L 51 - 2019-20 - Bilag 5: Henvendelse af 3/12-19 fra E.ON Danmark A/S

Klima-, Energi- og Forsyningsudvalget 2019-20
L 51 Bilag 5
Offentligt

OBSERVATIONS ON THE DANISH ENERGY TICKET MARKET

ATTORNEY AT LAW

Introduction

Peter Lunau Larsen

E-mail

Direct

[email protected]

+45 8734 7435

This memorandum points out potential illegal discrimination in the current legal

regulation of the Danish energy ticket market, due to the exclusion of electricity.

SECRETARY

Linda Grentzmann

E-mail

[email protected]

+45 8734 7532

Executive Summary

Direct

The Danish Biofuel Act (in Danish: Biobrændstofloven) implements parts of the

Renewable Energy Directive (RED) and the Fuel Quality Directive (FQD).

The Biofuel Act was originally introduced in the Danish parliament and entered

into force in 2009 where, at the time, neither biogas nor electricity played any sig-

nificant roles in the road transport sector. Thus, neither biogas nor electricity were

included in The Biofuel Act when it was adopted.

In 2015, the RED and the FQD were revised to recognise and mitigate the nega-

tive environmental impact that biofuels production can have in terms of indirect

land-use change and related greenhouse gas emissions. Subsequently, the Dan-

ish parliament updated the Biofuel Act on the 15

of December 2016 to adjust for

the changes. The 2016-amendment sought a technology neutral approach, which

is stressed twice in the proposal

The 2016-amendment notes that biogas had entered the road transport sector

since the original Biofuel Act was adopted in 2009. Consequently, biogas suppliers

were included in the provision that covers companies, and thus subject to the

5.75% requirement for the use of renewable energy sources (RES).

AARHUS

Søren Frichs Vej 42A

DK-8230 Åbyhøj

TVC.DK

J.no.

Date

110147

4.7.2019

https://www.ft.dk/samling/20161/lovforslag/l67/20161_l67_som_fremsat.htm

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Just as biogas in road transport had developed since 2009, so had electricity.

However, the 2016-amendent failed to allow renewable electricity to road transport

the same status.

This shortcoming was not addressed by the Danish parliament.

”Whether

renewa-

ble electricity should or could be included in the oil companies’ implementation of

the blending requirement has not yet been considered”,

the Danish Energy Agen-

cy notes in the memorandum on the 2016 legislative change of the Biofuel Act

Both the RED and the FQD strongly encourage renewable electricity used in road

transport. According to the RED (see article 3 and 4) renewable electricity used in

road transport counts five times its energy content

The FQD contains similar encouragement for renewable electricity. Article 7a par-

agraph 1 stresses that;

“In the case of providers of electricity for use in road vehi-

cles, Member States shall ensure that such providers may choose to become a

contributor to the reduction obligation laid down in paragraph 2 if they can demon-

strate that they can adequately measure and monitor electricity supplied for use in

those vehicles.”

As the discrimination against renewable electricity in road transport constitute a

selective and significant economic advantage to fluid and gaseous RES, the cur-

rent practise is likely distorts competition among different types of renewable en-

ergy.

The European RES target and the ticket system, implementa-

tion in the Biofuel Act

Energy providers, that are obliged to meet the 5.75% RES requirement, trade

among each other to meet this obligation.

Companies with a renewable energy surplus can sell renewable energy tickets to

companies with a renewable energy deficit. The voluntary trading among obliged

parties happen through the so-called ticket market

. Renewable energy units are

traded as tickets (one ticket is one gigajoule renewable energy). The trading

mechanism resembles that of the EU emissions trading system.

Høringsnotat om forslag til lov om ændring af biobrændstofloven, J nr.2016-7115, 19. september 2016

The Danish Energy Agency’s 2016-memorandum

also notes that this change was brought about due to a Danish

proposal during the ILUC-negotiations. The Danish government proposed to increase the multiplication fac-

tor from 2.5 to five to incentivise the use of renewable electricity in road transport. The proposal found broad

support and was adopted.

For explanation, please see Energistyrelsen (2018), Håndbog om dokumentation for biobrændstoffers bæredy-

gtighed, https://ens.dk/sites/ens.dk/files/Transport/haandbog_version_1_4_1_pdf26022018.pdf

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The 2016-amendment to The Biofuel Act included biogas in the ticket market.

Electricity and hydrogen produced by RES are currently excluded from the ticket

market, and thus only gaseous and fluid energy forms are included.

3.1

Distortion of competition

Du to the discrimination between electricity and hydrogen compared to gaseous

and fluid energy forms the act currently distorts competition among different types

of renewable energy (fluid, gaseous and electricity) in road transport as electricity

is specifically excluded from the ticket market.

Since only fluid and gaseous renewable energy can be traded in the ticket market,

it constitutes a selective economic advantage to providers of renewable energy

derived from fluid and gaseous energy sources.

Renewable electricity in road transport contributes to the implementation of RED,

but while suppliers of fluid and gaseous fuels are given additional incentive to ex-

ceed their blending obligation (through the possibility of selling tickets), the same

incentive does not exist for suppliers of electricity to road transport.

Unlike fluid fuel options, electricity is not a drop-in fuel. Neither is biogas, which is

included in the current Danish regulation.

Thus, the continued discrimination against electricity conflicts with the intention of

the regulation.

3.2

The position of the Danish Government

As stated by the Danish Energy Agency, the Danish parliament has yet to consid-

er the possibility of including renewable electricity into the provision in the Biofuel

Act that covers energy suppliers and thus subject to the 5.75% obligation.

The government has until now opposed the inclusion of renewable electricity in the

ticket system on two grounds; biofuels can easily be used in existing vehicles and

are therefore promoted, and an inclusion of electricity in the ticket system would

incentivise electric vehicles and thus reduce the tax revenue from fossil vehicles,

which are taxed at a higher rate.

In answers to parliament, the government has stressed the following (our transla-

tion, emphasis added):

“The EU-target

of renewable energy in transport can be met by using

different technologies. This includes e.g. biofuels and renewable electric-

ity for cars and trains. Biofuels are more expensive than fossil fuels but

can be used in existing vehicles. Biofuels are therefore promoted

through a blending requirement, which currently is 5.75%. This require-

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ment is the overarching requirement for providers of diesel, gasoline and

gas to transport. The requirement can be met by varying blends as long

as the overall target is met. The law also allows for multiple energy pro-

viders to meet the target together”

And:

“Theoretically it is possible to allow for renewable electricity in the im-

plementation of a blending target for biofuels. This would entail that the

blending target is increased correspondingly to ensure the full implemen-

tation of the RED’s target of 10% renewable energy use in transport.

It is only if this action, in itself, leads to an increase in renewable electricity usage

in transport that the use of biofuels can be reduced. For example, an increase in

renewable electricity usage can happen through an increase in the share of re-

newable energy’s production or by increasing

the number of electric vehicles be-

yond the energy projection (Energifremskrivning,

Danish translation).

There must be additional contributions before there will be an effect. However, this

will lead to increased costs, much larger than the cost associated with the trade of

renewable electricity tickets. For example, an increased sale of electric vehicles

will constitute a governmental revenue loss as the registration tax for an electric

vehicle is substantially lower than for conventional vehicles”

It should be noted that the answers to parliament explicitly acknowledge that the

current practise directly affect the competition between renewable electricity and

other renewable energy sources as it is stated that the inclusion of renewable

electricity in the ticket system is likely to increase the sales of electric vehicles.

Contrary to this position, the Danish Council on Climate Change, an independent

panel of experts providing recommendations to the Danish government, has rec-

ommended the adoption of renewable electricity in the ticket system.

”If electricity from electric vehicles was included in a general requirement of a spe-

cific share of renewable energy in transport, it would be possible to generate tick-

ets and thereby potentially reduce the cost of fulfilling the 2020-target in transport

as these tickets could displace more expensive forms of renewable energy. This

would ensure that the cheapest form of renewable energy in transport would be

used”

the council states.

Energi-, Forsynings- og Klimaudvalget 2017-18, EFK Alm.del

–

endeligt svar på spørgsmål 60

Energi-, Forsynings- og Klimaudvalget 2018-19, EFK Alm.del

–

endelig svar på spørgsmål 265

Klimarådet (2018), Status for Danmarks klimamålsætninger og -forpligtelser

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This understanding of the ticket system and its dynamics is also echoed by the

Danish Energy Agency. In a 2017-background

report, it is stated that “it

is as-

sumed that biogas-generated tickets will be the cheapest way of fulfilling any

shortage in relation to the blending requirement in so far that these tickets are

available”

As providers of gaseous and fluid RES are subject to a 5.75% RE-obligation, and

providers of renewable electricity are not, the general blending obligation for pro-

viders of gaseous and fluid RES will be lower than expected if all energy forms

were treated equally. In other words, the contribution from renewable electricity

towards the RES target is, by way of accounting method, transferred without com-

pensation to providers of gaseous and fluid RES, who are then subject to a corre-

spondingly lowered blending obligation.

A technology neutral, market-based and cost-effective implementation of the RES

target would include and treat all renewable energy forms in an equal manner

under the same general requirement of a specific share of renewable energy in

road transport.

Presence of state aid

Pursuant to Article 107(1) TFEU, any aid granted by a member state or through

state resources in any form whatsoever which distorts or threatens to distort com-

petition by favouring certain undertakings or the production of certain goods must,

insofar as it affects trade between member states, be incompatible with the inter-

nal market.

In the General conditions in the Guidelines on State aid for environmental protec-

tion and energy 2014-2020 (2014/C 200/01), it is specifically stressed that (our

emphasis added):

“In order to keep the distortions of competition and trade to a minimum, the Com-

mission will place great emphasis on the selection process. Where possible, the

selection process should be conducted in a non-discriminatory, transparent and

open manner, without unnecessarily excluding companies that may compete with

projects to address the same environmental or energy objective. The selection

process should lead to the selection of beneficiaries that can address the envi-

ronmental or energy objectives using the least amount of aid or in the most cost-

effective way.”

In the light of the above, it is difficult to see how the continued exclusion of renew-

able electricity in the ticket system fulfils these criteria. It should also be noted that

renewable electricity is expected to lead to a more cost-effective and energy-

Energistyrelsen (2017), Baggrundsrapport til Basisfremskrivning 2017

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effective way of implementing the RED. At the very least, to the extent the exclu-

sion of renewable electricity provides other energy suppliers with a selective eco-

nomic advantage, it needs to be authorised by the Commission.

As the current Biofuel Act provides providers of gaseous and fluid RES with the

possibility of generating tickets, and thus an added value, it clearly constitutes an

economic advantage that providers of renewable electricity do not have access to.

As an example of this foregone value creation derived from the ticket market, had

electricity providers been able to participate in the trading of tickets, it would be

possible to provide discounts in the order of 17,000 euros per year per electric bus

when bidding for public tenders, according to industry actors as well as our calcu-

lations (see appendix 1).

It should also be noted, that gaseous and fluid RES receive production subsidies

and are exempt from CO2-taxes (regardless of whether they are first- or second-

generation biofuels). As the Commission has held in previous decisions, such tax

exemptions constitute state aid within the meaning of Article 107(1) TFEU (e.g.

see decision SA.48069 (2017/N)).

The Danish Energy Agency has previously estimated that the CO2-tax exemption

on biofuels, under the 5.75% obligation, amounts to a governmental revenue loss

of 72 million euros and 163 million euros in societal costs

. These costs are ex-

pected to increase if the general requirement of a specific share of renewable

energy in transport is increased. The report from the Danish Energy Agency fur-

ther stresses that the prices of different RES in road transport significantly affect

trade between member states, specifically Denmark and Germany.

In relation to this, it is worth noting that reductions in or exemptions from environ-

mental taxes can at least indirectly contribute to a higher level of environmental

protection. However, as the EEA Guidelines lay down, the overall objective of the

environmental tax to discourage environmentally harmful behaviour should not be

undermined. The tax reductions should be necessary and based on objective,

transparent and non-discriminatory criteria, and the undertakings concerned

should contribute towards increasing environmental protection.

In Denmark, the production of fluid, electric and gaseous RES receives state sub-

sidies. When fluid and gaseous RES are used in road transport, the RES is sub-

ject to CO2-exemptions. As electricity production is covered by the EU emissions

trading system (ETS), electricity used in road transport is per definition carbon

neutral as the carbon emissions are neutralised in the ETS.

Energistyrelsen (2015), Analyse af alternative muligheder til opfyldelse af 2020 målet for VE til transport

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Fluid, electric and gaseous RES counts equally towards the RES target as out-

lined in the RED. The mass balance system is the only chain of custody system

permitted under the RED, requiring suppliers to account for their product on an

energy unit basis. It is also this mass balance system that create the basis for the

ticket market. A renewable energy unit is required for each ticket.

In an analogue example to the current ticket system, it is relevant to ask whether

the following would abide to state aid law or at the very least, would not need to be

subject to notification and authorisation from the Commission.

A member state wants to support electricity production from wind turbines.

The wind turbines produce renewable electricity and as GOs can be established,

owners of wind turbines can subsequently provide companies or private consum-

ers with green certificates. Now, let us presume that the government in this mem-

ber state prefers onshore wind turbines. Could we then imagine a legal discrimina-

tion of offshore-derived green certificates, which would benefit owners of onshore-

derived green certificates?

It seems highly unlikely and at the very least, it would require prior notification and

Commission approval.

The current practise needs state aid verification

I do not contest that member states can implement the RES-target in various and

technology-specific ways. However, I strongly dispute that the current practise

relating to the Danish ticket market is a well-designed instrument, which is appro-

priate to achieve the environmental aim sought.

... ...

Please do not hesitate to contact me should I be able to help any further.

Best regards

TVC Law firm

......................................................

Peter Lunau Larsen

Partner, Attorney at Law

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Enclosed:

Appendix 1

Price example and assumptions regarding e-busses, including tickets

The example builds on the assumptions and numbers in the latest Danish report

on the topic

. Furthermore, a RE-share for electricity of 73% is assumed (2017-

level) as well as a 20% distortion in the trading process. All things being equal, a

yearly value of €17,158

is generated per electric bus.

Fuel economy, diesel busses

Range per bus (km/year)

Number of busses

Total use (km/year)

Diesel consumption (l/km)

Total diesel consumption (l/year)

Diesel price incl. taxes (€/l)

Total cost, diesel operations (€/year)

Fuel economy, electric busses

Range per bus (km/year)

Number of busses

Total use (km/year)

Electric consumption (kWh/km)

Total electricity consumption (kWh/year)

Price of electricity, incl. tax (€/kWh)

Total cost, electric operations (€/year)

Estimation of ticket value

Price, fossil diesel (€/GJ)

Price, 1G biodiesel (€/GJ)

Estimated distortion in relation to ticket trading (€/GJ)

Estimated ticket price (€/GJ)

Ticket value from electricity to busses (€/year)

Fuel economy, electric busses (incl. tickets)

Total cost of operations (€/year)

Ticket value from electricity to busses (€/year)

Financial value of tickets (€/year)

70.500

412

29.046.000

3,1

9.369.677

0,99

9.245.585

70.500

412

29.046.000

1,5

43.569.000

0,07

2.653.979

14,99

30,26

2,68

12,58

7.069.452

2.653.979

7.069.452

4.415.473

COWI (2018), Alternative drivmidler i Sydtrafik

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