Two cheers for the EU’s new Fit for 55 transport fuels policy

There’s euphoria in the EU and Canada over expanded opportunities for SAF and transport fuels, and especially from those engaged int he world of e-fuels. We reported earlier this month from Canada of the approval and release of the rules for the Clean Fuels Standard, and from Europe we see this update from the European Parliament, approving the Fit for 55 package — reducing net greenhouse gas emissions in transport by at least 55 % by 2030, compared with 1990 levels – the ‘fit for 55’ package. 

Let’s today look at Europe in close-up.

Europe by the Numbers

The EU policy includes a blending obligation for fuel suppliers. Starting in 2025, the aviation fuel made available to EU airports should contain 2% SAF, increasing to 5% by 2030, 32% by 2040 and 63% by 2050.

There’s a sub-mandate for synthetic aviation fuels, elsewhere known as e-fuels or e-kerosene — starting at 0.7% in 2030, increasing to 8% in 2040 and 28% in 2050. 

This is primarily defined (and positively embraced by some in the the environmental community that don’t simply want to scrap travel by jet) as a combination of green hydrogen and waste CO2. The EU proposes that the remaining SAF volumes will be produced “from feedstocks listed in Part A and B of  RED II Annex IX” and, for that, think residues. For now, crop, animal and municipal, primarily. 

Anti-biofuels NGOs have targeted animal fats, oils and greases as unsustainable, primarily on the alleged grounds that FOG stimulates a market for animal slaughter, disrupts existing users and causes price increases.

The 6 Cautions

The news is encouraging to industry. We’ll raise a couple of items today that need to be better understood, via some cautionary notes.

1. Caution: E-fuels are in their infancy — we’ll have to wait and see the extent to which the mandated volumes are achieved and the prices paid. We’ve seen mandates fail when they target fuels made by technology not yet available at scale and from feedstocks not yet abundantly available at affordable prices. Cellulosic ethanol comes to mind, which is now arriving and we’ll see some volume, but many people who “turned off biofuels” did so citing the “failure of cellulosic ethanol”.

2. Caution: We don’t know how sustainable green hydrogen is, just yet. There’s a note out suggesting that green hydrogen made by water-splitting has a 4 percent leakage rate, and might cause climate problems when it reaches the atmosphere that make it less appealing as a emissions-mitigating technology. The report suggests that it might extend the lifespan of existing greenhouse gases, including methane. The report is here — needs to be studied.

3. Caution: We don’t know how to capture affordable CO2 just yet for e-fuels. For $200/ton CO2 feedstocks, we have technologies emerging though not yet at scale. Let’s keep in mind that we use 27% of CO2 by weight when we make e-kerosene, so you can almost quadruple the average cost, and it can get expensive in a hurry. We might find ourselves using point-source CO2 — but NGOs don’t like extending the value argument for, say, coal-based power and if we are sunsetting plant-based fuels made from fermentation we are eliminating one of the best at-scale sources of pure and sustainable CO2.

4. Caution. The EU is mandating specific technologies, and feedstocks. Carbon targets expressed as hoped-for outcomes that may or may not be achieved by those feedstocks or technologies. The US learned to its regret that this approach creates an endless argument over feedstocks, causes pushback on fuels prices, and reduces incentives for climate innovation because new technologies as they come along find themselves out of scope. California led the shift to mandating carbon targets in establishing its Low Carbon Fuel Standard, and that’s been the trend in recent years. Washington state, Oregon and Canada have gone this route and states like New Mexico and New York are aiming to follow in this direction because an LCFS has been shown to spur innovation and galvanize the private sector into building projects. The EU approach feels old-school. There’s not much to stop a technology deploying that makes a completely unsustainable e-fuel and no easy way in for a new carbon-negative technology. We’ve seen the EU approach create hot air of the political kind instead of reducing hot air of the climate kind.

5. Caution. Banning feedstocks causes dysfunctional markets. The world needs better zoning and information systems to protect rainforests, not a ban on feedstocks that can be grown anywhere because someone is cutting down Indonesia rainforest to plant palm trees. The problem that is leading to these bans is not the abundance of the feedstock, but the absence of critical information. To use an example, we don’t ban international travel for children because of the problem of child kidnapping, we mandate that parents and children travel with proper visas. People who cry that you can’t track commodities forget that apples were once traded as commodities and no one tracked them, but now we have a bar code for every apple grown in the US. We have a bar code and precision tracking for package delivery, which no one had in years gone by. Bans don’t work, as the US discovered in the days of Prohibition and we all have discovered with opium and cocaine. Zoning, local enforcement and global tracking are the right way to ensure a sustainable feedstock supply.

6. Caution. Battles over feedstocks at the policy level lead to disinformation. As the perceptive EU commentator James Cogan observed when The Guardian ran a piece asking why crops should be used for biofuels when people are starving, ““People aren’t starving because crops and land are used for biofuels – or for beer, camembert, burgers, muffins or waste. They starve because of inequality, poverty, war and natural calamities in the regions where they live. 

Cogan took issue with The Guardian over a claim that “the food used by the UK alone for biofuels could feed 3.5 million people”.  He noted: “If the UK quit using biofuels not a single kernel of the notionally freed-up grain would go to starving people – farmers would simply produce less. Today’s high prices are not caused by supply and demand dynamics, but by high energy costs. Even if supply and demand dynamics were the basis for pricing, tinkering with demand at one end of the market, in one part of the world, will not trickle over to starving people with no money, halfway across the globe.”

The Bottom Line

In thermodynamics there always is an entropy problem, disorder increases every day, that’s the nature of heat, it dissipates and what was a powerful energy point-source or yesterday becomes a  distributed equilibrium eventually. That’s why people write of “the heat death of the universe” even though there is conservation of energy: it dissipates into a non-useful form (unless energy itself is expended to concentrate it, for example in the formation of a fossil deposit), and there’s precious little we can do about it.

We have an entropy problem in the biofuels supply-chain, too, and yet there is something we can do about it. As we noted recently in a column about AgCertain Industries, customers are asking about more than price and function these days.

Where did my ingredients come from? Do they meet my health requirements? Do they meet my sustainability requirements? What assurances do I have?

Entropy is at work here. Feedstocks are being moved from a place where we can know everything about it — for example, at farm-level — to a place where we know almost nothing about it — some faceless warehouse where ingredients are mixed until the information about them is lost.

Sustainability is contained in information, and risk occurs in every manner (financial, health, sustainability) when we lose information. We need to measure feedstocks, and right quick. As AgCertain CEO Dan Oh told The Digest:

“The commodity world is not really setup to do relatively higher throughput identity preserved, traceable, quite specific multi attribute-related products. Tracking carbon intensity is challenging enough, and only a small part of the need called for by growing consumer preferences.”

Many in the rural sector are calling for increased bandwidth and cheaper internet access. Simply because they would like to have Netflix? No, it is for the affordable gathering and transfer of information and the management thereby of risk.

The risks, if unmitigated and misunderstood, can be enormous.  There’s a benefit that comes to the financial world when the study or risk and efficiency leaves the towers of the city and becomes closer to the land.  We’re seeing that emerge in the developed world and we need it more in the developing world, fast. The closer that is done to the feedstock source, the easier it is to do. And, decentralization of the effort spreads the wealth, prosperity reaches deeper into the town or village, and rural life revives.