Mandatory blending of renewable and/or low-carbon fuels/energy vectors is a regulatory policy instrument intended to ensure that there is a sustained market demand for these fuels. The scope of application of blending mandates has been primarily focused on liquid fuels, but these policy instruments are also relevant for gaseous fuels. Fuel blending mandates do not apply to electricity.
Being a regulatory mechanism, mandatory blending has an inherent capacity to ensure that scale of renewable and/or low-carbon fuel supply can be scaled up. As in the case of other instruments capable of making a case for stable market demand of low-carbon fuels (such as low carbon fuel standards), the main rationale for mandatory blending lies in the cost reduction opportunities that accompany the scale up of low-carbon fuel production. Key factors allowing these cost reductions are: the lower risk premiums for investments in low-carbon fuel supply projects; a reduced relevance of fixed costs (e.g. those needed to build a fuel production plant) per unit of fuel produced; and technology learning phenomena (including for example improvements in conversion efficiency, maintenance costs, safety features and reliability of technologies) that take place with the transition from demonstration to large scale deployment and industrialization of low-carbon fuel production.
Low-carbon mandatory blending policies may or may not be technology neutral. If they are conceived as performance-based instruments, for example as blending requirements for fuels that meet minimum requirements in terms of well-to-wheel emissions, low-carbon fuel blending mandates have a stronger capacity to promote best practices, leaving room for competition between different technological solutions. Similar benefits are also achievable if blending mandates do not only target specific fuels (e.g. gasoline, diesel or jet kerosene), but span across a different range of transport fuels.
On the other hand, depending on regional circumstances and feedstock properties (e.g. in terms of land use per unit energy delivered by renewable fuels that are exclusively suitable for the gasoline or the diesel pool), there may be good reasons to prioritise the use of mandates for specific fuel subsets. Prioritizing low-carbon fuel deployment for specific fuels may also be driven by a desire to prioritise research in parts of the transport sector (in particular shipping, aviation and long-distance road transport modes) that have lower opportunities to reduce their emissions thanks to increased electrification.
GHG emission reductions resulting from the mandatory blending of low-carbon fuels result from the differences in well-to-wheel emissions characterizing different fuels in the final blend and the relative weight (in term s of volume or energy content) that each of the different fuels has in it. GHG emission savings are therefore primarily imputable to fuel/energy vector switching occurring without changes in powertrain technologies, displacing GHG emissions from fossil fuels thanks to the adoption of fuels/energy vectors produced from renewable carbon streams, such biogas and advanced biofuels, taking into account of GHG emissions occurring during fuel/energy vector production and use.
As in the case of low-carbon fuel standards, the regulatory nature of blending mandates places greater certitude on the achievement of GHG emission reductions than on the implicit cost of achieving them.
Blending mandates are only feasible if fuel properties allow blending fuels without risks of phase separation and other deterioration of the characteristics of the fuel blend.
As in the case of low carbon fuel standards, a key requirement for the development of low-carbon fuel blending mandates is the development of a methodology allowing the definition of the characteristics of different fuels/energy vectors with respect to their average life-cycle carbon intensity. In particular, emissions associated with direct and indirect land use changes, principally relevant for biofuel feedstocks, add a significant degree of additional complexity to the determination of carbon intensities of fuels/energy vectors. To ease the implementation of the policy, the development of a methodology allowing the definition of the characteristics of different fuels/energy vectors with respect to their average life-cycle carbon intensity can be accompanied by the development of a set of default values.
Given the wide range of technology pathways that can contribute to the reduction of the average life-cycle carbon intensity of transportation fuels, as well as the complexity of life-cycle assessment, this requirement is an important implementation barrier for the development of performance-based blending mandates. For this reason, the actual implementation of blending mandates has been traditionally targeted (implicitly) at specific fuel production pathways (e.g. corn ethanol in North America or sugar cane ethanol in Brazil).
As mandatory blending of low-carbon fuels has been primarily targeting the pool of liquid fuels or gaseous fuels, the development of methodologies and instruments allowing the determination of the average life-cycle carbon intensity of the combination of transportation fuels/energy vectors has been less affected by accounting complexities due to differences in the technologies, allowing vehicles to convert the energy contained in the fuel/energy vector into useable energy (as in the case of low-carbon fuel standards).
Blending mandates do not use market-based instruments to transfer financial resources from carbon intensive fuels towards low-carbon fuels. This is a key difference with respect to the case of low-carbon fuel standards. Contrary to low-carbon fuel standards, blending mandates are also lacking an inherent capacity to contain the cost of compliance, unless their scope of application is broad enough to provide multiple compliance routes (e.g. by allowing greater low-carbon fuel shares in the gasoline pool, and lower in the diesel pool, to meet an overall target across all gasoline and diesel fuel sales) and/or the policy is coupled with a price penalty that needs to be paid in case of non-compliance.
One of the main co-benefits of blending mandates (beyond the achievement of net reductions in terms of GHG emissions) is their capacity to contribute effectively to the development of innovative approaches to the decarbonisation of transportation fuels/energy vectors. This is consistent with the fact that the promotion of innovation, technological development, and deployment of low-emission fuels/energy vectors is one of the key objectives of blending mandates.
If blending mandates are designed as performance-based instruments that have tightened requirements over time (e.g. through evolving blend share requirement and/or minimum thresholds of well-to-wheel emission reductions for blended low-carbon fuels), they can have the capacity to prioritise the focus of research and investments on fuel production pathways that come with a high capacity to deliver long-lasting GHG emission reduction (since these are the options that are also subject to long-lasting policy support).
The main potentially adverse/negative effects of renewable and/or low-carbon fuels/energy vectors relate with two main aspects. The first has to do with cost and economic development. Given the strong relationship between energy demand and economic growth, and taking into account the demand elasticities due to price changes, increases in overall energy costs due to renewable and/or low-carbon fuels/energy vectors (relevant especially in cases where their production costs significantly exceed those of oil-based competitors) may be detrimental for economic growth.
The second relates to the competition for land use with other economic activities (e.g. food production), potential increases in the costs of food production, and potential negative impacts related to land use change (e.g. induced deforestation, which would nullify GHG emissions savings from lower direct well-to-wheel emissions). Managing potentially adverse impacts costs is related closely to the speed of the transition and the level of policy ambition. To maximise benefits and minimize adverse effects, it is important to monitor the extent to which cost reductions can be achieved thanks to the scale up of low-carbon fuel production. Mechanisms that allow the capping of costs are also helpful to avoid unintended negative impacts. The development of accounting frameworks allowing the definition of the characteristics of different fuels/energy vectors with respect to their average life-cycle carbon intensity, including effects due to direct and indirect land-use change, are important to manage potential negative impacts related to land use change and impacts on food prices.
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