Global | Publication | May 2023
In July 2021, the European Union (EU) released the ‘Fit for 55’ package, a set of proposals to update EU law in order to meet the EU’s aims of reducing net greenhouse gas emissions by 55% by 2030. These included a draft ReFuel Regulation to encourage the use of SAF, which we examined in our article New regulatory initiatives supporting Sustainable Aviation Fuel.
At the end of April 2023, EU Parliament and Council negotiators reached a political agreement on revisions to the draft RefuelEU Regulation, a revised version of which is yet to be published. This agreement now requires formal adoption by the Parliament and the Council before the revised Regulation is published and enters into force with immediate effect. In this article we run through the key points, including what has changed since the draft ReFuel Regulation was first published in July 2021.
Following these negotiations, the core of the proposal remains intact. In essence the ReFuel Regulation targets airlines, fuel suppliers and airports and its requirements apply to all flights leaving EU airports.
We set out below the key changes.
Speed of increase in required percentages:
The central pillar of the EU Commission’s draft ReFuel Regulation remains – rules requiring fuel suppliers to include increasing proportions of SAF into jet fuel with a separate minimum for e-kerosene (the aviation category of e-fuels) from 2025. However, these volumes have been tweaked since the original EU Commission draft, as follows:
The scope of what constitutes eligible sustainable aviation fuels and synthetic aviation fuels has been expanded beyond the EU Commission’s original proposal. Under the deal, the term ‘sustainable aviation fuels’ will include synthetic fuels, certain biofuels produced from agricultural or forestry residues, algae, bio-waste, used cooking oil or certain animal fats, and recycled jet fuels produced from waste gases and waste plastic.
Biofuels had originally been limited to those produced from EU-approved feedstocks, but the agreement allows a wider range of biofuels to be incorporated into SAF production. It now extends to other certified biofuels complying with the Renewable Energy Directive (RED) sustainability and emissions saving criteria, up to a maximum of 70%, with the exception of intermediate crops, palm and fuels derived from palm and soy materials, in addition to biolfuels from food and feed crop-based fuels.
The deal also adds two fuels - hydrogen and synthetic low-carbon aviation fuels, which can be used to reach the minimum shares in the regulation. During earlier negotiations, the inclusion of e-fuels produced using nuclear power had been highly controversial. However, these are included under the latest deal.
Exemptions from “refuelling requirement” which prevents tankering
Article 5 of the draft Regulation placed a “refuelling requirement” on aircraft operators, under which the yearly quantity of aviation fuel uplifted by a given aircraft operator at a given EU airport must be at least 90% of the yearly aviation fuel required.
The “refuelling requirement” was aimed at addressing concerns that airlines may use fuel tankering to save costs, i.e. uploading more fuel than necessary at non-EU airports where fuel may be cheaper, thereby increasing fuel consumption and emissions.
The latest deal includes a 'force majeure' clause – a new ability of competent authorities of an individual member state to grant an exemption from the tankering provisions for certain flights “in the event of serious and recurrent operational difficulties or structural difficulties in the supply of fuel” in accordance with identified criteria. This had been proposed by the EU Parliament on aviation safety grounds.
The inclusion of a transitional period is retained – this allows fuel suppliers to reach the SAF blending mandate as a weighted average of the quantities they have supplied to all EU airports rather than being required to supply the minimum amounts of SAF to airports physically. The intention is that this will facilitate the organisation of the sector during its creation phase, but without affecting the overall level of emissions during this period.
Data collection and reporting obligations
Data collection and the reporting obligations have been reinforced to monitor the effects of the Refuel Regulation on the competitiveness of EU operators and platforms, and to improve understanding of the non-CO2 effects of air transport emissions.
New Eco label for flights and investments in greener fuels
A new EU label has been agreed to indicate the environmental performance of flights, effective from 2025. The intention is for airlines to be able to market their flights with the label indicating the expected carbon footprint per passenger and the expected CO2 efficiency per kilometre, allowing passengers to compare the environmental performance of flights operated by different operators on the same route.
Ring-fencing of revenues from fines for SAF research
The EU Parliament had proposed an amendment to the initial draft, which has prevailed. This requires that all revenues from non-compliance fines from airlines, airports or fuel suppliers will be ring-fenced and used for research and innovation into bridging the price difference between sustainable and conventional jet fuels.
EU Commission to report – including on possible ‘book and claim’ system
The European Commission will prepare a report by 2027, and then every four years, which will examine the impact of the regulation on the fuel market - on connectivity, on carbon leakage and distortions in competition in the EU’s aviation sector, as well as the future use of hydrogen and electricity.
It is understood that the EU Commission will also deliver a feasibility report by 2024 regarding introducing a so-called “book and claim” system for airlines to manage the supply of SAF in a flexible way across the EU.
Unlike the ‘mass balance’ system currently used under CORSIA and RED II, which requires tracking of individual batches of SAF and only permits a party to claim SAF credit for SAF actually used by it, the ‘book and claim’ model permits the de-linking of the sustainable properties of a fuel from the flow of the batch of fuel to which it relates, allowing those properties to be claimed for another batch of fuel. An airline can buy SAF credits which will be allocated against another flight which used regular kerosene, usually because SAF wasn’t available at the relevant airport.
This model lends itself to the current situation where rapid commercial deployment of SAF is required by the legislation, but supply is likely, at least initially, to be constrained to a limited number of airports. IATA has pushed for a ‘book and claim’ system to be in place before the 2% mandate comes into force1. This is likely to require a book and claim registry under which a SAF producer would ‘book’ its SAF into the registry, to be ‘claimed’ by an airline customer, allowing the tracing of transactions to ensure they are credible, traceable and avoid double counting of the GHG benefits of the SAF.
The deal struck by the EU Parliament and the EU Council still needs to be formally approved by both institutions. However, this would be expected to be a formality with the changes described above passed without difficulty. While these are just a snapshot of the key points to note, it is clear that the Refuel Regulation will have a significant impact on both EU and non-EU operators in the EU. If you would like advice on how these changes will affect your business, please contact a member of the team below.
Publication
On September 18, 2024, the "Decree amending the list that sets forth goods whose import and export are subject to regulation by the Ministry of Energy" (the "Decree") was published in the Federal Official Gazette.
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