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Germany – UERs rules into law

The “UER-Verordnung” has been voted on by the Cabinet and published in the Official Journal at the end of January. The final version reflects what we had previously reported, but a key uncertainty remains about the eligibility of CDM projects to the scheme.

The main developments brought by the law are the following:

-       Upstream Emissions Reductions (UERs) will be accountable under the GHG mandate only from 2020.

-       Their use will be capped at 1.2% max so the minimum share of the GHG mandate (6% in 2020) to be covered by the use of renewables including biofuels will be of 4.8%. That represents an increase of only 0.8% GHG compared to the current level.

-       Initially, the government wanted to set the cap at 1.75% GHG. We believe it abandoned this ambition as the RED target of 10% would not have been met with this level of UERs cap. Our model shows that if biofuels cover 4.8% GHG by 2020, it will translate into a 8.3% e.c share of renewable into transport. The remaining 1.7% e.c could potentially be covered by other sources, mainly renewable electricity used by the railways sector.

-       Projects of UER finalized under the Clean Development Mechanism (CDM) will be eligible for the German mandate under certain conditions, including the reductions during the year of compliance (i.e 2020 for the year when UERs will be authorized).

-       For other projects, the company wishing to use UERs under any given project must apply for approval to the BLE before the project starts.

-       This former condition is stricter than in the draft and will potentially limit the availability of projects outside the CDM scope.

-       Depending on the price paid by obligated parties to acquire UER certificates – which may well be higher than the equivalent price received on the carbon markets – the already existing CDM projects have the potential to deliver enough credits to cover the 1.2% GHG cap in Germany. However, all fuel suppliers in the EU will be obliged under the 6% FQD, so the competition to secure UERs certificates is likely to be intense.

-       Various estimations of the 6% FQD reduction target range between 45 and 55 million mt CO2 eq

-        In a study ordered by the German Biofuels Producer Associations (VDB) in 2016, the authors estimated that “the potential (…) ranges from 2.30 million tons CO2eq (for $20/tCO2e carbon price) to 15.5 million tons CO2eq for (for $200/tCO2e carbon price).”