What is the problem?

Why does the EU want to reduce greenhouse gas emissions from transport fuels?

Transport is the only sector that has seen its emissions increase over the past two decades, and has now become the single biggest emitter of greenhouse gases in Europe, according to the European Environmental Agency. As well as improving the efficiency of vehicles, it is also necessary to ensure that transport’s dependency on oil is ended by incentivising alternative sources of energy. 

What does Article 7a of the Fuel Quality Directive (FQD) do?

Earlier versions of the EU’s fuel quality law were designed to reduce health-damaging pollutants such as sulphur. Article 7a of the revised FQD, agreed in 2009, for the first time obliges suppliers to reduce the lifecycle greenhouse gas ‘intensity’ – or carbon footprint – of transport fuel by 6% by 2020 compared with 2010.  The 6% reduction can be achieved through the use of biofuels, renewable electricity and a reduction in the flaring and venting of gases at the extraction stage of fossil fuel feedstocks (upstream emissions reductions). The FQD target continues after 2020. 

What’s the current carbon footprint of transport fuels? 

Oil refined in the form of diesel, petrol, kerosene or marine fuel oil represents the highest share of transport fuels at EU level – around 94% today. Because we’re still far from a transport system 100% powered by renewable electricity and renewable hydrogen/efuels, the carbon intensity of transport fuels is still very high. Combined with the heavy reliance on crop biofuels which do not provide a climate solution, the carbon intensity of EU transport fuels hasn’t decreased substantially since 2010. EEA reports that in 2018, the average GHG intensity of transport fuels was only 2.1 % lower than in 2010, when taking into account ILUC impacts (and 3.7% without ILUC).

Who supplies the EU’s oil?

The EU’s dependency on crude oil imports is high and rising as domestic oil supplies have declined at a faster rate than demand. In 2018 imports accounted for 96% of the EU’s oil supply and total spending on crude oil imports in the EU was €211bn (equivalent to 1.5% of EU GDP, or €473 per capita). The EU’s transport sector accounts for 69% of final demand for petroleum products. Road transport alone accounts for 49% of final demand for petroleum. 

The majority of the EU’s spending on oil benefits foreign producers. In 2018, Cambridge Econometrics estimated that, at the EU level, over 80% of companies benefiting from spending on crude oil imports and 95% of companies benefiting from spending on refined oil imports were based outside of the EU and Norway. Four of the five companies exporting the largest shares of crude oil to Europe (Rosneft, Lukoil, Saudi Aramco and Exxon) were non-European companies.

For more information, see a report by Cambridge Econometrics and a map showing trade flows of oil into Europe.

Does the EU prevent imports of high carbon oil, like tar sands?

After many years of debate and fierce lobbying by the oil industry and Canada, the final FQD rules formally recognise that road fuel made from unconventional sources of oil – tar sands (natural bitumen), oil shale or coal-to-liquid – has a higher greenhouse gas intensity than normal fuel. Under the 2011 Commission proposal, each company would have had to report the share of unconventional fuels it brings to the EU market. The more high-carbon fuels the company would bring in, the higher its average GHG intensity would be and it would have to do more to hit its 6% target. 

Now, under the new rules, every company gets the same EU default value per product, regardless of feedstock used to make the product. This reporting of one single EU carbon intensity value will not discourage the use of high carbon oil. Each fuel supplier has to achieve the 6% reduction target but all suppliers will report annually the same EU-wide carbon intensity value for fossil petrol and diesel, whether their products originate from high-carbon sources like tar sands or not. 

As a result, this system doesn’t discourage the use of high-carbon oil such as tar sands. One useful feature of the final rules is the reporting of Feedstock Trade Names (or Market Crude Oil Names – MCONs). See our briefing for more information.

What are the reporting requirements for crude oil and refined products?

The novelty of the 2014 proposal was that the suppliers had to report Feedstock Trade Names (or Market Crude Oil Names – MCONs) to national authorities, in addition to the origin and the place of purchase of their oil. Crude oil is sold on international markets under various market names, such as West Texas Intermediate or Brent. The final measures contain a list of names that had to be reported by suppliers who also imported crude oil to national authorities.

Following a deal on a new Governance Regulation, the reporting requirements have been emptied of their substance in the Fuel Quality Directive and part of it should now be shifted to regulation 2964/95, according to official documents from the European Commission available here.

Importers of refined products (20-25% of EU imports) will have to report whether their products originate in the EU or not, but not the MCONs. Initially, they also had to disclose the country and the name of the refinery of origin but this requirement has been recently scrapped in the final deal on the Governance Regulation.

How does the FQD tackle emissions from flaring and venting?

The implemented measures do actually reward reductions in flaring and venting. It does so by awarding credits to producers that reduce flaring and venting (so called upstream emissions reductions – UERs). These credits can be used for compliance towards the 6% GHG reduction target. The verification has to be done at a project level.

The UERs provisions in the FQD were quite vague and in November 2016 the European Commission released a non-legislative guidance note on the issue to guide member states’ implementation. The guidance note goes in the right direction but it is non-binding. There  is therefore a substantial risk of double counted and non-additional offset credits being used for compliance, seriously undermining the FQD’s effectiveness. Member States must now implement the rules in a robust way.   For more information, please check our key recommendations on UERs and our reaction to the Commission’s guidance note.

How to explain the weakening of the FQD?

From the very beginning, the oil industry in Europe and in North America as well as the government of Canada have attacked the proposed implementing measures for the Fuel Quality Directive (Friends of the Earth Europe has documented the active lobbying by Canada on the FQD in 2011 and 2013). This intense lobbying had an impact on EU countries’ positions in the Council. When member states voted in February 2012 on the good proposal of the European Commission, they were very divided and the vote ended in a stalemate. Some countries abstained because they requested more information and an assessment of the potential impacts on industry before adopting an official position. The European Commission launched an impact assessment in 2012 which was finalised in August 2013. However, it took more than a year after this for the Commission to release its new (weakened) proposal – in October 2014.

During this period of time, the Commission also started to engage in a very active trade agenda both with Canada and the US. The EU was negotiating a free-trade deal with Canada (CETA) and it also started negotiations on a Transatlantic Trade and Investment Partnership with the US (TTIP). Both trade agreements have been used as a new lobby vehicle by Canadian and US oil companies to undermine the FQD. More information on trade deals and the FQD can be found here.

Tar sands to Europe?

It is difficult to estimate how much tar sands oil comes to Europe at the moment. June 2014 saw the first shipment of tar sands crude to reach Europe and several shipments followed after this. Not all refineries can handle tar sands crudes. This map of EU refineries highlights which EU refineries would be the most likely to receive tar sands crude. In addition, tar sands crude is already being used by US refineries, notably in the Gulf of Mexico, from where refined products, such as diesel, are being shipped to Europe. However, since there is currently no tracking and transparency on the type of crude oil used in the petroleum products that Europe imports, it is very difficult to have a clear idea of how much tar sands enters Europe overall.