Germany pauses biofuel ticket rollovers to address oversupply

Germany has put a halt to greenhouse gas emissions ticket rollovers in 2025 and 2026, to quash oversupply of the certificates in the biofuels market and to encourage production, the government said Nov. 13.

Oil industry participants in Germany can now only use carbon credits from renewable energy earned in the same year to comply with required cuts in greenhouse gas emissions, known as the GHG quota.

In the past, petroleum producers frequently over-complied with the GHG quota, meaning they posted larger CO2 reductions than required by law. The surplus reductions could then be carried over to meet the next year's requirement.

"Although this flexibility is an economically useful regulation for market participants, a very large amount of surplus credits have been stockpiled in the past few years," the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection said in a statement. In 2022 alone, over-compliance amounted to around 3.4 million mt of CO2, exceeding the required cuts by about 24%, the ministry said.

There have also been concerns about what lobbyists call fraudulently certified imports entering Europe in recent years. Halting the rollover implies their exit from the market.

Prices have been languishing since mid-2022. Platts, part of S&P Global Commodity Insights, assessed the premium of used cooking oil methyl ester, which complies with the EU's Renewable Energy Directive, on an FOB basis at Amsterdam-Rotterdam-Antwerp at a $795/mt premium to ICE gasoil futures Nov. 12. From when the assessment was launched in March 2022 until May 2022 it averaged $1,046.62/mt. It fell from that point and has not yet recovered, which industry lobbyists attribute to dubiously certified Asian imports.

Encouraging production

Germany's GHG quota requires the oil industry to reduce the CO2 emissions of their transport fuels. The current reduction quota is 9.35%, and it will be gradually raised to 25% by 2030. To comply with the required GHG reductions, producers can opt, for example, for sustainable biofuels from waste or renewable synthetic fuels such as e-fuels.

Over-compliance has resulted in larger CO2 reductions than the law requires, but these surplus reductions contradict the basic idea behind the EU requirements of fulfilling targets that increase annually, the ministry said.

If the companies subject to the quota use the unusually large surplus credits of the past years to fulfill next year's quota, significantly less sustainable biofuels and electricity would be used to achieve the target. As a result, Germany risks seriously deviating from the EU provisions for climate action in terms of fuels. At the same time, the resulting dip in demand creates an economic problem for renewable energy industries in transport, the ministry said.

This problem is being felt across Europe. The Dutch government has also reduced the extent to which fuel providers can rollover renewable fuel tickets into the following year to prevent ticket holders stockpiling.

This comes after plans for standalone bio-refining units were paused by Shell, BP and Chevron, with many producers forced to operate at negative margins over the last two years, according to the European Waste-based & Advanced Biofuels Association. Additionally, Neste reported its first negative profits since 2014 in the first quarter of 2024 as the Finnish refiner felt the impact of a global biofuels market downturn.