EV Chargers, Biofuel Makers Square Off in Billion-Dollar Tussle

Source: By Ryan Fisher, Bloomberg • Posted: Sunday, January 22, 2023

Carbon credit programs for transport fuels spread globally Draft EU legislation pushes EV charging funding to biofuels

Your decision to dump a gas-fueled car for an electric car will probably depend in part on your confidence there are enough chargers to keep you on the road. That decision may become easier if tens of billions of dollars are poured into charging networks from relatively unknown carbon credit programs in North America and Europe. Lobbyists, however, have been tussling over who the flow of funds from these credits should favor.

The programs require gasoline and diesel providers to offset their emissions by buying credits from suppliers of low-emission fuels such as electricity and biofuels. The success of electricity providers in winning a share of credits threatens billions of dollars of funding for the biofuel and e-fuel sector, which includes companies such as Neste, Phillips 66 and TotalEnergies.

Indeed, carbon savings from electricity are so undervalued in the EU’s draft legislation that, according to BNEF analysis, electricity credits for road transport are cut by 60% through 2030. The new rules may swing billions of dollars from electricity in transport to biofuels. Arguably, giving more support to crop-based biofuels, which EU legislators have said they want to dissuade.

“Under growing pressure by electrification, the biofuels and oil industry have been actively undermining the carbon savings of electric vehicles,” said Geert Decock, Electricity & Energy Manager at Transport & Environment, a Brussels-based NGO. “They have argued time and again against properly crediting electricity as transport fuel, even though electric vehicles cover more than three times the distance with the same energy than vehicles with a combustion engine.”

relates to EV Chargers, Biofuel Makers Square Off in Billion-Dollar Tussle

Geert Decock, Electricity & Energy Manager at NGO Transport & Environment in Brussels. Source: Sinn Fein Flickr account, April 17, 2015

One major benefit of EVs, their efficient transformation of power into movement, underlies the dispute. The superior drivetrain efficiency of EVs means they save around 255 grams of carbon per megajoule of electricity delivered, in 2022, when compared with an internal combustion engine. The EU proposal for the Renewable Energy Directive III (RED III) would credit an EV with reducing emissions by just 75 grams per megajoule of electricity – and leaves out the emissions reduction due to higher efficiency. So an EV is just credited with about a third of its real emissions reductions, and corresponding credits.

This is not just a problem for EV charging networks, which receive less money from credits, but it also means the EU’s legislative target to reduce transport fuel emissions by 16% by 2030 will only be within reach if other reductions in emissions are stacked up from somewhere else. And for that, the biofuels sector is on hand.

The emergence of carbon credit programs

California began with its Low Carbon Fuel Standard in 2011, and this has grown to be a $3.7 billion crediting program in 2022. Electricity credits for EV charging made up 15% of all credits generated in the second quarter of 2022, and BNEF estimates $555 million of credits would have been distributed to the EV charging sector in 2022.

The benefactors were public charging operators and utilities, which gain credits based on an estimation of electricity delivered for residential EV charging in their service area. The money is used to fund charging infrastructure deployment programs, such as the recently announced $1 billion by the California Public Utilities Commission.

With the rise in adoption of EVs, electricity will take up an increasing share of credits in crediting programs. If all the electricity delivered to EVs in BNEFs forecast is credited, by 2030 the credits could be worth between $16 billion and $84 billion across Europe, based on credits being valued between 3 US cents per kWh and 15 cents per kWh.

The value of carbon credits for each kilowatt-hour of electricity delivered varies today from 7 US cents in California to as high as 37 cents with zero-carbon electricity in Germany.

The importance of carbon credit programs is not lost on those following them. “The credit mechanism in the Netherlands and Germany are nothing short of a success story,” according to Decock. “It is not a coincidence that the Netherlands, which was the first country to include public EV charging in its credit mechanism, has the densest charging network in Europe, and that some of the fastest growing charge-point operators are Dutch.”

The credits shave payback time for charging operators and accounted for around 10% of revenue for EVgo, Allego and Fastned in the third quarter of last year. They are also important to the electrification of commercial vehicles.

“These programs play a major role in fleet operators’ decisions on where to deploy electric vehicles first,” said David Schlosberg, VP of Energy and Utilities at charging operator Terawatt. “States with these types of programs are leading the adoption of commercial electric vehicles and charging infrastructure.”

EU legislation guts electricity credits

The carbon credits defined in the European legislation, which doesn’t mirror the programs implemented across North America, is partly due to EU legislators wanting to get rid of so-called multipliers.

Multipliers were used over the past decade to credit transport fuels for two or three times the amount of energy delivered, to encourage their uptake and increase funding they could gain. This led to accusations that the statistics for how much renewable fuel was used in Europe were inaccurate. Consequently, the EU has moved to remove multipliers in the draft RED III legislation and just give a carbon saving value per megajoule of electricity delivered.

Rivian + Amazon Electric Transportation Fleet Reveal Event

Amazon.com delivery electric vans (EV), built by Rivian Automotive, at charging stations parked outside the Amazon Logistics warehouse in Chicago, Illinois, US, on Thursday, July 21, 2022. Many more depot charger will be needed to electrify all commercial vehicles. Photographer: Jamie Kelter Davis/Bloomberg

“The meaningful multipliers used for the efficiency of EVs have been conflated in the political negotiation with the more artificial multipliers used to enhance incentives for biofuels,” Chris Malins, owner of low carbon fuels consultancy Ceurology, said.

Biofuels the winner of EU legislative miscalculation

The final EU legislation is expected to be agreed by the summer of 2023, after negotiations in the first half of the year. The fortunes of the EV charging and biofuel industries hinge on the carbon savings attributed to EVs and whether private charging is mandated.

BNEF analysis shows the proposed EU legislation would require almost 60% of carbon credits needed to meet the proposed target for road transport to come from biofuels, compared to less than 5% if electricity is credited to reflect its energy efficiency ratio, and all electricity delivered to charging being credited.

Private charging, which could make up over 50% of all electricity delivered to EVs, can be added into member states carbon programs but is not mandated in the EU draft legislation. This would significantly decrease credits for electricity, by not counting a big chunk of it at all.

A large percentage of EV drivers will charge at home or work, which would be counted as private charging. In other programs, private charging is included. It could be argued that correctly measuring the amount of charging is an administration burden, due to the numbers of people the program may have to interface with. The lack of mandating of private charging in the programs feeds into the wider undervaluing of electricity savings. This, in fact, could be intentional to avoid an overproduction of credits and a subsequent collapse in their price.

Efuel Alliance, an interest group based in Brussels, said that “focusing too much on e-mobility does not pursue a technology-open position. Multiple credits for e-vehicles distort actual market entry opportunities [for other fuels]”

Scaling-up sustainable biofuels a challenge

If the EU proposal in its current form goes ahead, it will require more than a doubling in biofuel production for road transport to 55 billion liters by 2030, from 20 billion now. This excludes the needs of biofuels to decarbonize an estimated 150 billion liters of fuels for aviation and shipping in Europe by 2030.

At the same time, legislators want to ween Europe off crop-based biofuels. German Federal Environment Minister Svenja Schulze commented: “Increasing biofuels from food and feed crops is not an option for us. Clearing forests and destroying nature to produce biofuels is unacceptable.” The bloc is introducing limits on palm oil and food crops being used in biofuels.

German Biofuels GmbH Plant Operations

A truck transports Ford Motor Co. vehicles past a wind turbine and rapeseed fields in Germany. Legislators are looking to cramp down on using edible crops for generation of fuels and instead use renewable electricity. Photographer: Krisztian Bocsi/Bloomberg

This apparent contradiction may be hard to resolve. It is not clear where the waste feedstocks the EU wants to use for biofuels will come from and the e-fuels industry is still nascent. About 74% of European biodiesel and ethanol is estimated to have come from food crops in 2022, according to the US department of agriculture, and less than 1% from the most advanced feedstocks that legislators are pushing for.

“Not everybody in my industry believes they can deliver the mandate for [advanced biofuels],” said Xavier Noyon, Secretary General at European Biodiesel Board in Brussels. “Demand for biodiesel will continue to increase to 2030,” Noyon said. For legislators “electrification is the alpha and omega of decarbonization in transport, but of course, we don’t completely agree,” he said.

—Find BloombergNEFs report into Carbon credit programs here.