Uncertainty over German biofuel legislation creates atmosphere of caution

Growing doubts over the timeline for Germany to transpose the EU's Renewable Energy Directive III into law this year are creating uncertainty in the market, with a document leaked this week suggesting late changes to various biofuels policies are still under discussion.

Germany is in the advanced stages of transposing RED III into law for a Jan. 1, 2026 start, but it is not clear when the federal cabinet, or Bundeskabinett, intends to discuss RED III implementation.

"It wasn't on the Bundeskabinett agenda for Nov. 12, and they keep moving this agenda point week to week," a German policy consultant told Platts. "We now don't expect it to be on the agenda for next week, or the following week."

The Bundeskabinett decides the agenda for its recurring Wednesday meeting on the preceding Friday of each week, however the topic of RED III implementation has been repeatedly postponed over the last few weeks, prompting increased market uncertainty over the timeline of transposition.

Consequently, market activity across the biofuels complex has been more subdued in recent weeks, with prices having fallen week-over-week amid an atmosphere of caution.

"There is uncertainty in the market and prices have come down a bit," a German renewable diesel trader said. "More and more people are starting to think it won't be transposed in time, but it's hard to say for sure -- the government is... pushing to make sure RED III goes through by Jan. 1, but some are getting doubtful."

Platts assessed the RD-A outright price at $2,618.75/mt on Nov. 12, down from an all-time high on Oct. 27 when prices reached $2,830.50/mt. Likewise, the RD-B outright settled at $2,567.25/mt, having fallen by 7%, or $193.25/mt, since also reaching an all-time high on Oct. 27.

The market has widely expressed concerns over the tight legislative track for transposition of RED III by Jan. 1. Once the Bundeskabinett returns a decision on the draft, the bill will still need to be formally approved by the Bundestag, a process which, according to sources close to the German government, could require two or three separate readings.

"The time window is shrinking -- there is only a handful of Bundeskabinett meetings left this year, and the whole procedure of agreeing on the legislation must be concluded by the end of the year," the policy consultant said, adding that there is the possibility under German law that the legislation could take effect from Jan. 1 even if the process is not completed by year-end, with implementation being carried out retroactively.

Departure from initial draft proposal

The delays come amid ongoing discussions over the details of the law. Germany initially released a draft RED III proposal in June; however a leaked document dated Oct. 29 and seen by Platts Nov. 10, outlines several notable departures.

A headline change is the ambition of the greenhouse gas reduction targets, with the overall GHG reduction set at 16% from 2027, rising to 59% in 2040, having previously been set at 53%.

Further, an earlier proposal to expand the GHG reduction quota to include aviation and maritime fuels was reversed.

Revised targets on the use of advanced biofuels were also specified, raising the minimum share of 3% to 3.5% in 2030, eventually reaching 9% by 2040. Obligated parties exceeding these minimum sub-targets on use of advanced fuels will also be able to "request that their respective energy quantities be credited towards the minimum share of the following commitment year," according to the leaked draft.

Conversely, the latest draft removes wording outlining a planned reduction of the crop cap from 4.4% to 3% by 2030, while wording on the exclusion of soybean oil based products from meeting GHG reduction targets was also notably absent.

Feedstock eligibility

Under the revised draft, the list of feedstocks eligible for co-processing was extended to the Annex IX-B list, raising concerns over competition for used cooking oil (UCO) among blenders.

Further, palm oil mill effluent (POME) will remain an eligible feedstock for meeting GHG reduction mandates in 2026, provided it was placed on the market prior to the 2027 commitment year.

Previously, market participants had expressed concern over plans to disincentivize the use of POME, questioning which feedstocks might be used to meet expected levels of demand under higher GHG reduction targets.

"I'm not sure if [the government] had it on their radar how big the implication of that change really is," a Germany-based biofuels trader said.

"There will be less pressure on feedstock availability next year for sure," the trader continued.

The leaked draft also appears to dial back plans to introduce mandatory witness audits for producers exporting into the German market, a change which similarly could ease feedstock availability next year. Requirements on said witness audits, according to the latest draft, will take effect from 2027 onwards instead.

Market reaction

While traders have spent much of this week processing the implications of the leaked draft, sources were quick to note that the latest document remains subject to cabinet approval, with a good likelihood of further amendments.

"This won't be the latest draft as it's now two weeks old -- there will be something more recent with a slightly different set of amendments within," the policy consultant continued, also highlighting that the nature of the concessions made on certain policies possibly indicates that a retroactive implementation may be likely.

Another biofuels trader echoed the sentiment, saying, "We'll have to wait until we see the final version."