Fuel certification and standardisation based on carbon intensity
Certifying and standardising fuels based on their carbon intensity - amongst other sustainability criteria - helps to navigate the different decarbonisation measures for fuel producers and suppliers. It also helps identify the least carbon-intensive fuels. Policies must lead to effective GHG emission reductions across the life-cycle of energy production and use. This includes blending mandates and instruments that regulate the carbon intensity of energy carriers on a life-cycle basis and aim to accelerate the transition to a zero-carbon transport sector. Greater transparency about the carbon content of fuels is critical to reducing their carbon intensity. It will also reduce the risk of investing in assets that could be made redundant by climate policy like asset stranding. This is especially important if the use of carbon-intensive fuels is limited in favour of low-carbon alternatives.
Several legislative instruments - directly or indirectly related to fuel blending requirements – include provisions characterising fuels based on their life-cycle carbon content. Examples include the Renewable Fuel Standard in the United States, and the Fuel Quality Directive and the Renewable Energy Directive in the European Union. Canada's forthcoming nationwide Clean Fuel Standard also takes a life-cycle approach: it takes into account the emissions associated with all stages of fuel production and use, from extraction through processing, distribution, and end-use. Brazil's national RenovaBio policy does the same for biofuels.
International studies underpin the development of such legal instruments. These include the well-to-wheel analysis of the Joint Research Centre of the European Commission, Eucar and Concawe in Europe and the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) Model developed by the Argonne National Laboratory. The International Organisation for Standardisation (ISO) and the European Committee for Standardisation (CEN) have also worked on the standardisation of fuels (European Standards, 2009; ISO, 2017, 2019, 2021) at international and European levels.
European and North American studies have become a reference for other world regions. The Asian Clean Fuels Association (ACFA) and the Latin America Clean Fuels Association (ACELA) work together with regulators to set standards in Asia-Pacific, the Middle East, and Latin America. EU regulation also influences national fuel standardisation, like the UK's Renewable Transport Fuel Obligation (RTFO).
Intergovernmental bodies working on transport have also studied fuel sustainability, including its carbon intensity. The International Civil Aviation Organization's Carbon Offsetting and Reduction Scheme for International Aviation (ICAO CORSIA) sets criteria for fuels which include mandatory carbon requirements. The International Maritime Organization (IMO) has limited the sulphur-intensity of fuels (IMO, 2020) but does not yet regulate their carbon intensities as of 2021. Nevertheless, the IMO facilitates dialogue on life-cycle GHG and the carbon intensity of potential future shipping fuels.
Environmental standards can be combined with the trading of green certificates and can set the basis for global certification initiatives. The latter is the case for the creation of the International Sustainability and Carbon Certification (ISCC), inspired by the Renewable Energy Directive, and other sustainability certification schemes such as the Roundtable on Sustainable Biomaterials (RSB).
The CO2 mitigation potential of fuel certification and standardisation based on carbon intensities is directly dependent on:
a) Fuel characteristics and production pathways, including the type of feedstock, their CO2 mitigation potentials and conversion technologies.
b) The regulatory requirements allowing in low-carbon fuel substitutes at fossil benchmarks. Fossil fuels will be differentiated based on their production pathways as not all pathways lead to the same upstream (well-to-wheel) emissions.
The extent to which the cost of certifying fuels and energy carriers based on their carbon intensities are passed on to users depends on the scale of production of the fuel and the level of detail legally required to certify the energy carrier. Inevitably, energy produced at scale will lead to lower unit costs than those which are very specific and small-scale. Regulators need to balance the need for accuracy and reliability of certification with the potential burden of transaction costs on energy prices.
It is also likely that low-carbon fuels which are not already dominant in the transport mix will come to the market at an initially higher cost than fossil fuel benchmarks, especially in the absence of a carbon pricing mechanism. Regulators need to consider this when designing policy packages such as blending mandates and low-carbon fuel standards that alter the fuel mix, in combination with fuel certification based on their carbon intensity.
Additional indirect economic costs stem from the impacts of these policies on the fuel mix, which varies across countries, depending on their endowment and dependence on fossil energy resources. Inevitably, these are stronger for countries with a higher level of reliance on fossil fuel revenues since this could progressively shrink their financial revenues and could make fossil-fuel-dependent states worse off. Countries facing this challenge may develop an effective transition from fossil energy, diversify their economy and lower the climate impact of the fuels they produce. For example, countries with a high renewable energy endowment could modify their energy mix for local use and sell internationally.
International certifications have proved efficient to improve trade and ensure inter-operability of vehicles across borders.
Fuel certification and standardisation based on their carbon intensities can bring additional benefits in terms of greater energy efficiency and lower local pollutant emissions. Their extent depends on policy design and, in particular, the extent to which regulatory requirements bring in low-carbon energy along with electrification, which has both an energy efficiency and local pollution advantage, and a switch to other vehicle/energy technology pairs.
Biofuel production may cause land-use changes and water and air pollutant effects. Non-GHG sustainability criteria, such as those in the EU RED and the ICAO CORSIA, are needed so that non-GHG adverse sustainability effects can be prevented in low-carbon fuel regulations.
Additional indirect reductions in GHG emissions derive from price impacts since low-carbon fuels are generally more expensive than fossil benchmarks. Fuel cost increases tend to be accompanied by adjustments in demand through price elasticities.
Challenges arising from fuel certification and standardisation must take into account the particularities of every transport mode, as well as different fuel usage in the same mode. Moreover, in the case of the maritime sector and, in particular, the IMO, co-creating regulation with the shipping industry may hamper the sector from reaching optimal carbon reduction.
Given that standards are usually established through consensus on a broad stakeholder basis, it is common that they only meet minimum thresholds. It will be important that national, regional and local standards continue to be set under the umbrella of international regulations but consider local or market specificities. On the other hand, double counting of low-carbon fuels in different regulations should be limited so that all regulations can incentivise low-carbon fuel production and use.
The lack of flexibility and coverage in standards may hinder innovation capacities and adaption to new market trends. Regulators must ensure that certification mechanisms do not limit innovation for already-known pathways. Setting up methodologies and periodic reviews of certification frameworks to allow for new pathways in legislative frameworks should be facilitated. Certifications should also allow all stages of the supply chain of low-carbon fuels to lower the carbon intensities of fuels.
For effective behavioural change on all sides, fuel standard certifications should come together with auditing and monitoring and evaluation (M&E) mechanisms.
It will be important to maintain consistency with the standardisation efforts that have been carried out over the last decades, such as in low-carbon fuel standards and the above-mentioned directives and initiatives.
Finally, to ensure a fuel standardisation based on their carbon intensities, it is important to provide incentives for knowledge-sharing and peer-to-peer learning among regulators and other actors. Breaking communication silos may facilitate a change in stakeholder behaviour.
ITF (2021) Transport Climate Action Directory - Fuel certification and standardisation based on carbon intensity
https://www.itf-oecd.org/policy/fuel-certification-standardisation
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