GHG quota reform: Biogenic hydrogen should not count towards reduction targets for oil refineries

A blog post by Dr. Ulf Neuling Senior Associate for Fuels / Air and Sea Transport at Agora Verkehrswende

Germany uses the GHG quota to implement the requirements of the European Renewable Energy Directive (RED) in the transport sector. The quota requires fuel suppliers – including in particular oil companies – to reduce their CO₂ emissions. Fuel suppliers have four main options for reducing emissions: They can bring to market or utilize (1) conventional biofuels such as biodiesel; (2) advanced biofuels from biogenic residues and waste materials such as HVO; (3) renewable fuels of non-biological origin from water using renewable electricity and electrolysis (e.g. green hydrogen, e-fuels); or (4) renewable electricity for charging electric vehicles. 

Biogenic hydrogen – that is, hydrogen produced from biogas or biomethane, for example – can already be counted towards GHG quota fulfilment, provided it is directly used to power transport vehicles (as per Section 13 of the 37th BImSchV). The current debate on the further development of the GHG quota now centres on recognising the use of biomethane in oil refineries as well. 

Reducing the emissions of oil refineries

The concept is simple: Biogas is upgraded to the quality of natural gas and fed into the grid as certified biomethane. Refineries source this natural gas from the grid in order to produce hydrogen via steam reforming, which they require in large quantities for the desulphurisation and further processing of products such as petrol, diesel, and kerosene. If oil refineries purchase certificates for biomethane fed into the grid and thereby replace fossil hydrogen with biogenic hydrogen in their GHG accounting, this should be counted toward the GHG quota as an emissions reduction.

Arguments for recognising the use of biogenic hydrogen by refineries under the GHG quota scheme include the benefits of relying on existing infrastructure and lower costs compared to green hydrogen. Allowing biogenic hydrogen to apply towards CO₂ abatement would be particularly attractive economically for the operators of older biogas plants that lose eligibility for funding under the Renewable Energy Sources Act in the coming years. 

However, two decisive questions remain: How would this change complement the broader transition to climate neutrality? And, more specifically, how does it serve the purpose of the GHG quota – namely, to reduce CO₂ emissions in the transport sector?

Why the proposal is problematic

1. Competition with green hydrogen: Via the sub-quota for renewable fuels of non-biological origin (RFNBO), the GHG quota can encourage investments that aim to make green hydrogen economically viable. If biogenic hydrogen is approved as an alternative in refineries, this will create a direct competitor to green hydrogen. Yet solutions that are cheaper in the short term may threaten to crowd out technologies that are necessary in the long term (such as electrolysers), thus delaying the rollout of a sustainable hydrogen economy.

2. No contribution to the development of hydrogen infrastructure: The proposal incentivises the production of hydrogen from biomethane within refineries. Methane – not hydrogen – thus remains the transported gas. Accordingly, the proposal would not contribute to the utilisation of the core hydrogen grid currently under development in Germany. In this way, it neglects a key component of the energy transition.

3. Biomethane is a scarce resource: The quantities of biomethane that will be sustainably available in Germany and Europe in the medium term are limited. Furthermore, biomethane is already in high demand in many sectors (e.g. transport, heating, power generation). As a large share of biogas plants are small and decentralised, it would not be economically viable for many to process raw biogas into biomethane. Indeed, in 2024, fewer than 250 of the 8,600 biogas plants in Germany were capable of doing so. Studies suggest that only around one-fifth of biogas plants would be able to switch to biomethane over the long term. Expanded reliance on biomethane would thus likely intensify existing conflicts over the allocation of resources.

4. Regulatory gaps: A certification system that would verify oil refinery use of biomethane for hydrogen production has not yet been established in Europe. The existing classification system for biofuels is not fit for this purpose. Furthermore, the classification system for renewable hydrogen presumes production based on electrolysis. The proper verification of emissions reductions without double counting thus remains an unresolved issue.

5. Limited benefits for the transport sector: One key point is often overlooked: Emissions would be physically reduced at the refinery – that is, within the industrial sector. While these reductions would count towards the GHG quota, they would only contribute indirectly to the fulfilment of climate targets in transport. To be sure, fossil fuel production would become more climate-friendly. However, fossil fuels would remain fossil fuels – with subsequent combustion in vehicle engines producing emissions that are harmful to the climate and human health. 

Under the European Effort Sharing Regulation (ESR) covering transport, buildings, and agriculture, the actual emission reductions achieved by refineries would continue to count towards the industrial sector. Accordingly, the proposal would weaken the ability of the GHG quota to reduce emissions in the transport sector. Germany would thus remain at high risk of failing to meet its climate target for transport. Furthermore, the larger the ESR target shortfalls in transport, the higher the associated fines will be, as it will be necessary to purchase emission certificates to close the abatement gap. 

Focusing on measures with real climate impact

Replacing fossil fuels with biomethane makes sense in principle. However, the climate impact of this measure will vary depending on how the biomethane is used. Allowing biogenic hydrogen produced by refineries to count towards the GHG quota would divert scarce resources to less effective areas of application, slow down the roll-out of the green hydrogen economy, create regulatory uncertainty, and weaken the overall effectiveness of the GHG quota for the transport sector.

When further developing the GHG quota, legislators should focus on supporting the uptake of electric vehicles and the adoption of e-fuels in aviation and maritime transport, which enable genuine and additional emissions reductions in the transport sector. This would be preferable to contemplating measures that have impacts in neighbouring sectors. A GHG quota that is informed by these priorities would fulfil its market-based purpose – namely, creating targeted incentives for the use of renewable energy in transport while also providing reliable conditions for investment, particularly for the roll-out of the green hydrogen economy.

First published as an opinion piece in the Tagesspiegel Background Verkehr & Smart Mobility.

On 8 May, Germany’s upper house, the Bundesrat, approved the draft bill. You can find Agora Verkehrswendes’ analysis of the resolution here.