Carbon price to impact biofuels markets: Ieta

Spanish Market: Biofuels, Emissions
29/09/21

The range of legal proposals aligning climate and energy legislation with the EU's 55pc emissions-reduction target by 2030 — including the revision of the bloc's emissions trading system (ETS) — will impact the biofuels markets, Adam Berman, EU policy director at the International Emissions Trading Association (Ieta), told Argus.

How important is carbon pricing for biofuels markets?

Carbon pricing is really important as a tool for climate action in the road transport sector. But it is not the silver bullet and needs to be complemented by sector specific policies to make alternatives, such as biofuels, price-competitive. On top of an enhanced ETS, with a separate road transport and buildings ETS, changes to energy taxation and other mechanisms will enable cost competitive biofuels to be rolled-out at scale.

Is there enough political support for road transport under the EU ETS?

Let's be clear, there is no direct inclusion of road transport or buildings into the general ETS. The commission's proposal is to establish a separate ETS for road transport and buildings. Sectors predominantly covered by the ETS have reduced emissions by over 30pc since 1990. For road transport, emissions have gone up by over 33pc since 1990. So a carbon price will provide a strong signal alongside enhanced policies like higher renewables ambition levels. Ultimately, the EU ETS covers 40pc of emissions, works well and provides really significant revenues for decarbonisation.

Will there not be political push-back?

It is a precarious moment politically. A reasonable carbon price for transport is needed that increases over time with revenues redistributed in a meaningful way to low-income households. Mitigating push back might also include moderating the proposed price structure.

As it stands the commission's proposal allows, from the very first day, for the road transport/building ETS price to float freely. We have no idea what that price could be with estimates ranging from €50 to even €150 per tonne. Germany has a good national ETS for road transport with a fixed price and price corridor. All said, there's a good chance that the ETS for road transport and buildings will get through. Otherwise it'll be very hard to reach the overall GHG emission reduction targets.

Will there be enough of an ETS carbon price signal to push biofuels?

This separate ETS for road transport and buildings is more suited to the higher abatement costs in the transport sector. It is a quicker path to biofuel usage than if regulation alone were used or if road transport had been put into the general ETS. Over time, there will almost certainly be a higher road transport/housing ETS price, because of the higher abatement costs with those sectors.

The general ETS is multi-sector so it would take some time before solutions like biofuels would equate to where the [separate road transport] abatement cost is. I would not want to hazard a guess as to the exact carbon price if the market is allowed to float freely, but it may well be above €100/t.

What will carbon pricing do for sustainable aviation fuels (SAFs)?

Carbon pricing is part of the picture. At the moment, the International Civil Aviation Organisation's (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) scheme is at an early stage. SAFs and other solutions have to be brought in. But it is very hard to know at exactly what carbon price solutions like SAFs become cost-effective as a result of fuel price fluctuations, national regulation and more.

And it is not just about SAFs getting cheaper but also about traditional emitting fuels getting more expensive, also via carbon pricing. The EU ETS will not reach the point of driving change towards SAFs very soon. Still, only three years ago, we were at an ETS price of less than €10/t. The higher the ETS price gets, the more acceptable solutions like SAFs become for hard-to-abate sectors.

Is there impact from inclusion of maritime shipping under the ETS?

The expansion of the ETS to cover maritime shipping will quite substantially increase the biofuels market. The maritime industry has not achieved significant decarbonisation. Placing shipping under a carbon price is a starting point and sends a very clear signal to biofuel producers that they need to be ready at scale with solutions. Maritime is likely to be a net purchaser of allowances. So firms will be shown quite quickly that the carbon price signal is strong enough to incentivise low-carbon solutions like biofuels.

By Dafydd ab Iago

Adam Berman will be one of the speakers at the forthcoming Argus Biofuels Europe and Asia Markets virtual conference, which takes place 9-11 November. For details of the conference programme and how to register to attend, please visit our website.

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02/01/25

Q&A: EU biomethane internal market challenged

London, 2 January (Argus) — The European Commission needs to provide clearer guidance on implementing existing rules for the cross-border trade of biomethane to foster a cohesive internal market as some EU member states are diverging from these standards, Vitol's Davide Rubini and Arthur Romano told Argus. Edited excerpts follow. What are the big changes happening in the regulation space of the European biomethane market that people need to watch out for? While no major new EU legislation is anticipated, the focus remains on the consistent implementation of existing rules, as some countries diverge from these standards. Key challenges include ensuring mass-balanced transport of biomethane within the grid, accurately accounting for cross-border emissions and integrating subsidised biomethane into compliance markets. The European Commission is urged to provide clearer guidance on these issues to foster a cohesive internal market, which is essential for advancing the EU's energy transition and sustainability objectives. Biomethane is a fairly mature energy carrier, yet it faces significant hurdles when it comes to cross-border trade within the EU. Currently, only a small fraction — 2-5pc — of biomethane is consumed outside of its country of production, highlighting the need for better regulatory alignment across member states. Would you be interested in seeing a longer-term target from the EU? The longer the visibility on targets and ambitions, the better it is for planning and investment. As the EU legislative cycle restarts with the new commission, the initial focus might be on the climate law and setting a new target for 2040. However, a review of the Renewable Energy Directive (RED) is unlikely for the next 3-4 years. With current targets set for 2030, just five years away, there's insufficient support for long-term investments. The EU's legislative cycle is fixed, so expectations for changes are low. Therefore, it's crucial that member states take initiative and extend their targets beyond 2030, potentially up to 2035, even if not mandated by the EU. Some member states might do so, recognising the need for longer-term targets to encourage the necessary capital expenditure for the energy transition. Do you see different interpretations in mass balancing, GHG accounting and subsidies? Interpretations of the rules around ‘mass-balancing', greenhouse gas (GHG) emissions accounting and the usability of subsidised biomethane [for different fuel blending mandates] vary across EU member states, leading to challenges in creating a cohesive internal market. When it comes to mass-balancing, the challenges arise in trying to apply mass balance rules for liquids, which often have a physically traceable flow, to gas molecules in the interconnected European grid. Once biomethane is injected, physical verification becomes impossible, necessitating different rules than those for liquids moving around in segregated batches. The EU mandates that sustainability verification of biomethane occurs at the production point and requires mechanisms to prevent double counting and verification of biomethane transactions. However, some member states resist adapting these rules for gases, insisting on physical traceability similar to that of liquids. This resistance may stem from protectionist motives or political agendas, but ultimately it results in non-adherence to EU rules and breaches of European legislation. The issue with GHG accounting often stems from member states' differing interpretations of the IPCC Guidelines for National Greenhouse Gas Inventories. Some states, like the Netherlands, argue that mass balance is an administrative method, which the guidelines supposedly exclude. Mass balancing involves rigorous verification by auditors and certifying bodies, ensuring a robust accounting system that is distinct from book and claim methods. This distinction is crucial because mass balance is based on verifying that traded molecules of biomethane are always accompanied by proofs of sustainability that are not a separately tradeable object. In fact, mass balancing provides a verifiable and accountable method that is perfectly aligned with UN guidelines and ensuring accurate GHG accounting. The issue related to the use of subsidised volumes of biomethane is highly political. Member states often argue that if they provide financial support — directly through subsidies or indirectly through suppliers' quotas — they should remain in control of the entire value chain. For example, if a member state gives feed-in tariffs to biomethane production, it may want to block exports of these volumes. Conversely, if a member state imposes a quota to gas suppliers, it may require this to be fulfilled with domestic biomethane production. No other commodity — not even football players — is subject to similar restrictions to export and/or imports only because subsidies are involved. This protectionist approach creates barriers to internal trade within the EU, hindering the development of a unified biomethane market and limiting the potential for growth and decarbonisation across the region. The Netherlands next year will implement two significant pieces of legislation — a green supply obligation for gas suppliers and a RED III transposition. The Dutch approach combines GHG accounting arguments with a rejection of EU mass-balance rules, essentially prohibiting biomethane imports unless physically segregated as bio-LNG or bio-CNG. This requirement contradicts EU law, as highlighted by the EU Commission's recent detailed opinion to the Netherlands . France's upcoming blending and green gas obligation, effective in 2026, mandates satisfaction through French production only. Similarly, the Czech Republic recently enacted a law prohibiting the export of some subsidised biomethane . Italy's transport system, while effective nationally, disregards EU mass balance rules. These cases indicate a deeper political disconnect and highlight the need for better alignment and communication within the EU. We know you've been getting a lot of questions around whether subsidised bio-LNG is eligible under FuelEU. What have your findings been? The eligibility of subsidised bio-LNG under FuelEU has been a topic of considerable enquiry. We've sought clarity from the European Commission, as this issue intersects multiple regulatory and legal frameworks. Initially, we interpreted EU law principles, which discourage double support, to mean that FuelEU, being a quota system, would qualify as a support scheme under Article 2's definition, equating quota systems with subsidies. However, a commission representative has publicly stated that FuelEU does not constitute a support scheme and thus is not subject to this interpretation. On this basis, FuelEU would not differentiate between subsidised and unsubsidised bio-LNG. A similar rationale applies to the Emissions Trading System, which, while not a quota obligation, has been deemed to not be a support scheme. Despite these clarifications, the use of subsidised biomethane across Europe remains an area requiring further elucidation from European institutions. It is not without risks, and stakeholders require more definitive guidance to navigate the regulatory landscape effectively. By Emma Tribe and Madeleine Jenkins Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Viewpoint: Trump, macro issues ahead for US renewables

02/01/25

Viewpoint: Trump, macro issues ahead for US renewables

Houston, 2 January (Argus) — A combination of substantial policy shifts under president-elect Donald Trump and macroeconomic issues puts the US renewable power sector on uncertain footing to begin 2025. Analysts expect the federal tax credits that have bolstered new renewable generation during its substantial growth over the past decade will survive in some fashion, although Trump campaigned on repealing the Inflation Reduction Act (IRA). He also has promised 60pc tariffs on goods imported from China, a major player in the solar and battery storage supply chains. The ultimate effects may vary by project type and what the new administration is able to accomplish. Chinese solar products already face 50pc tariffs , which could temper any effects on the industry from Trump's protectionist trade policies, said Tom Harper, a partner at consultant Baringa specializing in power and renewables. But the new administration could make it more difficult to claim IRA incentives and could roll back federal power plant emissions rules , creating an environment that could slow the adoption of renewables. Utilities may become more cautious in using renewables because of higher costs, while others, such as companies with sustainability goals, might be able to weather the change, according to Harper. "There might be some very price insensitive corporate [power purchase agreement] buyers out there who are looking at a $45/MWh solar [contract] and now it's going to be $50/MWh after the tariff, and they'll be fine," he said. In addition, the US renewables industry is still weathering headwinds from supply chain constraints, increased borrowing rates and inflation, which have hampered new projects. For example, the PJM Interconnection — which spans 13 mostly Mid-Atlantic states and the District of Columbia — had approved more than 37,000MW of generation at the end of third quarter 2024, with only 2,400MW of that partially in service. Developers have blamed the delays on financing challenges, long lead times for obtaining equipment and local opposition to projects. Global problems, local solutions Changes to state procurement strategies could help. Maryland state delegate Lorig Charkoudian (D) next year will propose new state-run solar, wind and hydropower solicitations that would first target projects that have already cleared PJM's reviews. Her approach would echo programs in New Jersey and Illinois, and ultimately reduce utilities' reliance on renewable energy certificates (REC) procured elsewhere. "The idea is to give a path for these projects, so presumably they can be built within a few years," Charkoudian said. Utilities would use the new procurements for the bulk of their RECs, covering remaining demand by buying legacy Maryland solar credits and other PJM RECs on the secondary market. But a quick fix for Maryland's broader renewable energy objectives is unlikely after utilities used the alternative compliance payment (ACP) for two-thirds of their 2023 REC requirements. The fee for each megawatt-hour by which utilities miss their compliance targets serves as a de facto ceiling on REC prices. Maryland's ACP is low compared to neighboring states, where the qualifying REC pool overlaps, meaning that credits eligible in the state can fetch a higher price elsewhere. While lawmakers could raise the ACP to mitigate those issues, those costs would ultimately fall on utility customers. "As best as I can tell, the options are raise the ACP or adjust how we do it," Charkoudian said. "We're really concerned about ratepayer impacts, and so I don't think there's a real appetite to raise the ACP." In other states, the policy landscape is less certain. Pennsylvania governor Josh Shapiro (D) has no clear path for his proposed hike to the state's alternative energy mandate, should he choose to revisit it, after Republicans retained their state Senate majority in November. New Jersey state senator Bob Smith (D) has been working for two years to enshrine in law governor Phil Murphy's (D) goal of 100pc clean electricity, but the proposal failed to escape committee in 2024 after dying in 2023 over opposition to its support for offshore wind . Is the answer blowing in the wind? Offshore wind is a slightly different matter. Trump has been critical of the industry and federal regulators control much of the project permitting in the US. Moreover, as a burgeoning sector with higher costs, it could be more sensitive to the loss of the investment tax credit (ITC). Based on current expenses, Baringa's analysis suggests that losing the ITC could increase project costs by "at least" $30/MWh and push offshore wind REC prices in some cases near $150/MWh. That would be a "difficult cost for states to swallow", according to Harper. "We've seen a few offshore wind developers already say, 'Hey, we're not going to spend a dime more until we know what's going on,'" Harper said. Despite the challenging landscape, Charkoudian expects Maryland will move forward in areas it can control, such as expanding the onshore transmission, that will make offshore wind viable, whether it's now or "eight years from now". By Patrick Zemanek Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Viewpoint: Changing incentives shift RD and SAF in 2025

31/12/24

Viewpoint: Changing incentives shift RD and SAF in 2025

Houston, 31 December (Argus) — Federal guidance on the US Inflation Reduction Act's (IRA) 45Z production tax credit will be a lifeline for domestic renewable fuels producers and a key determinant of production splits from 2025 onward, with the largest awards currently earmarked for aviation fuels. Although preliminary guidance and registration protocols were released earlier in 2024, the industry awaits the impending signal that will replace the IRA's section 40B blender's tax credit. The expiring blender's tax credit (BTC) was instrumental in the ramp-up of US renewable diesel production in recent years. Renewable diesel comprised about 65pc of California's overall diesel pool by the first quarter of 2024, but that growing availability has come at the expense of the value of several of the fuel's financial incentives. Valuation of California's prompt Low Carbon Fuel Standard (LCFS) credits has trended lower across the past four years. Prices in May reached an almost nine-year low of $41/t and remained depressed through the summer, during which both renewable diesel imports and domestic production hit all-time highs. Preliminary guidance on the 45Z credit proposes aviation fuels earn $1.75/USG while the maximum for road fuels would reach only $1/USG. Fuels with lower carbon intensity measured by the complete production process will receive greater rewards, in contrast to the expiring blenders tax credit (BTC). This new opportunity, originally announced in 2022, signaled the possibility of increased SAF production and innovation. A flurry of developers have moved forward with SAF projects since, while major renewable fuel producers eye converting RD capacity to SAF. With similar refinery tooling, catalysts, and feedstock requirements, the ability to produce both fuels and toggle between the two has the potential to re-inflate producers' margins. Another opportunity enabled by SAF production as opposed to road fuels is the ability to monetize SAF certificates (SAFc) as a part of the production process. To offset the costs associated with production and act as an added profit generator, existing SAF producers partner with corporate clients and public sector entities looking to offset emissions from business activities like air travel. Under SAFc agreements, a producer will sell the physical fuel to the air carrier, while the environmental attributes go to the corporate client. The physical commodity and certificates are decoupled using a "book and claim" scheme, which creates a digital registry that tracks associated emissions. Renewable diesel production is for now concentrated among biorefineries throughout the US Gulf coast, Midwest and west coast. US capacity trended higher in 2024, largely on the back of conversions, and the supply balance from 2025 onward will likely hinge on domestic output as the new credit scheme removes key incentives for imports. Global Clean Energy in mid-December reached commercial operations of about 5,900 b/d of RD at its Bakersfield, California, conversion. But some refiners have begun to pump the brakes on renewable diesel expansion, citing a degradation in economics that could worsen without the BTC's guaranteed $1/USG. Vertex Energy in the third quarter finished reverting a renewable fuels hydrocracking unit back to processing fossil fuel feedstocks at its 88,000 b/d Mobile, Alabama, facility. Renewable diesel market participants otherwise expect refiners will bring forward into early 2025 planned maintenance, and potentially curb output, as the market overall awaits clarification on 45Z eligibility and award levels. As of 2024, the US Environmental Protection Agency's monthly reporting of renewable fuel production through RIN generation data breaks out renewable jet fuel. The data show a three-fold increase in the amount of SAF produced in the US versus 2023, but also a large boom in imports, mostly from Asia to the US west coast. The expiring BTC enabled the influx of imports, as refiners were able to bring finished neat SAF onshore, blend it with conventional jet fuel, and receive the tax credit, valued at roughly $1.50/USG. With no BTC, import trade flows will be in jeopardy, because new policy aims to support domestic production. In the short term, this would drastically reduce the amount of SAF available in the US, with imports making up roughly 62pc of supply in 2024. These new domestic producers, padded by a new SAF production tax credit, will have ample opportunity to meet US market demand. As airlines look to buy SAF in areas beyond California, having an expansive infrastructure and logistical framework including producers across the US will keep airlines well positioned to increase SAF consumption. By Matthew Cope and Jasmine Davis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Power demand could bolster RGGI allowances

31/12/24

Viewpoint: Power demand could bolster RGGI allowances

Houston, 31 December (Argus) — Regional Greenhouse Gas Initiative (RGGI) CO2 allowances in 2025 could get a boost from a projected increase in electricity demand, despite uncertainty over the RGGI states' ongoing program review. Allowance prices hit record highs this past year, particularly during the summer as high temperatures raised expectations for emissions, increasing compliance demand. The first three auctions of 2024 cleared at record levels, draining the cost containment reserve (CCR) — a mechanism where additional allowances are released to temper rising prices — during the March auction . Prices followed suit in the secondary market, reaching multiple all-time highs before peaking on 20 August, with Argus assessing December 2024 and prompt-month allowances at $27.82/short ton (st) and $27.31/st, respectively. The increases have been fueled by anticipated growth in electricity demand as states work to implement policies promoting electrification in the transportation, industrial and heating sectors. In New England alone, peak power demand is forecast to double from 27,000MW to 55,000MW by 2050, according to an Acadia Center report . But the biggest source of this demand — and the steady climb in RGGI allowance prices since late-2023 — is the rapid expansion of data centers, according to University of Virginia professor William Shobe, who studies emissions market and auction design. New CO2-emitting sources such as natural gas-fired plants must factor rising allowance prices into the future cost of electricity in the long-run, Shobe said. As prices rise, other cleaner sources of energy, such as offshore wind and small modular reactors, will become more competitive, he said. Review the review The member states of RGGI launched a review of the program in February 2021. As power demand creates a potential for a bullish RGGI market, the review remains a source of uncertainty for participants and volatility in the secondary market. The program review includes considerations for a more ambitious emissions cap plan beyond 2030. But it has faced a number of delays and was originally scheduled to wrap up last year . Member states have provided few updates on the status and timeline of the review, leaving participants and environmental groups alike on tenterhooks over how a finalized program review — and with it, an updated emissions cap plan — will affect the future supply of allowances. Participants "are always thinking about future scarcity", said Shobe. "The more information we can give them about the future path of scarcity (of allowances) now, the more efficient their own behavior can be." The latest updates were released in September. They included an emissions cap plan that combined two previously floated proposals where the allowance budget starts at about 70mn st, declining at a rate consistent with a zero-by-2035 goal from 2027-2033 and a lower rate consistent with a zero-by-2040 goal from 2033-2037. Member states are also considering adding a second CCR and eliminating the emissions containment reserve (ECR), a market mechanism designed to respond to falling prices by withholding allowances. The review is planned to end in early 2025. A draft rule with additional modeling was to be released in the fall, but there have been no updates regarding another change in timeline. RGGI has not responded to requests for comment. States in limbo The status of Virginia — which left RGGI in 2023 — and Pennsylvania as potential members is another point of uncertainty as those states' participation are under legal scrutiny in their respective courts. Virginia's Floyd County Circuit Court in November ruled that regulation enabling the state's exit from RGGI was unlawful since it was enacted without legislative approval. Governor Glen Youngkin's (R) administration intends to appeal to the Supreme Court of Virginia sometime in 2025, but has declined to specify when. While it is unlikely Virginia will rejoin RGGI in the interim, its participation would increase demand for allowances and put an "upward pressure on price", Shobe said. Much of this demand would be fueled by data center expansion, as northern Virginia is the largest market for data centers in the world, with 25pc of all reported data center operational capacity in the Americas and 13pc globally, according to a report by a state legislative commission. The Supreme Court of Pennsylvania is also reviewing a lower-court decision striking down CO2 trading regulation allowing the state to participate in RGGI. Governor Josh Shapiro (D) has reluctantly defended Pennsylvania's membership in the program as an issue of preserving executive authority, and Republican state lawmakers have been attempting to revive legislation that would cement the state's exit from RGGI. The state's high court could issue a decision sometime in 2025. But Governor Shapiro also proposed a state-specific power plant CO2 cap-and-trade program earlier this year — another development participants should keep an eye on. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US Supreme Court tees up more energy cases

31/12/24

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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