The European Commission has put a new energy package on the table in order to maintain the European Union’s leading global role in clean energy transitioning.
This package proposes to cut CO2 emissions by at least 40% by 2030 while modernizing the economy, creating jobs for European citizens, and catalyzing growth. The 13 proposals have three main goals: putting energy efficiency first, achieving global leadership in renewable energies, and providing a fair deal for consumers. Such goals are ambitious, but they may be achievable if the content of the proposals is in line with stakeholders’ views. The Commission has good intentions with this legislation, but the proposals must line up with market reality to deliver on these goals.
Current renewable energy rules, laid down mainly in the EU’s Renewable Energy Directive (RED), provide that 10% of the energy used for transportation must come from renewable sources by 2020. Given the existing level of technical advancement, many Member States can only meet this mandate by blending biofuels with high greenhouse gas (GHG) fossil fuels. Due to a recent revision of the RED, at most 7% of this target should come from conventional biofuels such as those sourced from starch-rich crops (e.g., maize) or oilseeds (e.g., rapeseed). The latest proposal rebrands these biofuels as “food-based biofuels” and suggests a further lowering in the cap to 3.8% by 2030. This proposal is aimed at boosting the advanced biofuel industry due to its allegedly higher GHG savings and, at the same time, respecting the humanitarian and environmental arguments promoted by NGOs active in Brussels law-making.
Regulation lies at the heart of every renewable energy business model, including those related to biofuels. Indeed, regulation is crucial for biofuels not only because it defines the potential market but also because it seeks to ensure a level playing field within the EU and provide adequate protection against cheap imports from overseas. Finding the right regulatory scheme requires a thorough analysis of the best available science on GHG emissions, a requirement set by the RED itself. Moreover, even the best scientific results have to be interpreted in the context of other EU policy goals, including rural development, job creation, and economic growth. Although the proposal of the Commission certainly takes GHG emissions into account, it seems to fall short of making convincing arguments regarding their real life-impact on the rest of the issues at stake.
The direction that EU legislation is taking is of utmost importance to Hungary, since the country has lately become the third biggest bioethanol producer in the EU. It is little wonder that the proposal of the Commission raised eyebrows throughout the Hungarian agribusiness and biofuels communities. Hungary will reach the biofuels blending rate specified by the current RED on January 1, 2019, only a year before RED II kicks in and – according to the present form of the proposal – gradually phases out conventional biofuels as a legally recognized method of mitigating GHG emissions. Therefore, the country would have to readjust to the changes in the regulatory environment both domestically and in its export markets. Industry speakers claim that the good intentions of the Commission in making these legislative changes do not line up with the proposals themselves, as the nascent Hungarian bioethanol industry would all but perish as collateral damage if it cannot make the shift to producing advanced biofuels. Critics of the proposals say that such a transition seems unrealistic at this moment even with the most optimistic financial models due to the lack of regulatory certainty, which might deter any potential investors.
To sum up, the public debate about the future of renewables in European mobility has just entered into a new phase, and there is no doubt that the outcome will have a profound impact on the economy of the CEE region, including Hungary. The stakes are high because the new regulation may give further impetus to the bio-economy, but it may kick the industry onto a sidetrack as well. The ball is now in the court of the Government of Hungary to take a position on the future of biofuels.
By Gabor Kovacs, Partner, and Adam Burt, Trainee, OPL
This Article was originally published in Issue 4.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
