Brussels pushes for full carbon accounting of all road transport fuels

March 6, 2012 | 00:00

Brussels pushes for full carbon accounting of all road transport fuels

It's never been about banning oil sands or killing off the fledgling biodiesel market, but about correctly calculating the carbon footprint of fuels and incentivising those that are cleanest, European policymakers insist. Yet they are caught in a whirlwind of controversy over accounting methodologies that would, if they became law, effectively do just that: put an end to the use of high-carbon fuels, which could include certain forms of biodiesel. They would also stimulate the use of petrol at the expense of diesel, causing a sea-change in European road transport. At the heart of the roaring controversy are the EU's 2009 fuel quality directive, which demands a 6% greenhouse gas emission reduction in road fuels from 2010-20, and a proposal to revise EU energy taxation law. Sonja van Renssen reports from Brussels.

The transport sector is the only sector whose CO2-emissions have continued to soar (photo: Thinkstock.com)

The goal of the fuel quality directive is to drive down emissions from European road transport. Transport sector is the only sector whose CO2-emissions have continued to soar. Total European transport emissions have grown by 36% since 1990. The fuel quality directive is intended to help reverse this trend by assigning a carbon footprint to every fossil-based fuel, with the 6% carbon reduction target encouraging use of the cleanest among them.

Oil companies like Shell, BP and ExxonMobil say in practice the directive will force a switch from oil to biofuels. The carbon footprints of various biofuels with different feedstocks have already been calculated under the EU's renewable energy directive. Yet these evaluations also remain mired in controversy, with the European Commission still developing long-awaited proposals on how to factor in indirect land-use change, i.e. the indirect displacement of forest - which releases emissions - as a result of energy crops replacing food. If accounted for, current science suggests biodiesel made from rapeseed, palm oil or soybean would be worse for the environment than normal diesel.

The fuel quality directive was probably the least visible part of the 2009 EU climate and energy package, but it's fast turning into the bit of climate legislation with the sharpest teeth, many environmentalists say today. But for it to be fully implemented all fuels must be assigned a default, life-cycle carbon footprint value and this is where policymakers have run into problems.

Or rather, one big problem: oil sands (called "tar sands" by environmentalists). A milestone vote by EU member states on oil sands on 23 February ended in deadlock. Member state representatives voted on a Commission proposal from last October that proposes to assign a higher emissions value (i.e. carbon footprint) to oil from oil sands - 23% higher than for conventional fuel to be precise. This is based on a number of scientific studies, notably one by Stanford academic Adam Brandt, which show that oil sands are much more energy-intensive to extract and process.

Naturally the 23% figure is contested, as is the very notion that oil sands should be singled out for special treatment when other "regular" crudes can come with a carbon footprint as high or even higher. One study, from Washington-based energy consultancy IHS CERA, concludes that oil from oil sands is only 10-20% more carbon-intensive than the average EU crude, and only 11% more so if you take into account that it will always be shipped as a blend with lighter, less carbon-intensive oils because it is too thick to transport on its own.

Bad idea

But the fight in Brussels is not so much over numbers as over principle. Canada, currently the main potential supplier of oil sands oil to Europe, and holder of the world's third largest store of oil after Saudi Arabia and Venezuela, if you include oil sands, absolutely rejects the notion that its oil would effectively be banned from the European market in future, as it would be out-priced compared to competing products. It has threatened the EU with legal action if it "discriminates" against oil sands. It doesn't help that Canada and the EU are currently in the middle of negotiating a free-trade agreement.

On Canada's side is the US, through which Canadian oil would have to pass for refining. The US doesn't much fancy having to track and certify the oil it exports. (Note that nationally too, the US is

The fuel quality directive was probably the least visible part of the 2009 EU climate and energy package, but it’s fast turning into the bit of climate legislation with the sharpest teeth
waging its own internal oil sands war, in the form of the Keystone XL pipeline debate.) Oil companies have complained that it would be impossible to track exactly where a fuel comes from because oils of different origins get mixed up in pipelines for transport. To this, campaigners reply that EU law already applies the same kind of certification requirements for biofuels while these only make up 4% of the market.

Oil companies have plenty of other arguments to demonstrate what a bad idea it is to single out oil sands for special treatment however, from it having no impact on emissions because the oil sands oil will simply go elsewhere, to warnings over security of supply (oil is still expected to fuel over half of all transport in Europe in 2050, even in the most climate-friendly scenarios) and predictions of higher costs for the EU refining industry that will further damage its global competitiveness.

To each industry argument, there's an environmental counter-argument, from evidence of success when the EU leads the way on standards to the argument that not acting on oil sands would drive up the cost of decarbonisation for Europe as a whole. Oil companies have the option too, of reporting actual emission values rather than the default set in law, campaigners point out. And if they're worried about meeting their 6% emission reduction target, they can win credits from reduced flaring provided for by the fuel quality directive. Ideally, every type of oil would have its carbon footprint calculated, campaigners agree, but they argue that the current absence of data on say Nigerian heavy crudes, is no excuse not to act on oil sands.

To each environmental counter-argument, there is of course an industry counter-counter argument, but we will not go into those details. Suffice it to say that this intense lobbying effort is what divided member states so completely in their vote in Brussels on 23 February on the Commission's proposal to assign an emissions value of 107g/MJ to oil sands (versus conventional oil's 87.5g/MJ). The votes, which take into account population size, came to 89 in favour, 128 against and 128 abstentions. The UK, Netherlands, and France - home to BP, Shell and Total respectively - and Germany all abstained. Countries who voted against included Spain, Italy, Poland and Estonia, while those in favour included the Scandinavian countries, notably Denmark, current holder of the EU presidency.

The issue will now be passed up from member state experts to EU environment ministers, who are expected to make a decision in June. Only once member states have reached a decision does the European Parliament get a chance to say yes or no to it, since these are in theory mere technical rules that do not involve the MEPs as full co-legislators. Several compromise proposals tabled to date by member states may yet make it into the Commission's proposal. Their difference with the original proposal is generally that they seek to recognise the higher carbon footprint of oil sands but without singling them out, for example in the Italian case by proposing to have one, EU-wide fossil fuel carbon footprint value that from 2014 onwards takes into account the country of origin, import volume and feedstock type of all fossil-based road transport fuels used in Europe.

That's where the oil sands debate stands in Europe today. Equally important to oil companies however, is what's happening within the Commission on indirect land-use change, or ILUC, since how this is ultimately taken into account in calculating biofuels' carbon footprints will determine how valuable these biofuels are in helping fuel suppliers meet their 6% fuel quality target. It is through biofuels that fuels suppliers primarily expect to meet this target.

Like oil sands, ILUC is a political hot potato. At stake is nothing less than the European biodiesel industry. According to most scientific studies, including one from the International Food Policy Research Institute currently being used by the Commission to prepare its own impact assessment and legislation on this, biodiesel from rapeseed, palm oil and soybean would be as bad for the climate as oil sands if ILUC is fully factored in. The biodiesel industry says the science is "immature" and the comparison with oil sands "absurd", since theirs is a renewable fuel.

The problem is that ILUC makes a mess of the EU's requirement for 10% renewables in transport by 2020 (electric cars are only just getting off the ground). The same EU that strongly promoted a
At stake is nothing less than the European biodiesel industry
European biodiesel industry through its renewables directive now threatens to kill it off. That's why the Commission's proposals have been repeatedly delayed and why, even now, none are expected to emerge in the near future. Instead, next on the agenda is a debate on the topic by all 27 EU commissioners, a format usually reserved for high-level strategic issues rather than what are, again, supposed to be technical accounting rules.

Radical bit

One question that comes to mind is: why not use more bioethanol? Scientific studies indicate that ILUC is less of a problem for bioethanol than biodiesel. This does not help the biodiesel industry of course, but even without this very serious consideration, the fact remains that European road transport runs predominantly on diesel, not petrol (with which bioethanol is mixed). This is due to the tax advantage that diesel has enjoyed over petrol for decades now in Europe.

However, to make matters even more complex, it is precisely this tax advantage of diesel over petrol that the European Commission is also proposing to change in yet another proposal: a revision of the 2006 EU energy taxation directive which Brussels tabled last year. The Commission's plans would see future fuel taxes based on energy content and CO2 emissions rather than volume as is the case today. The idea is, once again, to correctly account for fuels’ energy and carbon contributions.

The Commission suggests that minimum tax rates for fuels should be set according to energy content and CO2 emissions in future. The radical bit is that it also says actual tax rates should reflect these new minima when it comes to how fuels are taxed relative to one another. What this means is that diesel - because it has higher energy content and emits more CO2 - should cost more than petrol in future. The very opposite is true in many member states today. This was always bound to be an unpopular proposal, therefore, and it has lain quiet for nearly a year now, but in a significant development last Wednesday, the European Parliament’s economic and monetary affairs committee narrowly upheld the Commission’s plans to end the tax advantage that diesel enjoys over petrol in Europe.

MEPs fought long and hard over the idea. All the more so since the centre-right MEP in charge of the file, 82-year Astrid Lulling from Luxembourg, comes from a country that earns a whopping €1,500 per capita per year from keeping its diesel rates close the minimum so hauliers come to fill up. Lulling rejected the Commission's "proportionality principle" but could not prevent a coalition of Socialists, Liberals and Greens from pushing it through anyway. They did delay it by five years, from the Commission's proposed start date of 2023 to 2028, and proposed a two-step phase-in: tax rates for diesel and petrol should be within 30% of one another from 2018-2023 and within 15% from 2023-2028.

In other amendments, Lulling did get her way. The energy content-part of the tax should not be adjusted automatically every three years to take into account inflation, for example. What the Socialists, Liberals and Green did manage to push through, however, was an amendment calling for the CO2 emissions-

Without results in the transport sector, the EU can forget its ambitions for a low-carbon economy
part of the tax to be "aligned with the average market price of emission allowances in the EU emission trading scheme". The adjustment would take place every three years from July 2016, based on the carbon price in the 18-month period just before it. The point is, as far as possible to have just one carbon price in Europe. But Lulling succeeded in extending to 2025 an existing provision that allows diesel for commercial use (i.e. freight transport) to be taxed at lower rates than diesel for private use. And she secured a possibility for natural gas and liquid petroleum gas to apply for a 50% tax rebate from 2023-2030, when the possibility to fully exempt them has expired.

Best outcome

It was "the best outcome that could be expected", says Magnus Nilsson from the environmentalist NGO T&E, which specialises in transport issues. The real test will come in the Council of Ministers because this is a taxation proposal, which means that the parliament can offer an opinion but has no legislative power - that resides fully with member states. And to pass a taxation proposal, member states must agree it unanimously.

The problem is that many member states don’t like the idea at all of Brussels interfering in their fiscal policies - the UK is only the most prominent example. Only three or four member states currently support the Commission's proposal, said Lulling. Denmark, current holder of the six-month EU presidency, is reportedly one of them. But can Denmark push through a deal on energy taxation? It seems unlikely. The parliament has sent a bold signal (although the resolution only passed with 22 votes in favour, 16 abstentions and 6 against after Lulling's centre-right group abstained), but the current energy taxation directive took six years to agree and the Commission's proposals are less than a year old.

Incidentally, in the energy taxation dossier, the Commission should be able to count on the backing of the oil industry, which is today forced to import diesel (often from Russia) and export petrol (to increasingly competitive markets) to adjust to Europe's curious tax structure. But expect this, nevertheless, to be a fight for the long haul.

At the end of the day, what connects the initiatives on energy taxation, oil sands and ILUC is the Commission’s desire to calculate an accurate carbon footprint for all transport fuels and adjust its policies accordingly. The Commission is not so much trying to decide which fuels are good and which are bad but to figure out how best to support those that can contribute most to a European economy that is both low-carbon and competitive. The reason for this is obvious. It is bad enough that EU transport emissions have grown by 36% since 1990, what is worse is that they are due to climb to 74% above this baseline by mid-century - almost exactly the opposite of the 60% reduction foreseen by the Commission in its low-carbon 2050 roadmap. Without results in the transport sector, the EU can forget its ambitions for a low-carbon economy.

 

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