Why does the EU want to reduce greenhouse gas emissions from fuels?
The big picture is that in March 2011 the European Commission’s White Paper on transport committed to a 70% cut in carbon emissions from transport compared with 2008, and a 20% cut by 2030. 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 reduce the emissions that result from the extraction, production, processing and distribution of the fuels themselves. As there are wide variations between different sources of fuels in terms of the energy used and emissions associated with their extraction and production, the policy is a smart way of promoting the cleanest fuels over dirty ones.
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’ of transport fuel by 6% by 2020 compared with 2010. The directive also obliges suppliers to report information, from 2011, on the greenhouse gas intensity of the fuel they have supplied, to authorities designated by the member states of the EU.
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).
What was the Commission proposal from October 2011 all about?
The October 2011 proposal from the European Commission established a methodology for the calculation of the GHG intensity of fossil fuels and the electricity used in electric vehicles as well as the baseline from which GHG reductions should be measured.
According to the Commission’s proposal, different fuels and sources of fuel (or ‘feedstocks’ as they are known) get different ‘default values’ for their carbon intensity. The default value for petrol made from conventional crude oil in the proposal was 87.5 g CO2/MJ. Because of the higher default values for fuels made from natural bitumen (i.e. tar sands - 107 g CO2/MJ), oil shale (131.3 g CO2/MJ) or coal-to-liquid (172 g CO2/MJ), fuel suppliers would have been discouraged to use these dirty sources of fuels in Europe. For more information, read our briefing.
Why did tar sands get a separate default value?
An important reason why tar sands got a specific default value is that they are produced from a different feedstock, so-called natural bitumen. Producing petrol and diesel from this feedstock requires much more energy than producing it from conventional crude oil, which in turn means that the carbon intensity of the final product is higher than that produced from conventional crude. In the Directive, natural bitumen is defined in a technology-neutral way, based on its density and viscosity.
Was Canadian oil being unfairly targeted?
No. The proposal did not discriminate between feedstocks on the basis of geographical locations. The specific default value for tar sands was not just in place for Canadian products, but for all fuels that are produced from tar sands anywhere in the world. Other countries with vast tar sand deposits include Venezuela, Russia and the US. Conventional oil from Canada would have received the same default value as conventional oil from the US, Russia or any other place.
What are the differences between the 2011 proposal and the adopted measures?
The final EU rules still 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. The carbon intensity values for tar sands (107g CO2/MJ) and other unconventional fuels are the same as in 2011.
But there is a big change from the 2011 proposal: the feedstock-specific values are largely a formality now. Under the 2011 proposal, each company would have had to report the share of unconventional fuels it brings to the EU market, and the more high-carbon fuels the company would bring in, the higher its average GHG intensity and the more effort it would need to hit its 6% target. Under the new rules, every company gets the same EU default value per product, regardless of feedstock used to make the product.
The 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. 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 Feedstock Trade Names?
The novelty of the 2014 proposal is that the suppliers have 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 proposal contains a list of names that have to be reported by suppliers who also import crude oil to national authorities. 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. They will also be required to disclose the country and name of the refinery of origin.
This means that the EU is aligning its system with the one of California. Concretely, this system could also help to give a better picture of the carbon intensity of crudes used in the EU. Having information on MCONs will also permit the public to know, to a certain extent, if EU crudes originated from unconventional raw materials or not. However, the degree of information made available publicly will depend on the level of transparency that member states will set at national level.
In its new proposal for a Governance regulation, the European Commission sent worrying signals regarding the oil reporting requirements, as it suggests to delete some of the most useful ones. The proposal is now being discussed in co-decision.
How does the FQD tackle emissions from flaring and venting?
The new implementing 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 a non-binding document. Therefore, there is 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 be engaged in a very active trade agenda both with Canada and the US. On the one hand, 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.
Reporting on fuels carbon intensity – will all this just add too much regulatory complexity?
No. A study commissioned by T&E has indicated that the administration cost of the implementation of the FQD would only add less than half a eurocent for a 50-litre fill-up or a maximum of 1.6 eurocent per oil barrel. This finding has been confirmed by the official FQD impact assessment released by the European Commission in October 2014. Overall, the reporting requirements would have been quite similar to those in place for biofuels.
Who supplies the EU’s oil?
The EU’s dependence on crude oil and diesel imports has increased in the last 15 years – to the extent that 88% of all crude oil is imported. In 2015 Europe spent in total around €215 billion on crude oil and diesel imports. Over 80% of the imported crude oil in 2014 was supplied by non-European companies. Rosneft and Lukoil are the biggest beneficiaries; together they receive around a third of the EU’s oil import revenues or over €60 billion.
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.
The likelihood of tar sands exports to Europe is also dependent on the infrastructure being in place in North America to transport the tar sands crudes to the coasts for exports. In 2015, Barack Obama decided not to approve the pipeline Keystone XL, that would have brought tar sands crude from land-locked Alberta to the Gulf of Mexico. In March 2017, the US President Donald Trump reversed Obama’s decision, but the project stills faces many hurdles, including several legal challenges. Tar sands companies are still pushing for a pipeline called “Energy East” to be built between Alberta and the east coast of Canada. If built, this pipeline could lead to significant exports of tar sands crude to Europe.
The tar sands’ threat to Europe will also be dependent on the future of the tar sands business in Canada. Tar sands companies have been impacted by the falling oil price which started in 2014, slowing tar sands expansion. But oil production from tar sands and its associated negative climate, environmental and social impacts, are not expected to stop tomorrow. This is why ambitious climate actions and more transparency on oil imports are necessary. More information available in a blog from US NGO NRDC.
What’s happening to the FQD target after 2020?
In January 2014, the European Commission announced that it “does not think it appropriate to establish new targets for renewable energy or the greenhouse gas intensity of fuels used in the transport sector or any other sub-sector after 2020”. The Commission confirmed that it did not plan to extend the GHG reduction target under the FQD beyond 2020 in a report published in November 2016.