20 May 2022
It is overdue, also in view of current circumstances to make not only the generation but also the use of energy more sustainable and contemporary. The transformation of conventional energy supply in the direction of renewable energies needs to accelerate. The transport sector is one of the largest CO2 polluters in Germany. It is the task of politicians to define framework conditions that will continue to provide society with mobility in the future without causing further damage to the climate. RED II, the update of the Renewable Energies Directive, sets ambitious and binding targets for the entire EU to promote the use of renewable energies. Having said that this does not mean to immediately hit the brakes. This rather means that the pressure to make mobility “greener” should be seen as an accelerator for innovation, new scope and progress. With its individual GHG quota implementation, Germany is also taking a special path for private e-mobility thus providing an additional incentive for “everyone”. But what does this mean in precise terms? How does the GHG quota help to protect the climate? And what exactly does “everyone” get out of it?
Let’s take a brief look at the development of the greenhouse gas reduction quota.
Since 2007, mineral oil companies have been held jointly responsible. They have to offset the fossil fuel put into circulation. Until 2015 this was conducted through the so-called “biofuel quota”. It stipulated a minimum use of biofuels per quantity of conventional fuels placed on the market. In 2015 the greenhouse gas reduction quota replaced the biofuel quota. The GHG quota focuses more on the actual reduction of greenhouse gas emissions and obliges distributors of conventional fuels to reduce their greenhouse gas emissions by a specified percentage each year. At the beginning of 2018, advanced fuels such as electricity-based fuels and biogenic liquefied gases can also be used as offsets. Electricity suppliers can have the energetic amount of electric power taken from the grid for use in electric-powered road vehicles certified and sold to petroleum companies in the form of GHG quotas. From 2022 the GHG quota requirement is applied to “everyone” including private individuals. On top of this since then the triple of the GHG credit for the amount of electricity drawn applies to e-mobility which also provides leverage for the increased expansion of charging infrastructure. With the GHG quota the federal government is transposing the requirements of RED II into national law and is also aiming for a greenhouse gas reduction quota of 25 percent which is more ambitious than the 14 percent envisaged by the EU by 2030.
How can companies meet the GHG quota?
Companies subject to the quota can offset CO2 emissions by directly selling low-emission fuels (biodiesel, bioethanol). From 2023, however, the use of palm oil will be prohibited, and the maximum quantity of biofuels produced elsewhere will be limited in order to protect food cultivation areas among other things. Blending alone is no longer sufficient to meet the GHG quota targets. Second, there is the possibility of obtaining GHG quotas through “third parties” in distinction to the sole quota eligibility of electric utilities in e-mobility which was valid until the end of 2021. “Third parties” that offer low-emission or zero-emission fuels, or own battery-electric vehicles can thus claim entitlement to the GHG quotas generated via them, irrespective of their own quota obligation.
How does quota trading work in e-mobility?
In simple terms quota holders buy GHG quotas from quota owners. Charging point operators as well as e-car users such as fleet operators and private e-mobilists are quota owners. They can have the respective GHG savings certified via the German Federal Environment Agency with triple crediting of the electricity volume. Certified quotas are tradable; this requires a quota trading contract between quota obligors and quota owners/sellers which must be submitted to the German Main Customs Office. Ultimately, a minimum quantity of GHG quotas is required to participate in trading and generate corresponding revenues. Both existing companies in related industries and newly emerged quota brokers offer services to handle quota trading.
Mechanisms, pricing, and GHG quota revenues. How are they related?
Quota trading is subject to different mechanisms that create tension in pricing and are intended to contribute to the efficiency of the instrument:
The greenhouse gas reduction is calculated on the basis of four factors:
The calculated reduction is multiplied by a factor of 3 due to the imputation whereupon a distinction is made between (semi-) public and private charging options. In the (semi-) public sector the calculated GHG reduction is multiplied by the kWh counted, while in the private sector a prescribed flat rate value applies. The flat rate value can currently be differentiated into three vehicle classes M1 (passenger cars), N1 (light commercial vehicles) and M3 (buses) while electric motorcycles and all small classes with registration certificate part I are traded like passenger cars. An expansion of the included vehicle classes is to be expected. The product of savings and quota price per ton yields the theoretical revenue. The actual revenue is subject to other factors including the margin of the quota broker.
What are the benefits for “everyone” and for the environment?
Since 01.01.2022 “every” BEV owner in Germany is entitled to the quota and can generate annual monetary revenues of approx. 200€ – 450€ per BEV and significantly more per e-transporter or e-bus. In addition, there is the simple generation of revenue for customers. Quota brokers offer the handling of quota trading with little procedural effort. The purchase decision between e-vehicle and combustion engine is further influenced in favor of BEVs. At the same time, it is becoming increasingly unattractive for oil companies to put fossil fuels on the market. At the same time, gasoline prices are rising, as the costs of purchasing quotas are being added to them. This may initially be unpleasant for end consumers but ultimately benefits the environment. In addition, offers are being made to invest the proceeds from the GHG quota directly in climate protection projects, various companies are using the proceeds generated to reduce their carbon footprint, and progress towards “green” is being initiated.
The important thing is that something is happening! The GHG quota instrument for e-mobility is now available and requires meaningful application. We at Receeda accompany the path towards sustainability and e-mobility with full conviction.