The European Commission's draft impact assessment for the Renewable Energy Directive, RED IV, represents a significant shift in renewable fuel policy post-2030. This draft offers a comprehensive target for renewable hydrogen consumption at the EU level, specifically referring to 8 million tons for industry and refineries instead of national renewable hydrogen requirements.
Changes in Hydrogen Requirements
The new draft is referred to as a "proposed package" and introduces a significant EU-level target instead of the national requirements that existed in RED III. These previous requirements included a 1% target for non-biological renewable fuels (RFNBOs) in transport by 2030, 42% in industry by 2030, and 60% by 2035. However, in the proposed RED IV, these requirements shift to a target of 8 million tons of renewable hydrogen consumption for industry and refineries.
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This 8 million tons is described as the "optimal average level for the policy coverage period" and industry reports interpret it as annual consumption by 2040. This target reflects the need to create hydrogen credits and downstream demand incentives that must be implemented through other regulations.
Challenges of Policy Uncertainty
Frédéric André Vessl, Hydrogen Research Product Director at Rystad Energy, states that "replacing national requirements with new EU-level targets adds more uncertainty to the European hydrogen market at a time when projects still heavily rely on clear demand for investment security." He also points out that production, infrastructure, and demand must develop simultaneously, and greater flexibility could concentrate production in lower-cost areas.
This is while if long-term demand signals remain strong only in a few member states, the market may develop separately rather than as a unified European market. Therefore, a key question is whether the final framework can provide sufficient and sustainable mechanisms to support demand in the event of national requirement replacement.
In the context of biofuels, the draft moves towards more supportive policies and emphasizes energy security. A general cap of 7% for biofuels based on agricultural products could increase the volumes of qualifying conventional biofuels by about 30% compared to 2020. Additionally, advanced biofuels produced from feedstocks sourced in the EU may receive special benefits.
This draft also notes that demand for advanced biofuels will become more dependent on national policies, as minimum transport requirements for these types of fuels will expire by 2030. This could enhance the competitive position of European producers.
Overall, this draft has different implications for renewable fuels. More uncertainty for hydrogen but stronger support for biofuels related to domestic European resources is created.
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