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# 52014SC0295

**COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT on the calculation methods and reporting requirements pursuant to Article 7a of Directive 98/70/EC of the European Parliament and of the Council relating to the quality of petrol and diesel fuels Accompanying the document COMMISSION DIRECTIVE ../.../EU laying down calculation methods and reporting requirements pursuant to Directive 98/70/EC of the European Parliament and of the Council relating to the quality of petrol and diesel fuels /\* SWD/2014/0295 final \*/**

  

COMMISSION STAFF WORKING DOCUMENT
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT

on the calculation methods and reporting
requirements pursuant to Article 7a of Directive 98/70/EC of the European
Parliament and of the Council relating to the quality of petrol and diesel
fuels

Accompanying the document

COUNCIL DIRECTIVE ../.../EU

laying down calculation methods
and reporting requirements pursuant to Directive 98/70/EC of the European
Parliament and of the Council relating to the quality of petrol and diesel
fuels

1.
INTRODUCTION

In 2009, the Fuel Quality Directive[1] (“FQD”') introduced an
obligation on fuel suppliers to reduce by 6% the lifecycle greenhouse gas
(“GHG”) intensity of all road (and non-road mobile machinery) fuels by 2020. To
comply with this requirement fuel suppliers need to report and account for the
GHG emissions associated with the fuels they supply. The methodology for
calculating the lifecycle GHG intensity of fuels of non-biological origin was
left to be developed through comitology[2].
A methodology for calculating the lifecycle GHG intensity of biofuels is
already prescribed in the FQD.

In this context, a draft[3]
implementing measure was discussed in the Fuel Quality Committee with the
Member States during 2011 and 2012 and resulted in a "no opinion"
vote. In accordance with the provisions of the Comitology Decision, the
Commission is now obliged to submit a proposal to the Council. This impact
assessment supports such a proposal.

2.
PROBLEM DEFINITION

Under article 7a of the FQD fuel suppliers are to report annually
the total volumes of fuel types/energy supplied indicating their origin and
place of purchase, and their life cycle GHG emissions per unit of energy to
Member States’ authorities. The reporting mechanism aims to ensure accuracy, in
respect to the GHG emissions reductions to be achieved, as well as data on the
actual average GHG intensity of the pertinent fuels consumed in the EU in order
to update the fossil fuel comparator, which measures the GHG savings provided
by biofuels.

A number of variations are possible for developing such a
methodology according to which level of disaggregation is used (e.g. product,
feedstock or consignment), and whether actual calculations of GHG emissions
and/or default values are permitted. The possible methodologies impose
different demands on industry depending on their complexity, and will
ultimately lead to different price signals which will influence the final fuel
mix and corresponding associated mitigation actions.

The aim of this impact assessment is to assess the appropriateness
of the options for developing such a methodology and their associated
environmental, economic and social impacts. To support its assessment, the
Commission launched an external study in 2012[4],
whose interim findings were discussed with stakeholders in December 2012 and
April 2013[5].

3.
SUBSIDIARITY

The obligation on suppliers to reduce by 6% by 2020 the
lifecycle GHG intensity of road fuels used in road vehicles (and in non-road
mobile machinery) was introduced with the adoption of the FQD.

4.
POLICY OBJECTIVES

The chosen methodology needs to address the general objective of the
FQD:

To ensure that the GHG intensity of
road transport fuels is accurately measured and reduced by at least 6% compared
to 2010.

Given the following specific objective:

To establish a suitable methodology for fuel suppliers to accurately
estimate and report the volumes, origin, place of purchase and the life-cycle
greenhouse gas emissions of the fuels that they supply.

and operational objectives:

To establish a methodology for fuel suppliers to report as
accurately as possible the life-cycle greenhouse gas emissions, covering all
relevant stages including extraction, land-use changes, transport and
distribution, processing and combustion, irrespective of where those emissions
occur, of the fuel and energy other than biofuels that they supply.

To ensure that the methodology results in as accurate as possible
fossil fuel comparator.

To ensure that the reporting methodology is as consistent as possible with that already established in the legislation for
biofuels.

To ensure that such methodology enables Member States to verify
compliance by fuel suppliers with their obligation in a way which does not lead
to an unacceptable level of administrative burden for suppliers and competent
authorities.

5.
POLICY OPTIONS

The policy options considered in the impact assessment
are described below:

Options/sub-options || Description

A) No methodology || No methodology would be proposed and so Member States would not be able to implement the FQD. The Commission thus fails to act; accordingly this option is discarded without any further analysis.

B) GHG default values by fuel type || This approach would represent the simplest reporting requirement. It requires an average default GHG intensity value to be developed for the main four fuel types consumed in the EU (i.e. petrol, diesel/gasoil, liquefied petroleum gas and compressed natural gas). It does not differentiate between suppliers according to the feedstocks that are included in their fuel mix as these are integrated in the EU (option B1) or Member State (option B2) average. As Option B2 leads to internal market barriers (different requirements would apply to fuel suppliers depending on which Member State the fuel is supplied to), which is against the objective of the FQD, this option has been discarded and only option B1 has been further assessed. Option B1 is favoured by the oil industry (including oil majors, independents and traders), certain exporting oil countries and certain Member States.

C) GHG default values by feedstock type || Under this option, the GHG intensity of all feedstocks used in the EU would be reported separately through the use of average default values (i.e. petrol and diesel/gasoil from oil, natural bitumen, oil shale, coal to liquid, gaseous fuel and electric energy, etc.). Therefore, differences between suppliers according to the feedstocks that are included in their fuel mix would be reported. This methodology would require suppliers to collect information beyond their existing levels as well as additional requirements to track it throughout the supply chain. Option C was the measure submitted to the Member States in October 2011. This option is favoured by environmental NGOs and certain Member States.

D) GHG default values by feedstock type or actual GHG values || Under this option, suppliers’ compliance would be based on the GHG impact of all feedstocks used in the EU (e.g., petrol and diesel/gasoil from oil, natural bitumen, oil shale, coal to liquid, gaseous fuel and electric energy, etc.). Suppliers would report default values based on average (option D1) or conservative, higher than average, GHG intensity values (D2). These options would require reporting of the origin of fossil fuel feedstocks. Alternatively, suppliers may choose to provide actual values. This option implies the same data collection and traceability requirements as option C, the compliance effort of option B1, and additional efforts for those suppliers choosing to report actual values. Options D1 and D2 are favoured by environmental NGOs, and stakeholders from the bioenergy and agricultural sectors as this is the methodology applied to biofuels.

E) Actual GHG values || This option requires upstream GHG emissions estimates for individual fuel consignments to be calculated and reported (e.g. field level, trade name, Marketable Crude Oil Name, etc.) by suppliers. This option should provide the most accurate reporting of the GHG intensity of fuels consumed in the EU but is also the most complex, as suppliers would need to provide their own values and data limitations currently exist. Option E is not favoured by any specific stakeholder group, although it is seen by some Member States and certain oil exporting third countries as the fairest approach as it is based on full differentiation of all fuels.

6.
ASSESSMENT OF THE POLICY OPTIONS

This summary presents the options in terms of their effectiveness in
achieving the key objectives as well as their implications for wider
environmental, social and economic impacts.

6.1.
Effectiveness

The most effective option for reporting the GHG intensity of fuels at
EU and supplier level is option E, as it requires all fuel suppliers to
report actual values. However, actual disaggregated data may not currently be
available for all fuel types and suppliers; it is also the most complex from
a verification perspective and carries the largest risk of fraud.

The second most accurate option for reporting GHG intensity at EU
and supplier level is option C, as fuel disaggregation at a feedstock level
already captures most of the variation between fuels according to their GHG
intensity. This methodology requires additional data collection and tracking
efforts from fuel suppliers and verification by Member States would be of a
medium complexity.

The third most accurate options are D1 and D2. These options provide
modest accuracy for reporting the GHG intensity at supplier level, for
similar reasons as B1. However, given that only suppliers with a lower GHG
intensity than the EU average would be encouraged to report actual values under
this option, the reported average EU emissions could be underestimated
by up to 1 p.p. of the overall 6% target in the case of option D1. This effect could
be mitigated under D2 as the conservative default value would also encourage
suppliers of fuels with higher emissions than the average to report actual
values. This methodology does require significant additional data collection
and tracking efforts from fuel suppliers and verification by the Member
States would be complex. Arrangements would be more complex for those
suppliers choosing to provide actual values.

The simplest and least cost option is B1 (average default values per
fuel). However, it is also less accurate due to the fact that the reporting
requirements  based on averages do not capture either GHG intensity variations
between (i.e. conventional versus unconventional fuels) and within (higher
intensity conventional fuels versus lower intensity conventional fuels)
feedstock categories. While this option poses some risks with regards to the
accuracy of the reported average EU emissions as well as the development
of the fossil fuel comparator values as no market information is collected,
this option would enable Member States to verify compliance in the simplest
possible way and minimise possibilities for fraud through implementing a
methodology with the least administrative complexity .

With regards to policy coherence with biofuels, option D2 would be
most consistent, while option D1 and C would be partly consistent with the
biofuel methodology. Furthermore, option E would be more burdensome on fuel
suppliers. Clearly option B1 would be less burdensome.

6.2.
Environmental impacts

The production of fuels can have a negative impact on the
environment because of upstream and downstream activities, which can lead to
negative air quality and biodiversity impacts as well as the consumption of
large amounts of resources, particularly for unconventional sources. Although
all options lead to some positive environmental impacts compared to the
baseline scenario, these are highest under option C as the reduction in the
consumption of more resource intense and more polluting unconventional sources
is greater.

6.3.
Economic and social impacts
6.3.1.
Administrative costs

Quantification
of the administrative burden has been estimated to be the lowest for option B1
at €3 million annually as this option has the simplest reporting and
verification mechanism. These costs increase, in line with higher degree of
complexity on average, to €15, €23, €23 to €31, and €31 million annually for
options C, D1, D2 and E respectively. These costs are low for all the options
and of the order of magnitude between €0.001- 0.01 cents per litre.

6.3.2.
Compliance costs

Once the levels of biofuels and renewable electricity needed to
achieve the Renewable Energy Directive are considered, the bulk of the
additional carbon abatement required to comply with the FQD comes from
reductions in upstream emissions and additional biofuel blending under all options
leading to similar costs. The replacement of higher intensity with lower
intensity fuels seems to play a small role in terms of the overall abatement
needed under those options where this is allowed given that abatement costs for
other technologies are much more favourable. The option with the lowest
compliance costs is D1 at €1 million annually, followed by options B1, C, D2
and E, at €6, €8, up to €9, and €9 million respectively[6]. These costs are low
for all options and up to 0.003 euro cents per litre. Option D1 presents lowest
compliance costs due to the underestimation of the emissions at EU level, which
leads to a lower abatement effort overall being required.

6.3.3.
Other costs and competitiveness impacts

Option D1 appears to lead to the lowest increase in market costs at
€59 million, due to the under-reporting of EU average emissions. All other
options lead to similar market costs of €79 million. Overall impacts on pump
price increases of 0.02-0.04 eurocents per litre have been estimated for all
options[7].

With regards to the impacts of the additional burden on the
petroleum industry sector, and in particular EU refineries, it seems reasonable
to assume that producers will pass through most of the costs to consumers. As
costs are low and no significant reductions in total fuel consumption are
expected, no significant changes in market structure, value added, capacity to
innovate, employment or competitiveness of EU refiners compared to
international competitors is expected.

7.
CONCLUSION

In
conclusion, the choice of methodology is critical in determining the accuracy
of the reported carbon intensity of the fuels being supplied. Some
methodologies lead to a certain underestimation and/or overestimation of the
GHG intensity of fuels at the supplier level. Options D1 and D2 tend to also
underestimate the GHG intensity of fuels at the EU level. Inaccurate reporting
can partly reduce the overall ambition of the FQD and affect the way the burden
is shared amongst fuel suppliers.

The options
that lead to a further level of disaggregation than simply fuel type (i.e.
feedstock and fuel consignment level) are more effective in encouraging
consumption of lower GHG intensity and less polluting fuels. These yield
positive results with regards to environmental impacts. Indirectly, this tends
to lead to small reductions in imported products as crudes sourced by EU
refineries tend to exhibit lower carbon intensities.

There is
little variation in terms of economic costs with regards to the different
options although some differences in administrative and compliance costs have
been found – option B1 is the lowest cost option. These costs are not
considered to be significant in terms of economic or competitiveness impacts
for fuel suppliers. Reductions in upstream emissions and increased biofuel
blending deliver the bulk of the additional reductions needed to achieve the
FQD target under all options. The possibility for suppliers to replace higher
with lower carbon intensity fossil fuels plays a limited role in achieving the
mandated greenhouse gas emission reductions under those options where this
abatement option is allowed.

Where
suppliers can choose between the reporting of their actual GHG intensity values
or a default value being provided there is a risk that suppliers of high intensity
crudes could profit from this flexibility unless such default values are set
conservatively.

B1 leads to the simplest implementation and verification
mechanism given that it does not require any additional data collection.
However B1 (based on average default values per fuel) yields certain inaccuracies
in terms of reporting GHG intensity at supplier level and poses some risks in
reporting the EU average. This is because with reporting based on average
default values per fuel no real market information is collected by suppliers
under this option. While being the simplest approach option B1 environmental
performance is relatively worse. In contrast, options C, D1 and D2 are similar
in terms of providing an accurate methodology and present positive environmental
impacts, although more burdensome in particular D2 . In conclusion, there would
appear to be a series of issues that finely balance the choice between options
C, D1, D2 and B1. The option B1 approach is expected to lead to the lowest
administrative costs. While option E is attractive as potentially more
accurate, it would be difficult to implement this option in the short term.
That is why option B1 is preferred: Average default GHG values by fuel type
(petrol/diesel) based on an EU fuel mix (“basic reporting approach”).

[1]               Directive
98/70/EC.

[2]               Directive
2009/30/EC, Article 7a(5).

[3]               Annex 3 and 4 of the current proposal:

http://ec.europa.eu/transparency/regcomitology/index.cfm?do=search.documentdetail&XOvfOQKYHt67nl0gDR9EQ0pDU4MfDGIJHglKuEmrBsRhxbx1TISJ2Mfg5DtxY23N

[4]               https://circabc.europa.eu/w/browse/6893ba02-aaed-40a7-bf0d-f5affc85a619

[5]               https://circabc.europa.eu/w/browse/ced1b370-4443-49ef-839f-fa4a8b55a550
and https://circabc.europa.eu/w/browse/9ee501ad-fdfe-4975-80d4-477557384644

[6]               Estimated costs are reported here on an annual basis.
Conversely to administrative costs, total compliance costs are only expected to
occur in the year 2020 when the FQD obligation applies.

[7]               The pump price increases represent the change in cost
between the baseline and the different options- the effort of achieving the FQD
once the RED target has been met. Absolute pump price increases for the entire
6% reduction would be around 0.3 cents per litre.

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