EU loophole could dilute e-fuel target – industry and green groups

Over two dozen groups have written to EU lawmakers, warning that a "regulatory paradox" could diminish future demand for synthetic marine fuels in a joint letter. The dispute revolves around the European Commission’s Delegated Regulation (EU) 2023/1185 and the treatment of renewable hydrogen as an intermediate input in biofuel manufacturing.

The SASHA Coalition, an aviation and shipping industry alliance, highlighted that the regulation does not explicitly exclude the use of electrolytic hydrogen in the hydrogenation of biofuels like hydrotreated vegetable oil (HVO) from being counted toward the synthetic fuel proportion of the final product. The immediate concern is aviation's synthetic fuel obligation, but the signatories argue that the same method could apply to shipping.

This uncertainty could blur the line between utilizing green hydrogen as a processing aid for biofuels and employing it as a feedstock for the production of synthetic fuels such as e-methanol and e-ammonia, which necessitate specialized production facilities. "This could permit established biofuel refiners to declare they are generating e-fuels without constructing new synthetic fuel plants," the letter stated.

Under FuelEU Maritime, a 2% sub-target for synthetic e-fuels could be mandated from January 1, 2034, if the EU Commission determines that these fuels constitute less than 1% of the total energy consumed by ships subject to the regulation in 2031. The sub-target would not be enforced if the Commission finds e-fuel production capacity, availability, geographical distribution, or pricing to be insufficient or if pre-2033 monitoring reveals the share already exceeds 2%.

The signatories argued that maintaining the current regulation in Delegated Regulation (EU) 2023/1185 might enable biofuels produced with green hydrogen to be counted toward the forthcoming synthetic fuel sub-target, potentially diminishing demand for dedicated synthetic bunker fuel production. This could weaken incentives for shipping companies and fuel suppliers to commit to long-term offtake agreements essential for financing new e-fuel projects and making final investment decisions, the signatories cautioned.

Green group Transport & Environment (T&E), another signatory, noted that there are 69 e-fuel projects in Europe that could serve the shipping sector, but only six are operational. T&E suggested that permitting this accounting approach could jeopardize this pipeline and compel the EU to import synthetic fuel to meet its own mandates.

The letter stated, "Allowing this workaround introduces regulatory instability, signaling to market actors that EU rules can be diluted retroactively and opening a Pandora's box that permanently erodes trust in the long-term predictability of the EU regulatory framework." The signatories called on the Commission to tackle the issue by applying the same accounting approach already adopted for low-carbon fuels.

Delegated Regulation (EU) 2025/2359 excludes renewable fuels of non-biological origin utilized as intermediate products in the production of conventional fuels and biofuels when determining the low-carbon share of the final fuel. The letter urged the Commission to apply the same exclusion to Delegated Regulation (EU) 2023/1185.