03 04 2024 Insights Environmental

Sustainable Fuels: The Future of Fuels

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Societal change in response to climate change is not a new topic. However, as the global climate crisis grows, more and more organisations are taking steps to curb their impact on the environment. Some undoubtedly are engaging in blatant greenwashing while others appear to be taking ambitious steps to genuinely reduce their negative effects on the planet. At first glance some of those making genuine efforts appear uncomfortable bedfellows to green ideas.

Sustainable fuels in Motorsports

F1 (and motorsports more generally) is one such organisation making changes. Whether these are greenwashing, genuine, or somewhere in between remains to be seen. However, it's clear that changes are now being made. From the move to smaller V6 engines (from the adored V10 engines) to the recycling of tyres, F1 has made practical adjustments to address its environmental impact. At present 45% of F1’s carbon footprint is the result of road, sea, and air logistics. When including personnel travel and facilities operations that number rises to 92% of emissions, with race car emissions accounting for just 0.7% of total emissions. The obvious nature of a sport travelling between 23 races held in 21 different countries aside, it remains that Formula 1 faces the same hurdles as the rest of the world in its strive for sustainability. F1 race cars currently use E10 fuel, which contains 10 percent renewable ethanol. However following the F1 2019 sustainability report, by 2026 F1 teams will use 100 percent sustainable fuel with its new era of power units. This dramatic change in fuelling is the centre piece of the sport’s ambitious plan to reach net zero carbon emissions by 2030. It is perhaps telling of the urgency of the climate crisis that a sport so routed in tradition and prestige would have such ambitious sustainability goals. The 2019 report sets out goals of reducing these figures. F1 intends to utilise avenues such as Power Purchase Agreements (PPA’s) for renewable electricity and shifting to less carbon intensive means of freight transport. One team leading the way in this avenue is Mercedes AMG Petronas. They are rapidly expanding their use of biofuels for their non racing vehicles, as can been seen by their extensive use of biofuel and sustainable aviation fuel.

Elsewhere Porsche who are not currently a part of Formula 1 has invested heavily in sustainable fuels in an attempt to extend the viability of existing combustion engines. The company has opened a new manufacturing plant in Chile with plans for further plants in the USA & Australia. These plants are using carbon capture and renewable electricity (wind & solar) to produce synthetic fuels which can be directly substituted for both petrol and diesel fuel. Production costs are high and efficiency rates in production are poor. However, e-fuels can utilise the existing fossil fuel infrastructure along with boasting a production that does not rely upon the environmentally harmful mining of precious mineral such as lithium, cobalt, and nickel as with EV battery production. Instead, e-fuels pull existing carbon dioxide from the atmosphere and converting it to fuel for legacy internal combustion engines. This re-use of CO2 could allow the continued utilisation of existing vehicles into the future rather than scrapping the entire or part of the vehicle in favour of electric solutions. Arguably using these vehicles for longer would be a more sustainable use of resources than scrapping and manufacturing new battery powered cars. If the above-mentioned production issues are overcome, we may see the death of ‘old school’ engines adjourned.

In the non-motorsport world however, there has been significant progress in climate legislation. Below is a sample of past, current and future impactful policies and strategies which have had and will have significant impacts on the lives of the wider population.

Renewable Transport Fuel Policy 2023-2025

Renewable Transport Fuel Obligations (RTFO): Carried over from the Climate Action Plan 2021 Ireland must work towards a target of a 20% mixture within diesel fuels (B20) & a 10% mixture within petrol (E10) by 2030. This represents a significant change for suppliers and consumers alike.

EU Database: In 2023 the European Commission established the Union Database for Renewable Transport Fuel (RTFs) and fuel suppliers are obligated to input information to the EU Database on RTFs supplied. These new elements in the EU oversight of sustainability and Green House Gas (GHG) criteria compliance are continuing to be embedded within the compliance oversight system, for all concerned - economic operators, voluntary schemes, certification bodies and Member States’ competent authorities. The Biofuel Study Report 2022 recommended continued progress in implementing these new supervision elements, as key to safeguard against the risks around sustainability of biofuels supply.

Climate Action Plan 2024 / Irelands Road Haulage Strategy 2022-2031

  1. Implementation of EU Emissions Trading System; EU ETS pricing represents a significant shift in fuel pricing. This may result in a significant jump in pricing for fuels such as diesel and petrol. The final text of the Directive includes an option for derogation until 2030. This is contingent on any national carbon tax being equal to or above the EU ETS II price. It is understood that Ireland will be able to enjoy this delay in application of ETS II carbon pricing on account of our existing carbon tax levy on fossil fuels which stands at €56 per tonne of carbon dioxide emitted and is set to rise by €7.50 per tonne each year until 2030. However, come 2030 there is a possibility that the EU ETS II price will be levied in addition to, rather than replacing the current carbon levy on the price of fuels.
  2. Removal of Diesel Rebate Scheme (DRS); Introduced in Ireland in 2013 to provide support to haulage and passenger transport services. The scheme provides a partial repayment of excise paid on fuel purchases. Previous Tax Strategy Group papers have cited research from the ESRI that states the DRS has encouraged greater consumption of diesel leading to negative environmental consequences such as additional emissions of carbon dioxide, nitrogen dioxide, and particulate matter. The European Commission proposal to revise its Energy Tax Directive may trigger the removal of the DRS. Reflecting the criticisms from an environmental perspective.
  3. Equalising Diesel & Petrol Excise Rates; The Climate Change Advisory Council, the Joint Oireachtas Committee on Climate Action, the European Commission, and the Commission on Taxation and Welfare have each made recommendations regarding phasing out the excise gap which at present favours diesel. The 2023/24 Climate Action Plans commit to regular review and reform of environmental tax measures including examining the gradual equalisation of diesel and petrol rates. The current gap in excise between Diesel and Petrol stands at 9.8 cent per litre. The closing of this gap has not yet been enshrined in law but is strongly expected to be closed within the next 10 years. It is expected that the closure will occur as soon as 2025.
  4. Biofuel Taxation Levels; Energy taxation is governed by the Energy Taxation Directive (ETD) which sets out excise duty rules covering all energy products in the EU used for heating, transport, and, electricity. The ETD sets out minimum levels of taxation applicable to these energy products for specific fuel uses and provides for reduced levels of taxation for certain fuel uses under qualifying conditions. Biofuels are differentiated from fossil fuels currently only for the purposes of carbon tax, in most other respects both are treated the same in the tax system. Change is coming onstream under the ETD and the rules governing state aid, which are expected to be more favourable towards differentiated tax treatment of biofuels, and less favourable to existing fossil fuel subsidies such as Ireland’s Diesel Rebate Scheme.
  5. Introduction of Green Rebates; The exploration of such a scheme runs parallel to efforts at a European level with the Corporate Sustainability Reporting Directive (CSRD). This Directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability. These reporting requirements are not of immediate concern to smaller companies in Ireland at this time, however it is widely believed that any ‘Green Rebate’ scheme will require CSRD style reporting in order to monitor and certify payments. A landscape where every registered enterprise must submit its carbon footprint calculations to a centralised system may be on the horizon.

AUTHOR: Shane O'Connor, Partner | Shane O'Connell

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