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Finland on Thursday 7 April slashed its biofuels mandate for 2022 and 2023 by 7.5 percentage points to 12%, making a massive dent in one of the EU’s most ambitious thresholds for biofuels production with an inter-ministerial panel saying it would reduce prices at the pump.
The decision is by far the biggest cut in the thresholds of biofuels blending that EU countries have put in place to meet a bloc-wide 14% share of the overall fuel pool by 2030 under the current version of the Renewable Energy Directive.
That move follows a statement from the European Commission last month that member states could relax mandates to ease pressure on land use.
“The Ministerial Working Group on Preparedness decided that the obligation to distribute fuel will be temporarily reduced by 7.5 percentage points in 2022 and by 7.5 percentage points in 2023. The additional obligation for advanced biofuels and biogas will not be changed,” several Finnish government ministries said in a joint statement.
Before the decision, Finland had mandated a 19.5% share for biofuels for 2022 including the use of double-counted feedstocks in advanced biofuels, biogas and waste-based biodiesel and renewable diesel.
“Based on current very high fuel and renewable fuel prices, a 7.5 percentage point reduction is estimated to affect the pump price of diesel by around 12 cents per litre. This year, the impact may be greater, as in the early part of the year distributors have distributed renewable fuels in accordance with a 19.5% distribution obligation,” the statement said.
The joint statement said the impact of the mandate cut on the pump price of petrol “is clearly less, as the distribution obligation is being fulfilled more with renewable diesel.”
To make up for the much smaller biofuels commitments in 2022 and 2023 compared with primary legislation, the distribution obligation in 2030 has been raised to 34% up from the original target of 30% for the end of this decade, which had been approved in 2019.
Finland’s 2030 target is among the more ambitious thresholds in Europe, as is its 10% sub-target for advanced biofuels, which remains unaffected by Thursday’s government announcement.
The announcement was part of a package of some €850 million of relief measures presented on Thursday, aimed at securing access to energy and reducing reliance on Russian fossil energy.
Finland’s government made its announcement against the background of pressure in several other EU countries to reduce or relax blending mandates, with the prime minister of Hungary, one of Europe’s biggest crop-based biofuels producers, on April 6 calling for EU institutions to suspend the requirements.
Traders of biofuels and compliance bio-ticket markets had said in recent weeks that the prospect of weaker mandates was a potentially bearish factor for prices, which have been subject to increased volatility since Russia’s full invasion of Ukraine on February 24.
The war and related sanctions/embargoes in late February prompted prices for gasoil (diesel) to more than double to around $1,500 per tonne, although prices have now cooled off to below $1,000 per tonne, which is still around $200 higher than before the invasion.
Meanwhile prices for key biodiesel feedstocks such as rapeseed oil and used cooking oil have spiked to record highs.
However, Finland’s decision today and the prospect of weaker mandates elsewhere didn’t have a bearish impact on differential prices for used cooking oil-based biodisel (UCOME), with the contract priced at $1,205 per tonne, up from $1,150 per tonne on Wednesday.
The decision by Finnish government ministries on Thursday to slash the blending mandate by 7.5% would reduce demand for biofuels made and supplied by Finnish companies such as Neste, which hadn’t responded officially by press time.
Hungary’s newly-re-elected prime minister Viktor Orban has suggested that the EU should suspend binding blending of biofuels so that consumers can be cushioned from the impact of soaring energy prices — a move that may add to uncertainty in biofuels markets about whether mandates will continue to underpin demand.
In a speech made on Wednesday 6 April, Orban was reported in Hungarian media as saying that he proposes scrapping the EU’s requirement that member states blend biofuels into the overall fuel pool, which along with the suspension of other pan-EU energy laws would help reduce wholesale fuel and electricity prices that have spiked in the wake of Russia’s war on Ukraine.
If the central European country – one of Europe’s biggest producers of biofuels – was to relax or suspend mandates, it would likely create further shock waves in a sector already roiled by soaring input costs and accusations that ethanol and biodiesel production are driving up the cost of food.
But various sources who have a close working knowledge of Hungary’s biofuels policies told Energy Census that the prime minister’s comments are part of his strategy to deflect blame for likely energy price rises to the EU institutions, with whom Orban has repeatedly clashed for much of the populist leader’s 16-year cumulative premiership.
“It’s widely believed that Orban is presenting the EU’s requirement of biofuels blending as one of three laws from Brussels that prevent him from sustaining price caps on various forms of energy,” said one official who has a close working knowledge of Hungary’s energy and climate policies.
Meanwhile, biofuels industry sources with operations in Hungary said that it is highly unlikely that Orban would take measures that would damage demand for biofuels in Hungary, which is one of Europe’s biggest producers of crop-based ethanol and a major exporter to other EU member states.
“The value-add to the domestic economy of making ethanol and feed from their grain is huge, and three to four times higher than simply exporting it as feed to somewhere else. Biofuels and feed processing brings a trillion forints to the domestic economy, tens of thousands of jobs, and massive investment in biorefinery technology for the future,” said the industry source.
He added: “So reducing biofuels blending would be a terrible own-goal. It would hit Hungary harder than France or Germany, where biofuels are a bit bigger in absolute terms, but much smaller relative to overall GDP.”
Hungary has a combined biofuels blending target for 2022 of 8.4% as a percentage of the overall fuel pool, with a 6.1% minimum blending requirement in petrol.
Some biofuels industry sources have said that Mol, which is Hungary’s biggest refiner and retailer of transport fuel, has been lobbying for a relaxation of the mandate.
The company wasn’t immediately available to comment at press time.
In recent weeks EU member states including Finland, Czech Republic, Bulgaria, Croatia and Latvia have been reported as considering making changes to their mandates or crimping compliance obligations, although it is understood that so far Finland is the only country to decide to reduce its mandate.
The European Commission said in late March that member states should be allowed to relax or moderate their blending mandates to avoid the use of agricultural land for biofuels instead of food, stoking concerns that countries would pursue this option and reduce biofuels demand.
Ethanol producers say their products don’t compete with food for feedstocks, while biodiesel producers say that crop-based feedstocks such as rapeseed are essential for the security of supply in food and energy.
They further contend that pressure to relax or scrap mandates has been driven mainly by political pressure to reduce energy prices, adding that this demand is also misguided given that prices for fossil diesel and gasoline have at times outstripped gains in ethanol and various types of biodiesel.