Sweden slashes biofuels mandate to increase diesel demand by 1.5m tonnes per year

Sweden’s biofuels industry has warned that the slashing of the country’s biofuel targets by the minority government to 6% could increase the Nordic country’s demand for diesel by around 1.5 million tonnes per year.

The warning comes after the government last week published an official memorandum suggesting the cuts to Sweden’s biofuel mandate after pressure mounted from Swedish voters as the country’s largest Facebook group advocated for a reduction in fuel prices at national forecourts.

The proposal, first revealed in May by the right-wing Sweden Democrats-backed coalition government, states that the greenhouse gas reduction obligation will be reduced to the EU minimum of 6% for gasoline and diesel, where it will remain until 2026.

The reduction of 34 percentage points for diesel and a 6.5 percentage decrease for gasoline “is not cost-effective and the timing is wrong as new hydrotreated vegetable oil (HVO) capacity is coming on-stream this year and next in the order of millions of tonnes,” the director of Svebio’s BioDriv program Tomas Ekbom told Fastmarkets Agriculture.

Meeting the target, therefore, could potentially only be feasible by blending fatty acid methyl-ester (FAME) biodiesel – which is subject to a 7% blend wall – and there will be “very little room or need” for HVO – also known as renewable diesel, Ekbom said.

Fastmarkets understands that interest groups have until August 25 to respond to the government’s proposal.

After the Swedish Council on Legislation has processed the proposal, it will then go to the country’s Parliament for an official decision to be taken, with the legislation expected to come into effect on January 1, 2024.

“Because of Sweden’s arctic climate, we need a winter diesel quality and not all refineries in the world can produce it,” Ekbom said, adding that there could be a shortage of winter diesel in Sweden, “especially because the change would take place in such a short timeframe.”

Meanwhile, the potential reduction could also mean a reduction in forest harvesting to increase Sweden’s carbon capture volumes.

“The government anticipates a growth in transport electrification to reduce emissions,” Ekbom said, adding, however that if these measures are not sufficient to enable the country to reach its 2030 targets, Sweden might need to purchase carbon emissions rights within the European Union’s Emissions Trading System (ETS).

Consultancy Stratas Advisors last year estimated that a reduction in the GHG reduction mandate to 6% from the current 30.5% in biodiesel from 2024 onwards would slash demand for renewable diesel in Sweden by two-thirds, equivalent to 1.2 billion liters compared with 1.8 billion liters of demand based on the current requirement.

For more information on the current biofuel market, take a look at our dedicated page for biofuel prices.