Report evaluates the effects of Government Programme’s distribution obligation entries and the national implementation of RED III Renewable Energy Directive

On 12 February 2024, the Ministry of Economic Affairs and Employment published a report on the changes to the distribution obligation of transport fuels. AFRY Management Consulting Oy produced the report on behalf of the Ministry. The report’s purpose was to evaluate the effects of the proposed changes to the distribution obligation outlined in the Government Programme.

The report focuses on the impacts that the reforms would have on renewable fuel demand, emissions from road transport and consumer prices as well as the wider significance of the changes for society and the economy.

The Government Programme of Prime Minister Orpo proposes a more moderate increase in the levels of the distribution obligation than previously planned for the years 2024–2027, which would substantially reduce the need for renewable fuels.

A more subtle increase of the obligation levels than currently legislated would decrease the pump price of diesel by about 7–12 cents per litre and the pump price of E10 petrol by approximately 9–17 cents per litre in 2024–2027. This would reduce the costs of households by an average of around EUR 58 per year. However, the report shows that the changes would increase road transport emissions by a total of 4.83 million tonnes of carbon dioxide over the review period.

The report also presents five scenarios for developing the distribution obligation by 2030. All scenarios meet the objectives of the RED III Directive on Renewable Energy. Of the scenarios, the development path under the current legislation would reduce transport emissions by 44 per cent, while the average scenario would reduce them by 41.9 per cent. Only in the scenario where emissions were halved, would Finland reach its emissions reduction target for road transport. 

The report also discusses the role and need for RFNBO (renewable fuels of non-biological origin) and intermediate product hydrogen in the distribution obligation by 2030. 

The scenarios show that Finland’s planned RFNBO production capacity could cover the need many times over, even if only half of the planned production facilities were realised. 

However, the effect of different RFNBO scenarios on the estimated pump price of transport fuels would not be considerable. The increase in pump prices caused by the minimum obligation to be added to the distribution obligation would be approximately three cents per litre in 2030. According to the report, the effect on prices is curbed in particular by the relatively small amount of RFNBO and intermediate product hydrogen in the distribution obligation.

According to the report, staggering the penalty fee levels of the distribution obligation can easily lead to a situation where the distribution obligation is not fulfilled above a certain penalty fee level. The staggering of the penalty fee and non-compliance with the distribution obligation in this way may result in a significant increase in road transport emissions. Limiting the distribution obligation to 18 per cent would increase road transport emissions by 0.64* million tonnes of CO2 in 2025–2027. 

AFRY’s report provides a comprehensive picture of the future scenarios for the distribution obligation and their effects. The report’s results will be used in updating the Distribution Obligation Act. The Government’s proposal concerning the distribution obligation in 2025–2027 and amendments to the Distribution Obligation Act are set to be submitted to Parliament in autumn 2024.

Inquiries:
Harri Haavisto, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 29 504 7059, harri.haavisto(at)gov.fi
Esa Sipilä, Senior Principal, AFRY Management Consulting Oy, tel. +358 50 412 0839, esa.sipila(at)afry.com

*Correction 23/02/2024 - Corrected incorrect number in the report 0.48 -> 0.64