Analysis: Royal Decree to promote renewable fuels

What does this Royal Decree imply?

The RD is, overall, ambitious, setting targets that are higher than those cited by the EU in RED III, such as a 16.3% reduction in GHG emissions compared to the EU’s 14.5% by 2030, or the inclusion of a market penetration share for RFNBOs in the transport sector of up to 4%, compared to the EU’s target of 1%—a target not even reached by other countries, which remain at around 0.8%. This shows strong ambition, which will require us to consider how to reach these goals, since two subtargets are presented:

• RFNBO subtarget in transport of 2.5%: This refers to the requirement that 2.5% of all the final energy content delivered to different transport modes (land, sea, and air) must come from RFNBOs.
• RFNBO subtarget in refineries of 1.5% by 2030: The hydrogen consumed by refineries, which ultimately ends up in the transport sector, must incorporate this share based on the final consumption of the transport sector in Spain, not based on the hydrogen consumption within the refinery itself.

To emphasise: by 2030, hydrogen will need to account for 4% of the total energy consumption of the transport sector… or will it?

Well, the reality is that it won’t, because within this context there are what are known as “multipliers”—arbitrary factors that artificially increase the computed energy contribution towards these subtargets. These are supposedly introduced to support obligated parties, although, at AtlantHy, we do not quite understand the reason for this. More moderate targets could achieve the same effect. That said, this might make more sense once the penalties are disclosed, as they may hold the key. These multipliers are shown in the following table:

	Transport multiplier	Aviation additional	Maritime additional	Final multiplier
Road	2			2
Maritime	2		1,5	3
Aviation	2	1,5		3
Railway	2			2

_{*The use as an intermediate fuel is also subject to}

Therefore, what remains to be analysed to understand the market implications of this Royal Decree is the amount of hydrogen required to meet these targets.

To do so, we will use the LHV (Lower Heating Value) of hydrogen, as indicated in RED III, of 33.33 kWh/kgH₂. And we will also take a small liberty: in the maritime case, we will not only consider cabotage (domestic coastal shipping), but the total volume of bunkering in Spain. In the end, what we want to know is the total volume of RFNBOs that will be present in our country, regardless of whether they are covered by this Royal Decree or by FuelEU Maritime.

Frankly, we don’t understand why in the case of aviation the entire consumption is included, but for maritime only cabotage (between Spanish ports) is considered.

Thus, according to the sources consulted, the approximate energy consumption figures in Spain are as follows:

	GWh	tH2/year	2,5% transport	Correction multiplier	1,5% refineries	Correction multiplier	Equivalent MW
Road	326.076	9.783.253	244.581	122.291	146.749	73.374	1.957
Maritime	75.000	2.250.225	56.256	18.752	33.753	16.877	356
Aviation	79.200	2.376.238	59.406	19.802	35.644	17.822	376
Railway	4.080	122.421	3.061	1.530	1.836	918	24
Total	484.356	14.532.137	363.303	162.375	217.982	108.991	2.714

_{(values have been taken between 2022–2024)}

This is a basic calculation that could go much further if we delve into:

• Evolution of demand in the transport sector.
• Energy losses in the production of SAF and methanol: Increasing the equivalent H2 demand for the maritime and aviation sectors.
• Modifications of multipliers post-2030.
• Differentiating the targets in maritime and aviation. Possibly diverting more sub-quota towards road transport with a less favourable multiplier.
• Potential manoeuvres by the refining sector to count their surpluses in the aviation and maritime sectors.
• Breaking down final consumption versus refinery consumption and assessing its effects.

If needed, we at atlantHy would be happy to help you work through the different scenarios.

And what happens if the regulation is not complied with?

The first thing will be to identify who the obligated parties are—that is, who must strictly comply with the requirements:

• Road: Extension of obligated parties to those under the FQD Directive: Operators of all types of fuels, both wholesale and retail, and other entities.
• Aviation: Aviation fuel suppliers.
• Non-electrified rail: Awardee of the type B diesel contract.
• Cabotage navigation: Oil operators and natural gas marketers.

In the same way, there will be other stakeholders who will also have much to contribute throughout the traceability process, in order to determine what is generated, what is delivered, and what is consumed across the entire supply chain:

• Authorised parties: Producers of RFNBOs and CPOs will be non-obligated entities who may request the issuance of Renewable Fuel Certificates.
• Entities obligated to report information: State Ports, ADIF and AENA.

Once we’ve identified who is who, we reach the part where we will interpret the least and refer only to the two types of offences set out in the Royal Decree:

• Very serious offence: Failure to meet the sub-targets is considered a very serious offence, in accordance with Article 109.1.aa) of Law 34/1998 of 7 October, and entails the imposition of the sanctions provided for in that Law through the appropriate sanctioning procedure.
• Serious offence due to lack of information: Failure to submit the information required to demonstrate compliance (volumes, guarantees of origin, audits, etc.) is classified as a serious offence and is sanctioned according to Article 110.f) of Law 34/1998.

No method is therefore specified for quantifying the sanctions. This is a major drawback, as these are the main drivers of business models and it could lead to a situation similar to that of FuelEU Maritime, where the sanction is not strong enough to drive RFNBO consumption.

From our reading of the document, at atlantHy we understand that the Secretary of State for Energy will at some point publish a ministerial order detailing deadlines, amounts, and procedures.

There are other relevant issues within the Royal Decree that are not analysed here today, such as the intermediate RFNBO quotas in refineries, the unification of PoS and GoOs, or the possibility of trading RFNBO certificates.

In short, this Royal Decree, which we had been awaiting for so long, continues to represent progress towards the realisation of the market and the regulations, but it still falls short of providing the clarity and concreteness we need in order to start making decisions.

Some of the questions that remain to be addressed are:

• How will the penalties be applied and what will their amounts be?
• When can we expect the Ministry of Industry to signal a minimum quota for industrial hydrogen consumption?
• Until when will the multipliers remain in effect?
• What is the final relationship between this Royal Decree and FuelEU Maritime?

And as you know, if you’re not happy… you can always send your suggestions to the following email address: bzn-der@miteco.es until 8 September.

Note: This article will be updated over the coming days as more information is published.