Navigating complexities
Following new rules in the renewable transport fuel market
Josie Armstrong
Henna Poikolainen
Under pressure to cut emissions across the EU, participants in transport sectors are transitioning away from fossil fuels to more renewable transport fuels. As early as 2025, increasingly stringent targets have been set to reduce emissions in both the maritime and aviation sectors, forcing the transition for both fuel consumers and suppliers. However, the switch is not simple – not all fuels and their infrastructure will be readily available in the medium term. Rules governing their production and use are still unclear, and players across maritime, aviation, and road sectors are set to be in competition for the most sustainable renewable fuel supply that comes to market.
Collision on targets
Under the EU’s renewable energy directive (RED), Member States are already implementing national policies including targets for renewable fuels in their overall energy mixes. However, as of 2025, additional rules come into force compelling owners and charterers of ships and aircrafts to use increasingly sustainable fuels (via carbon intensity reductions under FuelEU Maritime and via blending of sustainable aviation fuels (SAF) under ReFuelEU Aviation).
With energy-ramping in demand, broadly speaking, the road (specifically heavy-duty long-distance transport), marine and aviation sectors will compete for the same renewable fuels, and thus sectors with the highest paying capability will drive the pricing. This is already evident in the Californian SAF market, where the production capacity exists in flexible HVO assets, but it is relatively more attractive to produce and to sell renewable diesel instead of sustainable aviation fuels. Equally, because of the more limited direct competition, renewable methanol, biomethane and e-LNG, as well as longer term ammonia are seen as attractive solutions for the shipping industry.
As a result of these factors, as the markets develop, the pricing dynamics of various renewable fuels will become intersectoral and pan-European.
Long term investment decisions
Some transport market participants, such as fuel traders, may be able to benefit from short-term arbitrage opportunities between transport and geographical markets, but most road, marine, and aviation operators do not have this option, having to make long term investment decisions when the attractiveness of different renewable fuels is set to change radically over the lifetime of their vehicles and related fuelling infrastructure. In particular, some fuel types, especially some newer fuels such as e-fuels and/or their feedstocks are not yet available, or they have considerably higher production costs, and/or require significant capital investment.
Most notably, shipping companies are investing in new fleets with average lifespans of 25-30 years, and considering green ammonia which still requires the wide-scale commercialisation of ammonia-based propulsion technologies and bunkering infrastructure, as well as significant reductions in hydrogen costs to be competitive versus substitutes.
Complicated long term outlook
The use of existing renewable fuels is also increasingly complicated. Around 90% of renewable transportation fuels today are ethanol or FAME biodiesel, produced primarily from sugarcane, corn and edible oils such as soybean oil. These ‘crop-based’ biofuels have elevated sustainability risks related to direct and indirect land-use change; in the extreme case, the increasing use of biofuels in transport may incentivise local farmers to clear tropical rainforests for soybean oil or palm oil production.
To ensure sustainability, the EU has set strict limits on the consumption of these ‘crop-based’ feedstocks in the biofuels production and essentially banned the use of crude palm oil. Land-use change is also considered in the greenhouse gas (GHG) emission accounting – if for instance a soy-based biodiesel does not meet the required 65% greenhouse gas emission savings compared to conventional diesel, it is treated as a fossil fuel.
In 2023, the EU passed a number of critical directives, regulations, delegated acts and guidelines advising the industry on how to address the increasing demand for renewable fuels in transport when the most widely used feedstocks are also capped.
European renewable fuel policies are notorious in their complexity, especially when overlapped with national level regulation and schemes. For instance, the recent changes in RED govern the entire value chain from feedstock sourcing (delegated acts adding eligible feedstocks and setting rules for renewable electricity sourcing), to production processes (delegated act on co-processing biofuels and biogas) and greenhouse gas emissions calculations (delegated act on methodology for GHG emissions savings). These policies have a direct impact also on production costs – for instance RFNBO compliant renewable energy is significantly cheaper and more accessible in the Nordics than in Germany.
Each sector (road, maritime, aviation) has restrictions on feedstock acceptability and fuel specifications. For example, sustainable aviation fuels must meet the strictest ASTM criteria to ensure safety on board, while renewable fuels produced from biogenic CO2 and nuclear power can be sold as SAF in the aviation sector but are classified as fossil fuels in road and marine transport.
Flexible and regulation-focused winners
Advanced biofuel and e-fuel projects are new capital-intensive technologies. How would you convince a board on a renewable methanol investment, where depending on the day, the chemically identical methanol output could be classified as advanced biofuel, recycled carbon fuel, RFNBO methanol, low carbon methanol or even fossil methanol?
Evolving renewable fuel policies, supply availability, and high total ownership costs can either kill a business case or provide a competitive advantage and arbitrage opportunities – transport operators need to build flexible long-term supply chains and partnerships, and future ready vehicles, whilst keeping an eye on changing regulatory rules. Are you ready for the rollercoaster?
Renewable fuels & feedstock categories in the EU
Did you know?
Advanced Biofuels
Biofuels are produced from specific waste and residue feedstocks listed in the EU Renewable Energy Directive Annex IX Part A that meet min. 65% greenhouse gas emission savings compared to fossil fuels.
Advanced biofuel feedstocks include e.g. straw, forest residues and biogenic fraction of municipal solid waste.
Recycled Carbon Fuels (RCF)
Fuels that are produced from non-renewable waste streams such as plastic waste or municipal solid waste or unavoidable exhaust gases and meet
min. 70% greenhouse gas emission savings compared to fossil fuels.
Renewable Fuels of Non-Biological Origin (RFNBO)
Renewable fuels are produced from renewable energy sources other than biomass, also referred to as e-fuels.
RFNBOs must meet strict sustainability criteria regarding additionality of renewable electricity and sources of carbon dioxide, as well as min. 70% greenhouse gas emission savings compared to fossil fuels.
Low Carbon Fuels
Specifications are still open in the European legislation
Low carbon hydrogen refers to hydrogen that meets min. 70% greenhouse gas emission savings compared to fossil hydrogen but does not meet RFNBO criteria.
