How does a crediting system for renewable fuels work, and what are the benefits?

How does a crediting system for renewable fuels work, and what are the benefits?

Frontier Economics was recently commissioned by Finnish renewable fuel producer, Neste, to provide a report on a crediting system for renewable fuels in EU emission standards for road transport.

The EU legislative framework on EU emission standards for new road vehicles focuses on tailpipe emissions in a so-called “tank-to-wheel” approach, which does not differentiate between fossil and renewable fuels. Vehicle manufacturers (OEMs) can basically only reduce their fleet emissions by selling more electric vehicles into the market. If they do not succeed – as is currently the case with OEMs on average missing the necessary share of electric vehicles (EV) by more than 40% in the first half of 2020 – OEMs have to pay significant penalties.

The European Commission has launched a public consultation to revise the emission standard regulation and review the potential contribution from renewable and low-carbon fuels. Frontier has proposed a crediting system for renewable fuels which could serve as a template for this review (See our study for the German Federal Ministry for Economic Affairs and Energy (BMWi).

A renewable fuel crediting scheme would allow OEMs to voluntarily finance additional renewable fuel (on top of the volumes mandated under RED II) and count the corresponding emission reductions against their fleet targets. The system avoids double counting of OEM’s and fuel supplier’s efforts, provides the necessary coordination along the value chain and thus leads to additional GHG emissions reductions by converting penalty payments without any environmental benefits into higher emission reductions.

Neste asked Frontier to develop potential road transport sector scenarios after implementing such a renewable fuel crediting scheme and to explain how such a crediting scheme would impact different stakeholder groups and the environment.

In our study for Neste we found that a crediting scheme would generate significant benefits for consumers, OEMs and fuel suppliers while allowing for additional, effective, and faster emission reductions.

Stack of shareable benefits for OEMs, fuels suppliers, consumers and the environment

For full details of our analysis, click below to download our report. Click here  to read our addendum to the Crediting system for renewable fuels report, which focuses on the benefits for Trucks OEMs.

Crediting system for renewable fuels