Impact Assessment accompanying the new M&R Regulation underlines that as of 2013 the term “biomass” will mean biomass, bioliquids and biofuels within the meaning of Renewable Energy Directive 2009/28/EC including sustainability criteria for biofuels and bioliquids.
Important to note that the first reference to “biomass” constitutes “EU ETS biomass”, the second reference refers to the Renewable Energy Directive 2009/28/EC definition of biomass, while the reference to sustainability criteria is only intended in connection with biofuels and bioliquids deemed sustainable in accordance with Directive 2009/28/EC; NOT other forms of (solid or gaseous) biomass.
There are the key considerations as pursuant to Annex IV of Directive 2003/87/EC and Article 38(2) of the new M&R Regulation the emission factor of biomass is zero.
The above legal developments mean, however, that comparing the current legal status of the biomass under the EU ETS rules with that in the third trading period (as of 2013) an important change to a definition of zero-rated biomass will follow i.e. requirement for biofuels and bioliquids to meet sustainability criteria contained in Directive 2009/28/EC in order to qualify for zero rating.
On 21 June 2012 the European Commission has adopted an important legal instrument that forms part of the set of implementing rules for the third trading period of the EU ETS starting in January 2013 - Commission Regulation (EU) No 601/2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 181, 12.7.2012, p. 30 – further referred to as ‘M&R Regulation’),
The M&R Regulation enters into force on 1 August 2012 and applies from 1 January 2013.
Before the start of the third trading period of the EU ETS in 2013, monitoring and reporting rules are specified in Commission Decision of 18 July 2007 No 2007/589/EC establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 229, 31.8.2007, p. 1, as amended).
The M&R Regulation repeals the Decision 2007/589/EC, the provisions of the said Decision will, however, continue to apply to the monitoring, reporting and verification of emissions and, where applicable, activity data occurring prior to 1 January 2013.
Additionally, the basic principles for monitoring and reporting, which the above legal instruments must observe, are set out in Annex IV of Directive 2003/87/EC.
The main change with the adoption of a Regulation is that the current M&R architecture is transformed with limited changes from (non-binding) Guidelines into a (binding) Regulation (see Commission Staff Working Paper, Impact Assessment accompanying the draft of the M&R Regulation, p. 5). However, this formal transformation isn’t the only worthwhile issue when it comes to assessing the impacts of the new provisions on M&R under the EU ETS.
Sustainability criteria of the Renewable Energy Directive for bioliquids and biofuels
Broadly, the sustainability criteria of the Renewable Energy Directive are as follows:
Article 17(2) establishes minimum greenhouse gas saving values of 35%, rising to 50% on 1 January 2017 and to 60% from 1 January 2018 for biofuels and bioliquids produced in installations in which production started on or after 1 January 2017.
According to Article 17(1) wastes and residues only need to fulfil the minimum greenhouse gas requirements, not the other criteria. Article 17(3), 17(4) and 17(5) require that raw material should not come from high biodiversity value areas, from the conversion of high-carbon stock areas, or from undrained peatland, respectively.
Article 17(6) requires that agricultural raw materials cultivated in the Community are obtained in accordance with specific agricultural regulations of the EU. Article 18(1) requires that economic operators show compliance with the criteria using the 'mass balance' method for verifying the chain of custody. [Compliance with the criteria can be proven in one of three ways: (1) EU-level recognition of voluntary schemes which address one or more of the sustainability criteria (2) through bilateral or multilateral agreements with third countries and (3) by Member States' national verification methods.]
The consequences of not meeting the requirements of the sustainability scheme are contained in Article 17(1), detailing that biofuels and bioliquids which do not meet the criteria cannot be counted towards the EU's renewable energy targets or the targets of the Fuel Quality Directive (Directive 2009/30/EC) and national renewable energy obligations or benefit from financial support.
The source of the above summary: Report from the Commission to the Council and the European Parliament on sustainability requirements for the use of solid and gaseous biomass sources in electricity, heating and cooling of 25 February 2010 COM(2010)11 final (SEC(2010) 65 final SEC(2010) 66 final)
Shortcomings of the legal status as regards sustainability of the biomass under EU ETS rules before 2013
The above Impact Assessment recalls that biomass for the EU ETS purposes is currently only defined in the Commission Decision of 18 July 2007 No 2007/589/EC.
Current regulatory approach allowing sustainable and non-sustainable bioliquids and biofuels to continue enjoying the same advantages regarding zero-rating (exemption from surrender of emission allowances) has not been considered in the above-mentioned Impact Assessment a viable option any longer.
Retaining the said definition meaning "no policy change" option has not been acceptable since in effect there would be no consistency with the Renewable Energy Directive 2009/28/EC.
Further reasons that weighed on the regulatory decision to discontinue as of 2013 the current approach to the emission factor of biomass have been:
1) the maintaining of the status quo would continue to favour a limited approach to biomass and jeopardise the integrity of EU ETS,
2) there would be a missed opportunity to integrate sustainability criteria into the EU ETS and, therefore, to support wider climate change interests.
Additionally, point 2 in the preamble to the M&R Regulation reads:
‘The definition of biomass in this Regulation should be consistent with the definition of the terms ‘biomass’, ‘bioliquids’ and ‘biofuels’ set out in Article 2 of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC, in particular since preferential treatment with regard to allowance surrender obligations under the Union’s greenhouse gas emission allowance trading scheme pursuant to Directive 2003/87/EC constitutes a ‘support scheme’ within the meaning of Article 2(k) and consequently financial support within the meaning of Article 17(1)(c) of Directive 2009/28/EC.’
Requirement for biofuels and bioliquids to meet Renewable Energy Directive sustainability criteria in order to qualify for zero rating as of 2013
The new main policy objective as regards emission factor of biomass is in particular to prevent continued use of certain biofuels and bioliquids that are considered unsustainable.
Article 5 points 20 – 22 of the M&R Regulation
(20) ‘biomass’ means the biodegradable fraction of products, waste and residues from biological origin from agriculture (including vegetal and animal substances), forestry and related industries including fisheries and aquaculture, as well as the biodegradable fraction of industrial and municipal waste; it includes bioliquids and biofuels
(21) ‘bioliquids’ means liquid fuel for energy purposes other than for transport, including electricity and heating and cooling, produced from biomass
(22) ‘biofuels’ means liquid or gaseous fuel for transport produced from biomass
As under new M&R rules non-sustainable biofuels and bioliquids would no longer be eligible for EU ETS zero-rating it means emissions liked thereto would have to be reported and a corresponding number of emission allowances surrendered.
In consequence the operators will face the option to switch to using sustainable alternatives (the intention) or biomass other than biofuels and bioliquids in order to retain eligibility for zero-rated emissions. In the Impact Assessment the additional cost burden for the operators resulting from this change is, however, estimated as negligible.
What about sustainability of the solid biomass under the M&R Regulation
The Impact Assessment observes the introduction of biomass sustainability criteria is not supported by a number of Member States – but the main concern is solid biomass.
Impact assessment underlines that an emission factor of zero for solid biomass is retained in the M&R Regulation – as already established by the EU ETS Directive – and that emission savings factors from the Renewable Energy Directive are not required as emission factor under the EU-ETS as regards the solid biomass.
The said document concludes that introducing in the EU ETS the use of sustainability criteria for solid biomass is ‘not a viable option at this stage due to the fact that are no mandatory European wide sustainability criteria and most supply is on a small and highly dispersed scale’.
Given that the EU mandated the sustainability criteria to be used only for bioliquids and transport biofuels under the Renewable Energy Directive, the EU legislation left the introduction of sustainability criteria for solid biomass and biogas used for electricity and heat to the discretion of each Member State, subject to compliance with EU Treaty rules.
The conclusion that no sustainability criteria are currently applicable to solid biomass and gaseous biomass other than biogas for transport purposes is also underlined in MRR Guidance document No. 3, Final Version of 17 October 2012 titled “Biomass issues in the EU ETS”.
In the Report to the Council and the European Parliament on sustainability requirements for the use of solid and gaseous biomass sources in electricity, heating and cooling of 25 February 2010 COM(2010)11 final (SEC(2010) 65 final SEC(2010) 66 final) the European Commission issued only non-binding recommendations that criteria for solid biomass and biogas should be similar in most aspects to the criteria mandated for transport biofuels and bioliquids under the Renewable Energy Directive.
Report from the Commission to the Council and the European Parliament on sustainability requirements for the use of solid and gaseous biomass sources in electricity, heating and cooling of 25 February 2010 COM(2010)11 final (SEC(2010) 65 final SEC(2010) 66 final)
Communication from the Commission on the practical implementation of the EU biofuels and bioliquids sustainability scheme and on counting rules for biofuels (2010/C 160/02) (OJ L 160, 19.6.2010, p. 8)
Pursuant to the foregoing, such requirements for reporting against sustainability criteria for solid biomass and biogas were introduced for instance in the UK in April 2011.
On that date the UK introduced reporting against sustainability criteria for solid biomass and biogas under the Renewables Obligation.
These consisted of a minimum 60% greenhouse gas lifecycle emission saving for electricity generation using solid biomass or biogas relative to the EU electricity grid average (285 kg CO2eq/MWh compared to 712 kg CO2eq/MWh), and reporting on whether or not materials were sourced from land with high biodiversity or carbon stock value such as primary forest, protected areas, wetlands and peatlands. Generators were required to report annually to Ofgem on their performance against these criteria. The sustainability criteria apply to the use of imported as well as domestic biomass and biogas for electricity generation but do not apply to waste or biomass wholly derived from waste (see Impact Assessment DECC0120 available on the DECC website).
It appears that the problem of sustainability of the solid biomass will have a chance to be comprehensively resolved under a LULUCF accounting system, DG CLIMA is currently working on. This perspective would mean the maintaining the "zero-rating" for unsustainable solid biomass at installation level in the EU ETS, and concurrently the existence of a LULUCF accounting system would ensure that all human-induced emissions (and removals) of CO2 associated with different uses of biomass (energy production and other, e.g. timber for construction and in situ use such as conservation or enhancement of carbon stocks) are captured/visible in Member States emission inventories.
A few remarks on classification under the Renewable Energy Directive
As laid down in the Renewable Energy Directive, ‘biofuels’ means liquid or gaseous fuel for transport produced from biomass. ‘Bioliquids’ means liquid fuel produced from biomass for energy purposes other than transport. The latter includes only liquid fuels. This means that under the Renewable Energy Directive the sustainability criteria apply to biogas for transport and not to biogas used for heating or electricity.
Although many types of biofuel are mentioned in the Renewable Energy Directive, these listings are to facilitate the implementation of the Renewable Energy Directive and are not exhaustive. Biofuels and bioliquids that are not listed can also count towards the Renewable Energy Directive's targets.
The Renewable Energy Directive's sustainability criteria are fully harmonised at the Union level. Therefore, Member States may not set additional criteria of their own for the those purposes. This means that Member States may not for those purposes exclude biofuels/bioliquids on other sustainability grounds than the sustainability criteria laid down in the Renewable Energy Directive. However, where certain biofuels/bioliquids are both more beneficial than others and more expensive to produce, national support schemes may take their higher production costs into account.
Memo items on biomass in the annual emission reports
Finally, let’s mention that Annex X to the M&R Regulation requires as the minimum content of annual emission reports of stationary source installations to report inter alia on:
(a) amounts of biomass combusted, expressed in TJ, or employed in processes, expressed in t or Nm3 ;
(b) CO2 emissions from biomass, expressed in t CO2 , where measurement-based methodology is used to determine emissions;
(c) a proxy for the net calorific value of the biomass source streams used as fuel, where relevant;
(d) amounts and energy content of bioliquids and biofuels combusted, expressed in t and TJ.
The above amounts are, however, to be reported as memo items only.
It should also be noted that the monitoring plan for an installation must contain 'a description of the method, how CO2 stemming from biomass is to be determined and subtracted from the measured CO2 emissions, and of the written procedure used for that purpose, where applicable.'
What is lacking
The adoption of the new regulation notwithstanding, the work on accounting biomass in the new monitoring regime is not finished yet. Apart from a quite broad set of currently absent implementing and delegated acts, the code of best practice regarding biomass, including robust application of relevant sustainability criteria concerning EU ETS zero-rated emissions involving bioliquids and biofuels would be highly appreciable.
The guidance on how verifiers should deal with biofuels particularly with respect to the sustainability criteria would be also extremely useful.
There are perspectives that the said developments will be complemented in the near future (see recent Invitation to tender CLIMA.A.3/SER/2012/0023).