German court ruling could prompt biofuels blending shift

2 Mar 2018 | John McGarrity

Germany’s demand for biodiesel is likely to grow at a slower rate if German cities are required to curb or ban diesel cars in the wake of a landmark court ruling this week, which could mean that additional GHG savings will have to be found in freight and in petrol consumption.

A federal court in Leipzig on February 27 ruled against two German states that had appealed against earlier lower court rulings that had suggested bans on older diesel cars would be effective in improving air quality and human health.

The ruling paves the way for around another 70 German cities to take action against diesel cars that are EURO 5 standard or below, which could apply to around 80% of diesel cars or 10 million vehicles, according to analysis from EY.

German biofuels lobby Verband der Deutschen Biokraftstoffindustrie (VDB) said that if bans were enforced on a wide scale, demand growth for biodiesel from private vehicles would likely slow, increasing the burden on the other biodiesel demand sources – freight and non-road engines – to increase their share of biofuels in order to meet the overall target.

"It's very hard to tell what net impact these bans will have on biodiesel demand, and the freight and machinery sectors have a great deal of flexibility to consume higher blends of biodiesel," said Frank Bruhning of the VDB.   

And if biodiesel was to meet a smaller share of GHG reductions required (compared with business as usual), then bioethanol could scale up its proportion of renewable additives, he added. 

However, sales of E10 bioethanol blended petrol in Germany are low, with BP saying that the fuel only accounts for around 15% of its overall petrol sales in Germany. By way of contrast, sales of E10 in France are at almost 40% of overall petrol sales.    

Germany’s renewable energy laws require biofuels in the country to save on average 4% of the GHGs in the 2017-2019 period compared to the hypothetic GHG emissions that would have been emitted had all the fuel been of fossil origin.

From 2020 that figure rises to 6%.

For 2017 excluding December, Germany’s consumption of biodiesel was 2.033 billion litres, up from 1.989 billion litres in the equivalent period in 2016. Meanwhile, consumption of bioethanol was largely flat in the first 11 months of 2017 compared with the equivalent period in 2016, falling to 1.053 billion litres from 1.072 billion litres.

But calibrating by how much biodiesel demand from private cars could slow because of city bans depends on a number of variables, such as how many municipalities decide to exclude highly-polluting cars form their city centres, how often restrictions would apply, and whether car makers will be obliged to undertake costly retrofits of vehicles with exhaust technology that filters out harmful nitrogen oxide emissions.

Sales of new diesels, which would likely escape city government bans if they meet EURO 6 standards based on real-world conditions, fell around 13% last year as some drivers opted to buy petrol models instead. 

But this week's ruling would have the biggest impact on second-hand diesels, as the prices for older models will likely depreciate further, pointed out Tobias Kuhnimhof, an analyst with Berlin-based Institute for Transport Research. 

Some drivers would likely buy second-hand petrol models instead, he added, but the impact on the new car market would be harder to gauge, Kuhnimhof said. 

Government reaction

And even if German cities respond to this week’s ruling by taking action against polluting cars, they will only be mandated to do so from late this year for the oldest cars (EURO 3 and 4) and from September 2019 for cars that meet EURO 5 standards.

The federal government said the bans were not inevitable.

"Driving bans can be avoided, and my goal is and will remain that they do not come into force," Germany’s Environment Minister Barbara Hendricks told journalists.

Cumulative impact 

Chancellor Angela Merkel also tried to downplay the impact of the ruling, saying that it concerned only "individual cities".

"It's really not about the entire country and all car owners," she added.

But taken together, "individual cities" could amount to a lot of diesel cars.

Up to 17 cities, including some of Germany's largest, could this year start the process of banning or curbing diesel cars, said Deutsche Umwelthilfe, the NGO that has taken lawsuits in lower courts.   

Structural change

Peter Fuss, Partner and Senior Advisor Automotive at EY said in a report that "significant structural changes are imminent" in the wake of the report.

He added: "Regardless of the extent to which driving bans are actually implemented: the mere possibility of driving bans will further weaken confidence in the technology and let the used-market prices tumble. It is quite possible that the diesel market share will still fall below the 25% mark this year."