous argument regarding the support for innovative technologies and further stressed the NZIA as a tool which could foster sustainable manufacturing capacity. In this connection, he stated, the NZIA has provided new avenues for sustainable growth, while adding that current crises have both bolstered and hindered EU policy action.

He further explained that these new avenues of sustainable growth have state aid elements within them and that these tools have allowed member states to address several business environment aspects which are important to them. Mr van Ierland then conveyed the question to the industry representative wondering which elements EU institutions have provided sufficient foundations and which would need enhancement in the foreseeable future.

The moderator subsequently asked Peter Lindfors to weigh in on this question.

Regarding funding, Peter Lindfors made a comparison to the IRA and the fact that it has a clear incentive for supporting the final product and used hydrogen as a supporting example. Whereas, he continued, the EU has focused more on funding investments. He posed the question of whether the EU is making the process too heavy and pondered on the practicality of the legislation put forward as well as its potential for creating challenging hurtles for companies to meet the given criteria.

Stefano Porciello turned to Professor Catherine Banet and asked her opinion on the definitions and the different advantages for different technologies in EU legislation, He also inquired on any unintended consequences that might hinder the market in the future.

To begin, Professor Catherine Banet returned to the previous question posed to the institutional and the industry representatives regarding what more could be done. She commended the European Commission for putting together comprehensive legislative packages which she deems fit for purpose.

However, according to Professor Banet, the real challenges now lie at the implementation level and she maintained that this specific aspect of EU legislation will require a new regulatory approach. She exemplified the necessary but similarly demanding ESG requirements for companies and the complex processes which will be required to actualise them.

She referenced the findings of her report, which raises the idea of a rethinking to the regulatory approach in which harmonisation and dynamic approaches are utilised where they are most appropriate. She finished her statement by reiterating that now is the time to strike this balance, to revise the role of the regulators and shift the emphasis toward implementation as thus far EU institutions have supplied the building blocks to do so.

The moderator asked each speaker to round up their arguments and present their key messages for the least part of the discussion.

Willem Van Ierland began by substantially agreeing with Professor Banet’s recommendations and confirmed the EU institutions’ upcoming prerogative of addressing implementation. The coming months and years will be, in his opinion, interesting to better understand how policies positively impact investment decisions and where there will be a need for improvement. He highlighted the necessity for a continued engagement on implementation with all stakeholders involved.

Their distinct perspectives will be integral to fine tune the mobilisation of resources, he added, particularly in terms of biofuels, environmental impacts and carbon removal. He finally referenced the EU rules on land use, land use change and forestry (LULUCF) as an example of another of the EU policies which will be useful to decarbonise the entire economy.

Michał Kubicki stated that the future of renewable liquid fuels looks bright. He gave reassurance that the policies the European Commission is proposing are poised to foster a sustainable business environment in the EU. Indeed, he stated they have provided companies the ability to anticipate the future with clear targets and conditions which should foster investments.

Lars Peter Lindfors gave his final message, reiterating the need to embrace all solutions to tackle the challenge of climate change. He highlighted again that there is no silver bullet, hence, feedstocks, green electricity, waste and algae all need to be exploited and converted and used with a range of technologies. He wrapped up his answer by emphasising that to achieve its goals, the sector needs long-sighted legislation, simple and clear funding mechanisms and a level playing field for all players.

Philipp Offenberg showed his agreement with his co-panellists regarding the necessary focus on implementation. Yet, regarding investments, he returned to his previous argument of the need to bridge the cost gap between mature fossil fuels and renewable liquid fuels. He highlighted that new regulations have provided a good, clear basis for this to happen, and the implementation phase will show, in his opinion, the most appropriate steps to take in this regard. To sum up his speech, he prescribed focusing on what we already had legislatively, decreasing the cost differential and fixing funding instruments as the most conducive way forward.

Professor Banet endorsed consistency across legislative frameworks, revising the manner in which the EU elaborates criteria for the market, better connection to resource diversification of projects, with special regard to inclusion of projects at a more local level. Regarding the possibility of reopening the legislative files in the foreseeable future, she maintained this would be dependent on the EU institutions, however, she advocated for the importance of coherence between the mandates at European level.

Do you wish to know more about the issues discussed in this debate? Then check out the selected sources provided below!

The Green Deal Industrial Plan: putting Europe’s net-zero industry in the lead, Press release, European Commission

Net Zero Industry Act, European Commission

Reducing carbon emissions: EU targets and policies, European Parliament

EU Emissions Trading System (EU ETS), European Commission

EU-US climate and energy relations in light of the Inflation Reduction Act, European Parliament Think Tank

Fit for 55 package, European Council

Revision of the Renewable Energy Directive, Legislative Train, European Parliament

ReFuelEU Aviation – Sustainable Aviation Fuels, Legislative Train, European Parliament

Innovation Fund, European Commission

Commission outlines European Hydrogen Bank to boost renewable hydrogen, new announcement, European Commission

Renewable fuels of non-biological origin in the European Union, Specific Report, European Commission

Renewable and Low-Carbon Fuels Value Chain Industrial Alliance, European Commission

Land use sector, European Commission

Building Europe’s Hydrogen and Renewable Gas Markets, Report, Centre on Regulation in Europe – CERRE

Advanced biofuels to decarbonise European transport by 2030: Markets, challenges, and policies that impact their successful market uptake, Science Direct

What are e-fuels, and can they help make cars CO2-free?, Explainer, Reuters