HBE multiplier for Dutch marine biofuel likely to be reduced

Government poised to reduce the number of HBE credits in circulation and promote higher rates of physical blending in the road sector

The Dutch government is likely to reduce the multiplier for the supply of biofuel to international shipping and reclassify ‘brown grease’ – a key feedstock – to single rather than double-counted status and reserved for use in road transport, according to government and market sources.

The decisions are likely to be made public soon, say those with knowledge of the matter, as part of a wider public consultation that was held on November 1-8 to reduce the number of HBE credits in circulation and promote higher rates of physical blending in the road sector.

Although a final decision has yet to be made, sources say the Dutch environment ministry is likely to reduce the multiplier for the supply of marine biofuels to international shipping to a multiplier of x0.7, rather than the current x0.8, and make waste material brown grease a single-counted feedstock and take it out of the ‘advanced’ category that currently applies.

“The current idea is that the multiplier will be lowered to 0.7 and the other factors will still be lower (-20 %), as already proposed earlier. There is also a discussion on brown grease. It is taken into consideration to move it from the Dutch regulation, so it will no longer be seen as advanced and will no longer be bookable for shipping,” said a source in government with knowledge of the deliberations.

One HBE represents 1 gigajoule (GJ) of renewable energy that is delivered to the Dutch transport market, with the default value calculated (x1) on the basis of single-counted feedstocks.

Brown grease is a major feedstock for use in marine biofuels in international shipping. Its supply has soared in the past few years as major shipping firms, manufacturers, retailers and bunker fuel suppliers have used fuels containing wastes as part of carbon reduction goals.

In the past year, much-higher blends, often in excess of 50% and sometimes as high as 100% have been used, which in turn has required much higher volumes of HBE compliance credits to be issued to the sector that in 2021 accounted for around a third of these ‘biotickets’ issued in the entire system.

This is regarded as a major imbalance in the Dutch market for renewable fuels and the compliance credit market, which was initially designed for the road transport market but also includes the maritime sector and allows an opt-in for aviation biofuel.

Suppliers of physical biofuel to the road sector, particularly high-margin hydro processed vegetable oil (HVO) used in freight, have complained that the large volume of HBEs issued to the supply of marine biofuel (much of its regarded as too low in quality for the road sector) has majorly eroded demand for their products.

The current rules that enable big compliance credit rewards for the supply of marine biofuel to the sector, particularly through the use of brown grease, are also regarded as problematic in terms of environmental integrity.

That’s partly because fuels supplied to international shipping can’t be reconciled to the Netherlands’ national carbon emissions accounting system, which is confined to fuel consumption on Dutch territory.

Moreover, the marine biofuels sector is also seen as eroding policy goals because the perceived predominance of low-quality ‘off-spec’ material that can be easily used in non-sophisticated marine bunker engines is ‘crowding out’ the use of other feedstocks that are classified as advanced through Annex IX Part A of the Renewable Energy Directive.

Biofuel blending targets

The Netherlands’ 17.9% biofuels blending target for the current year includes a sub-target of 1.8% for advanced biofuels, thresholds that in 2023 rise to 18.9% and 2.4%, respectively.

The cap on the use of Annex IX Part B is set at 10% of the overall fuel pool.

Under a revised version of the RED currently being refined into final legislation by EU policymakers, the threshold of advanced biofuels as part of the overall share of fuels consumption could be raised to 2.2% by 2030, which could possibly be double-counted if the view of European Council co-legislators hold sway.

That would require countries such as the Netherlands to vastly widen the types of advanced feedstock used and facilities that can process materials such as residues from factories, farms and forests, which are materials that are often much more expensive to source and process than brown grease.

HBE prices

Amid large volumes of HBEs being issued to the bunker fuel sector, prices for HBE compliance credits have traded sharply lower for most of 2022.

Prices in the main ‘O’ and ‘A’ categories were quoted at €12.50 per gigajoules, according to broker numbers on November 24, around 36% lower than early January, with the ‘B’ category (classified specifically for Annex IX Part B feedstocks, such as used cooking oil) priced late last week around €11.75 per gigajoules, a reduction of €8.25 or 41% over the course of the year.

However, prices late last week are up markedly on the previous week, with HBE-A, HBE-O, and HBE-B classifications quoted around €11.10 in a November 17 broker report, as traders anticipated confirmation that multipliers to the marine sector would be revised downwards.

The November 1 consultation also proposed that in the road sector, liquid biofuels, including traditional FAME-based biodiesel and hydrotreated vegetable oil (using standard wastes and ‘advanced’ feedstocks), and biogas would be subject to an x1.6 multiplier instead of the currently mandated x2.

Meanwhile, it has been proposed that multipliers for electricity supplied to road transport (recharging) would be cut to x3.2 from the current rate of x4, while renewable fuels of non-biological origin would be reduced from the current x2.5 to x2.

The final version of the changes would be effective from January 1 next year, with that timeframe widely regarded as a very short turnaround time from initial consultations, and will have a major impact on compliance strategies for companies covered by Dutch renewable fuels laws.

Read more about legislative changes and biofuel compliance credits

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