In parallel, the political process to develop Renewable Energy Directive III (“RED III”) is already in the last stage, which involves final negotiation of details and conclusion of political compromises between the European Parliament, the European Commission and the Council of the European Union. While many stakeholders expected that agreements on all open points could be achieved in a meeting scheduled for 7 February 2023, the EU Parliament negotiator cancelled this meeting a few days before, which was explained with the lack of delegated acts which determine specifications for green hydrogen.

On 10 February 2023, the Commission has then adopted the following Delegated Acts:

• Commission Delegated Regulation supplementing RED II by establishing a Union methodology setting out detailed rules for the production of renewable liquid and gaseous transport fuels of non-biological origin, and
• Commission Delegated Regulation supplementing RED II by establishing a minimum threshold for greenhouse gas emissions savings of recycled carbon fuels and by specifying a methodology for assessing greenhouse gas emissions savings from renewable liquid and gaseous transport fuels of non-biological origin and from recycled carbon fuels

Delegated Regulation re. production of renewable transport fuels 

The first Delegated Act lays down detailed rules for determining when electricity used for the production of so-called renewable liquid and gaseous transport fuels of non-biological origin can be considered fully renewable.

Scope of application

The rules included in this Delegated Act accordingly apply to the production of renewable liquid and gaseous transport fuels of non-biological origin via electrolysis and analogously for less common production pathways.

It is worth highlighting that the rules set out in this Delegated Act apply regardless of whether the fuel is produced inside or outside the territory of the E.U. Accordingly, this new Delegated Act is in particular of relevance also in relation to e.g., fuels produced in the U.S. or elsewhere in the world and transported to the E.U.

Rules for counting electricity as renewable

The Delegated Act distinguishes between rules for counting electricity obtained from direct connection and rules for counting electricity taken from the grid as fully renewable.

Supply via direct connection

In case of a direct connection, the installation generating renewable electricity needs to be directly connected to the installation producing the fuel, or the renewable electricity production and production of renewable fuels needs to take place within the same installation. Moreover, in general, it is a requirement that the installation generating renewable electricity came into operation not earlier than 36 months before the installation producing renewable fuel. Finally, the installation producing electricity shall not be connected to the grid, or if the installation producing electricity is connected to the grid, a smart metering system must measure all electricity flows from the grid and show that no electricity has been taken from the grid to produce fuel.

Electricity taken from the grid

Compared to the regime applicable to installations directly connected, the rules for counting electricity taken from the grid as fully renewable are rather complex and basically include four alternatives.

As a first alternative, fuel producers may count electricity taken from the grid as fully renewable if the installation producing the renewable fuel is located in a bidding zone where the average proportion of renewable electricity exceeded 90% in the previous calendar year and the production of fuel does not exceed a maximum number of hours set in relation to the proportion of renewable electricity in the bidding zone. While the Delegated Act includes further details how this is to be calculated, it also includes the clarification that once the average share of renewable electricity exceeds 90% in a calendar year, it shall be continued to be considered to be higher than 90% for the subsequent five calendar years.

In this context, please note that where reference is made in the Delegated Act to “bidding zone”, which is a concept that exists in the E.U. but not in all other countries, it shall be possible for fuel producers in non-E.U. countries to rely on equivalent concepts provided the objective of the Delegated Act is maintained and the provision is implemented based on the most similar concept existing in the third country concerned. In the recitals of the Delegated Act, it is mentioned that such concept could be similar market regulations, the physical characteristics of the electricity grid, notably the level of interconnection, or as a last resort the country.

As a second alternative (and where the aforementioned threshold is not met), fuel producers may count electricity taken from the grid as fully renewable if the installation producing the fuel is located in a bidding zone where the emission intensity of electricity is lower than 18 gCO2eq/MJ. This shall be determined following the approach for calculating the average carbon intensity of grid electricity in the methodology for determining the GHG emissions savings from renewable liquid and gaseous transport fuels of non-biological origin and from recycled carbon fuels set out in the other Delegated Act (as further described below) based on latest available data. Again, the Delegated Act provides also in this context that once the emission intensity of electricity is lower than 18 gCO2eq/MJ in a calendar year, the average emission intensity of electricity shall be continued to be considered to be lower than 18 gCO2eq/MJ for the subsequent five calendar years.

However, for counting electricity as renewable under this second alternative, it is required that specific additional criteria are met. These include that a PPA must be in place for the supply of renewable electricity from a specific installation and that specific conditions on “temporal correlation” and “geographical correlation” are met.

As regards the condition on temporal correlation, until 31 December 2029, the production of the renewable electricity and the renewable fuel need to take place within the same calendar month. As of 1 January 2030, the temporal correlation condition shall be considered complied with if the production takes place in the same one-hour period. Moreover, following a notification to the Commission, Member States may apply the one-hour regime already from 1 July 2027 for renewable liquid and gaseous transport fuel of non-biological origin produced in their territory. In addition, the temporal correlation condition shall always be considered complied with if the fuel is produced during a one-hour period where the clearing price of electricity resulting from single day-ahead market coupling in the bidding zone is lower or equal to EUR 20 per MWh or lower than 0,36 times the price of an allowance to emit one tonne of carbon dioxide equivalent during the relevant period for the purpose of meeting the requirements of the EU Emissions Trading regime. This shall allow that production can always take place when electricity prices are so low that fossil-based electricity generation is not economically viable and, therefore, additional demand for electricity triggers more renewable electricity production and does not trigger an increase in fossil electricity generation.

As regards the condition on geographical correlation, the installation generating renewable electricity under the renewables PPA must be located (i) in the same bidding zone as the electrolyser; (ii) in an interconnected bidding zone, including in another Member State, and electricity prices in the relevant time period on the day-ahead market in the interconnected bidding zone are equal or higher than in the bidding zone where the renewable liquid and gaseous transport fuel of non-biological origin is produced; or (iii) in an offshore bidding zone that is interconnected with the bidding zone where the electrolyser is located.

As a third alternative, electricity taken from the grid may also be counted as fully renewable if it is taken from the grid at times where the production supports the integration of renewable power generation into the electricity system by reducing the need for redispatching downwards power-generating installations using renewable energy sources.

Finally, as a fourth alternative, fuel producers may count electricity taken from the grid as fully renewable, if it complies not only with the conditions on “temporal correlation” and “geographic correlation” as described above, but also with the condition on “additionality”.

The condition on additionality shall be considered complied with if fuel producers produce an amount of renewable electricity in their own installations that is at least equivalent to the amount of electricity claimed as fully renewable, or have concluded directly, or via intermediaries, one or more renewables power purchase agreements with economic operators producing renewable electricity in one or more installations for an amount of renewable electricity that is at least equivalent to the amount of electricity that is claimed as fully renewable and the electricity claimed is effectively produced in this or these installations, provided that specific criteria are met. These criteria include that, again, the installation generating renewable electricity came into operation not earlier than 36 months before the installation producing the renewable fuel. However, a second requirement is that the installation generating renewable electricity must not have received support in the form of operating aid or investment aid, excluding support received by installations before their repowering, financial support for land or for grid connections, support that does not constitute net support, such as support that is fully repaid and support for installations generating renewable electricity that are supplying installations producing renewable liquid and gaseous transport fuel of non-biological origin used for research, testing and demonstration. Especially this second requirement is subject to legal interpretation, in particular in relation to non-E.U. support mechanisms. However, during a transitional phase until 1 January 2038, the requirement to comply with the additional criteria does not apply to installations producing renewable liquid and gaseous transport fuel of non-biological origin that come into operation before 1 January 2028. 

Certification of compliance

According to Art 30(4) of RED II, the Commission may decide that voluntary national or international schemes setting standards for the production of biofuels, bioliquids or biomass fuels, or other fuels that are eligible under RED II can be used to demonstrate compliance with specific requirements.

On that basis, the Delegated Act provides that regardless of whether the renewable liquid and gaseous transport fuel of non-biological origin is produced inside or outside the territory of the E.U., fuel producers may make use of national schemes or international voluntary schemes recognised by the Commission to demonstrate compliance with the criteria described above.

Delegated Act for Assessing GHG Emissions Savings

The second Delegated Act establishes a minimum threshold for GHG emissions savings of so-called recycled carbon fuels and specifies the methodology to calculate the GHG emissions savings from renewable liquid and gaseous transport fuels of non-biological origin and from recycled carbon fuels.

Accordingly, this second Delegated Act is not only relevant for renewable liquid and gaseous transport fuels of non-biological origin, but also especially relevant in relation to the use of recycles carbon fuels.

Under the terms of RED II, “recycled carbon fuels” means liquid and gaseous fuels that are produced from liquid or solid waste streams of non-renewable origin which are not suitable for material recovery, or from waste processing gas and exhaust gas of non-renewable origin which are produced as an unavoidable and unintentional consequence of the production process in industrial installations.

In particular, this Delegated Act provides that the GHG emissions savings from the use of recycled carbon fuels shall be at least 70 %.

Moreover, a detailed methodology is set out in Annex I of this Delegated Act, which is to be applied when determining the GHG emissions savings from recycled carbon fuels as well as from renewable liquid and gaseous transport fuels of non-biological origin. This – very detailed – methodology takes into account the full life-cycle emissions from producing the fuels and is based on a fossil fuel comparator which has been set at 94 gCO2eq/MJ.

Authored by Dr. Stefan Schröder.