Assessing the risks of crediting alternative fuels in Europe’s CO2 standards for trucks and buses
Blog
A lump of coal in the Christmas stocking: Renewable fuels in the car CO2 standards
On December 16th, the European Commission released its much anticipated and expedited proposal to revise CO2 standards for cars and vans. Originally planned for release next year, the revision was brought forward following intense pressure from vehicle manufacturers. But rather than an early Christmas present, some provisions read more like a lump of coal in Europe’s climate ambitions stocking.
Under the Commission’s proposal, the CO2 reduction targets for 2035 have been reduced from 100% to 90%, relative to 2021—but only if manufacturers compensate for this 10% gap.
To compensate, manufacturers will have to earn credits by using green steel (up to 7 percentage points) or by relying on renewable fuels already in the European fuel-supply (up to 3 percentage points).
In this blog, we focus on the latter of these aspects— how renewable fuels can be used to reduce manufacturers’ targets. Specifically, we explain how the European Commission defined renewable fuels in its proposal and why their inclusion as a compliance mechanism for manufacturers may be a serious risk to the future of road transport decarbonization.
What is renewable fuel?
Broadly speaking, renewable fuels are any alternatives to fossil fuels that can be used in an internal combustion engine vehicle. When burned, a renewable fuel still produces levels of CO2 similar to fossil fuels, but they can have lower emissions over their life cycle. This is because, rather than burning carbon that’s been locked underground for millions of years—as is the case with fossil fuels—renewable fuels contain carbon that was already in the atmosphere. For example, corn used to make bioethanol absorbed CO2 from the air as it grew, and this is the same CO2 that is released back into the atmosphere when cars burn that bioethanol as fuel.
The European Commission includes three different types of renewable fuels, including advanced biofuels, some other waste-based biofuels, and e-fuels produced from 100% renewable electricity. While advanced biofuels and e-fuels can reduce the 100% reduction target in 2035 by the full 3 percentage points, the riskier waste-based biofuels can only reduce it by 1 percentage point.
Moving beyond the tailpipe
To date, Europe’s transport CO2 emissions have been regulated in two streams. The first is through CO2 standards: vehicle manufacturers must reduce the CO2 coming from the tailpipes of their vehicles, either by improving their efficiency or selling more EVs. The second is through the Renewable Energy Directive: fuel suppliers must reduce the greenhouse gas intensity of the fossil fuels they produce, for example by blending them with biofuels or synthetic renewable fuels.
The two policy streams have been kept separate for a good reason. Manufacturers have no control over the fuel supply, and fuel suppliers have no means of reducing tailpipe emissions.
The Commission’s proposal, however, would combine these streams by awarding manufacturers fuel credits for the quantity of renewable fuels in the European supply. Below, we explain this concept, and how it could have unintended consequences for the automotive industry and the environment.
Fuel credits for renewable fuels
What are they?
Under the existing CO2 standards, manufacturers are required to reduce their fleet CO2 emissions to 0 g CO2/km in 2035. In other words, every vehicle had to be zero-emission.
Under this proposal, if there are enough renewable fuels sold in Europe in a given year, the average CO2 emissions of cars can now be 3.3 g CO2/km from 2035 onward. These limits increase further to 11 g CO2/km if enough green steel is used by manufacturers, but for the sake of simplicity, we’ll disregard this element for now. This means the majority of sales will still need to be zero-emission, but a limited share of combustion engines can be sold.
These fuel credits are calculated by looking at the total amount of eligible biofuels and e-fuels put into the European fuel supply two years prior to a certain year—that is, for the year 2035, they will consider the fuels sold in 2033—and then calculating the total greenhouse gas (GHG) savings of these fuels compared with fossil fuels, using the required GHG emission intensity reduction listed in the Renewable Energy Directive. Then, this GHG saving is divided by the expected lifetime mileage driven by all new cars sold in that specific year.
The amount of renewable fuel required to achieve these fuels credits will not be difficult to achieve. We calculate that in 2035 that 230 PJ of compliant biofuels and e-fuels will be needed for car manufacturers to receive 3.3 g CO2/km of fuel credits. The European Commission database detailing the share of renewable energy in transport reports that, in 2024, eligible biofuels already reached 327 PJ, although this may include fuels going to non-road transport sectors.
Why is it a bad idea?
It’s double counting. The Renewable Energy Directive already requires fuel suppliers to ramp up the share of renewable fuels in the European fuel supply. Introducing this fuel crediting system would not incentivize any additional production of renewable fuels; instead, it would double count the benefits of the Renewable Energy Directive as part of the CO2 standards—while effectively lowering the CO2 targets for manufacturers.
There is no additional incentive for manufacturers to improve their vehicles. The CO2 standards are based on the principle that manufacturers should be required to improve their technology, either by improving the efficiency of internal combustion engine vehicles or by bringing battery electric vehicles to the market. A fuel crediting system weakens this incentive by simply allowing a manufacturer to benefit from a lower target without making any changes to their fleet.
This provision can be easily amended to make the standards much worse. In this proposal, manufacturers are effectively being granted a 3% reduction on their target for nothing. This will make it very easy in the future for manufacturers to lobby a simple change to the CO2 standards, by increasing this 3% value to something higher or by increasing the cap on riskier waste-based biofuels.
Some cautionary thoughts for 2026
Advanced biofuels and e-fuels can deliver substantial CO2 reductions compared with fossil fuels, but they should not be used to delay electrifying the new vehicle fleet. The Commission’s proposal risks increasing CO2 emissions and potentially diverting biofuels and e-fuels from two hard-to-abate sectors: marine and aviation.
Debates in Parliament and in the Council will undoubtedly revolve around these issues in the year of negotiations to come. Amid these negotiations, attempts may be made to loosen the wording around renewable fuels in the CO2 standards. Christmas might be around the corner, but there’ll be a lot more than presents to unwrap in the months that follow. Hopefully it won’t all be lumps of coal.
Author
Eamonn Mulholland
Senior Researcher
Chelsea Baldino
Program Lead
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