Federal Cabinet adopts revision of the 38th Federal Immission Control Ordinance (BImSchV)
The oil industry can now only use carbon credits from renewable energy and electricity achieved in the same year to comply with required cuts in greenhouse gas emissions (GHG quota). This is a new provision in the 38th Federal Immission Control Ordinance, which was adopted today by the Federal Cabinet. In principle, it is possible to save up surplus fulfilments of the GHG quota from the past and use them as an offset at a later date (carry-over). The German government is taking this option off the table for 2025 and 2026. The new rules will enter into force in 2024.
Federal Environment Minister Steffi Lemke commented: "Today the German government is sending a strong market signal to boost renewable energy in transport. With this immediate action, we are shoring up the trajectory for CO2 reduction in fuels and improving the economic situation of manufacturers of advanced biofuels and green hydrogen as well as charge point operators. If demand for climate-friendly alternatives to fossil fuels grows, it will strengthen climate change mitigation in transport, also in the long term."
The GHG quota requires the oil industry to reduce the CO2 emissions of their transport fuels. The current reduction quota is 9.35 percent, and it will be gradually raised to 25 percent by 2030. To comply with the required GHG reductions, producers can opt, for example, for sustainable biofuels from waste or renewable synthetic fuels such as e-fuels. The use of power in electric vehicles or green hydrogen in refineries also improves the carbon footprint of the petroleum producer and can be counted towards its reduction target.
In the past, petroleum producers frequently over-complied with the GHG quota. This means they posted larger CO2 reductions than actually required by law. The surplus reductions could then be carried over to meet the next year’s requirement. Although this flexibility is an economically useful regulation for market participants, a very large amount of surplus credits have been stockpiled in the past few years. In 2022 alone, over-compliance amounted to around 3.4 million tonnes of CO2, exceeding the required cuts by about 24 percent.
These surplus reductions, however, contradict the basic idea behind the EU requirements of fulfilling targets that increase annually. If the companies subject to the quota use the unusually large surplus credits of the past years to fulfil next year’s quota, significantly less sustainable biofuels and electricity would be used to achieve the target. As a result, Germany risks seriously deviating from the EU provisions for climate action in the area of fuels. At the same time, the resulting dip in demand creates an economic problem for renewable energy industries in transport.
This is the background that has led the German government to adopt this immediate action today, which is intended to raise demand for sustainable fuels and electricity to the level originally envisaged in the GHG quota. The ordinance adopted today suspends the carry-over of surplus reductions for two years.
This means that, to meet their obligations in 2025 and 2026, companies can only use CO2 reductions from compliance efforts undertaken in those two years. This will bring the annual greenhouse gas reductions in fuels onto the trajectory established by the Federal Immission Control Act (Bundesimmissionsschutzgesetz, BImSchG) and create incentives to ensure target achievement in 2030. Increasing demand will also improve the situation of market participants.
Carry-over of over-compliance is suspended for the GHG quota under section 37a of the Federal Immission Control Act and the sub-quota for advanced biofuels under section 14 of the 38th Federal Immission Control Ordinance. In 2025 and 2026, no third-party compliance options (carried out by others on behalf of the oil industry) from past years may be carried over. Companies subject to the quota and third parties will only be allowed to use carbon credits and fuel amounts from past years again from 2027.
The surpluses from 2024 can be used in accounting again from 2027. This will be taken into consideration when the Federal Environment Ministry presents a draft to implement the updated Renewable Energy Directive (RED II) by the end of the year. The aim is to continue to develop the GHG quota as an incentive over the long term.
The ordinance's adoption by the Federal Cabinet means it can enter into force immediately. Deliberation in the Bundestag or the Bundesrat is not necessary.