Highlights

Since 2015, when the government set the overall biofuel mandate at 7.5 percent for transportation, the market has been adjusting to avoid exceeding the volumetric blending limit for biodiesel. Consumption of HVO and bio-ETBE/Bioethanol took pressure off the use of biodiesel, especially in 2015. In 2016 the use of use of double counting raw materials was maximized, resulting in a significant reduction of biodiesel sales. In 2017, additional requirements for UCOs and AFs may slow down the growth of double counting raw materials use in a more competitive and open to trade Portuguese biodiesel market.


Executive Summary

Portugal’s biofuels market consists mainly of biodiesel with only a minor use of HVO or ETBE in the diesel and gasoline respectively. Diesel is by far the most popular fuel for road transport.

Now that all other incentives have been phased out, the consumption mandate is the sole driver for the Portuguese biofuel market. Since 2015, when the overall biofuel mandate was set at 7.5 percent (energy basis) in transport fuels, the market adjusted to avoid exceeding the volumetric blending limits (B7 and E10 respectively). In 2016 this measure impacted the raw materials mix used in biodiesel by maximizing the use of double-counted raw materials. Other alternative put in place by blenders included the increased use HVO and/or bio-ETBE/Bioethanol in their diesel or gasoline blends respectively, particularly in 2015.

The extensive use of double counting raw materials and, to a lesser extent, HVO and/or Bio ETBE resulted in a smaller than anticipated growth of biodiesel sales in 2015 and a reduction in biodiesel consumption in 2016. Domestic biodiesel producers’ response to the smaller biodiesel market was to export to other EU Member States, although ultimately their overall output level went down in 2016.

In 2017, the tendency towards meeting mandates with lower volume of biodiesel may be slowed down by a more strict control in Animal Fats and UCOs sourcing. At the same time, since 2017, with the domestic biodiesel market more open trade, Portuguese producers may face stiffer competition from other European Member States. Duties in place will still keep away the most competitive foreign biodiesel suppliers, at least until August 2017.

The increased mandate (9 percent) for 2018 along with the slight growth in consumption of regular diesel may open up room for increased in-country biodiesel production. However, the transposal to national law of Directive 1513/2015 among other factors such as competition from imports, the profile of the raw materials used, and petrol companies blending strategy will be critical to understand 2018 biofuels consumption and production dynamics in Portugal.

Portuguese Regulatory Framework

After the biodiesel company quota phase out, and the elimination of the biodiesel maximum price mechanism since 2015, the only incentive in place is the consumption mandate, which is the Portuguese biofuel market driver. Sustainability is fully enforced in Portugal since January 1, 2015 and double counting is in place since 2012.

Biofuel Targets

Portuguese blending targets are amongst the highest blending mandates in the European Union. Decree-Law 117/2010 of October 25, 2010 transposed Directive 2009/28/CE into national law. This piece of regulation established sustainability criteria for production and use of biofuel as well as the consumption targets from 2011 to 2020 maximizing the participation of biofuels in the 10% sub-target established for transport.

In 2015, the overall biofuel consumption target was established at 7.5 up from the 5.5 percent in terms of energy in 2014, and a 2.5 percent bioethanol specific-target was introduced since 2015. Decree- Law 69/2016 retroactively eliminated the bioethanol specific target since 2016.

While initially in 2017 the overall mandate was 9 percent, according to Law 42/2016 the overall consumption mandate was revised down, keeping it at 7.5 percent. In 2018, the overall mandate is 9 percent and, in 2019 and 2020, the overall energy mandate will be 10 percent in terms of energy .

Biofuel Target

Compliance

Biofuel target and sustainability compliance in Portugal are managed through a Biofuel Entitlement System. Biofuel producers and blenders are mandated to report to the ENMC (National Entity for the Fuels Market) the amount of biofuels sold to other market operators. Producers and blenders must submit information in regards to the amount of biofuel produced, imported and sold to other companies. Blenders must submit information in regards to the quantity of regular fuel and biofuel marketed.

The ENMC issues Biofuel Entitlements, (TdB) as appropriate to the different industry actors. One TdB equals to a Toe marketed. The fines of 2,000 Euros are imposed per TdB that the obliged party fails to present.

Prior to 2015, when the overall consumption mandate was 5.5 percent, targets were met with “real” biofuels use. Since 2015, when the 7.5 overall mandate was enforced, double counting TdBs and other renewable fuels such HVO and BioETBE, started playing a major role for mandate compliance in order to not to exceed the volumetric limits established by the Fuel Quality Standard Directive (FQD). In 2016, double counting raw materials was particularly significant.

As the mandate is not diesel specific, the use of bio-ETBE/Bioethanol in gasoline blends is also an option for mandate compliance by blenders. Nevertheless, given the small and shrinking size of the gasoline pool, the contribution of bio-ETBE/Bioethanol to meet the increasing consumption mandates is rather limited.


  • Biodiesel Quota

Prior to 2015, a maximum production quota was allocated to each biodiesel plant in Portugal. Despite this company-quota system phased out on January 1, 2015, according to Decree-Law 117/2010, TdB (Biofuel Entitlements) since then, TdBs were just issued to biofuel producers recognized as “Fiscal Warehouses for Transformation” (EFT). Consequently, blenders were allowed to seek other suppliers only if biofuels (TdB) issued to EFT are not sufficient for mandate compliance. Hence, in the absence of a company-specific quota, in 2015 and 2016 there was increased competence among domestic producers, while at the same time certain level of protection against imports remained in place.

This provision on EFTs priority was challenged by the European Commission. As a response, the GOP issued Decree- Law 69/2016, which replaced the “Fiscal Warehouses for Transformation” (EFT) condition by “mandatory prior registration” to be eligible for mandate compliance.

Consequently, since 2017 the Portuguese market is more open to competition from other EU suppliers. Heavy duties are applied to the largest will still keep away the most competitive foreign biodiesel suppliers such as Argentina and Indonesia, at least until August 2017.

  • Transposition of the REDandSustainabilityImplementation

While Portugal transposed Renewable Energy Directive (RED) into national law in December 2010 by Decree-Law 117/2010 and Decree-Law 141/2010. Decree-law 6/2012, prepared by the Ministry of Economy and Employment, delayed sustainability compliance verification until January 1, 2013 and suspended retroactively Decree-Law 117/2010 implications in regards to sustainability implementation until July 1, 2011. Decree-Law 224/2012 published later in the year suspended sustainability criteria until July 1, 2014, when it was finally implemented and since January 2015 fully enforced.

Portuguese large and medium size biodiesel producers have opted for EC approved company schemes to certify that their production is sustainable, as they rely strongly on imported raw materials, which fall out of the scope of the national scheme. Currently, only SDPs are subject to Portugal’s National Scheme, which is managed by the DGEG. Domestic non-food raw materials, used to receive 1.3 TdB per Toe produced. Each Toe of biofuel produced out of domestic agricultural raw materials was granted with 1.1 TdB. However this additional value for domestic raw materials is just valid at the domestic level and could not be reported to the EC as part of the mandate compliance. Since 2015, some biodiesel producers have opted for an extensive use of double counting raw materials, consequently increasing the number of TdB-DC issued.

Tax exemption

At present, according to Implementing Order 320-E/2011 of December 30, 2011 only SDPs are eligible for this tax exemption. At the moment, hydrocarbon tax (ISP) plus road tax for diesel in transport in Portugal amounts to 0.466 Euros per litre.

  • Technical fuel specifications in place

EU Fuel Quality Directive 2009/30 (FQD) enabled fuel operators to market B7 and E10. This piece of regulation was transposed into national regulation by Decree-Law 142/2010, which increased the biodiesel content allowed from 5% to 7% and the bioethanol content permitted from 5% to 10%.

Blends with volumetric biodiesel content over 7 percent, or volumetric bioethanol content over 10 percent, or volumetric bioethanol content over 5 percent and over 2.7 of oxygen content in terms of mass, should be labeled indicating the biofuel content. In addition, the following disclaimer should be present: “Before using this product, please make sure it is suitable for your engine”.

In the case of gasoline blends, in order to protect the oldest vehicles that are not prepared to operate on higher bioethanol contents, until December 31, 2013, supply of at least the lowest octane index gasoline with less than 5 percent bioethanol in terms of volume, and less than 2.7 percent of oxygen in terms of mass will be granted in all petrol stations. This type of gasoline is known as so-called "protective petrol". Same octane index gasoline can be also available with higher oxygen or bioethanol contents.

  • Cap on Food Crop Based Biofuels

On October 5, 2015, Directive 1513/2015 officially introduced a 7 percent cap (energy basis) on food based biofuels thus limiting consumption first generation or conventional biofuels within the wider 10 percent target for biofuels in EU transportation fuel by 2020 set by the RED.

This Directive also increases the multipliers factors for electricity produced from renewable energy sources consumed by electric road vehicles (from 2.5 to 5) and rail transport (from 1 to 2.5) for the calculation of market share of renewables in transport, reducing fossil fuels market share for mandate compliance. The 10 percent target in road transportation for 2020 remains unchanged.

Fuel suppliers are obligated to submit to Member States, on a yearly basis, the provisional mean values of the estimated indirect land-use change emissions from biofuels traded.

Additionally, the Directive increases the minimum reduction threshold of greenhouse gas (GHG) emission for biofuels and bioliquids produced in new facilities.

GHG emission saving from the use of biofuels shall be:

  • At least 60% for biofuels produced in facilities starting operation after October 5, 2015.
  • At least 35 % until December 31, 2017, and at least 50 % from January 1, 2018 for biofuels produced in facilities starting operation before October 5, 2015, which is the case of all Portuguese Medium and Large biofuel producers.

Additionally, a non-binding 0.5 percent national target for advanced (non-food) biofuels was included. EU Member States will have until September of 2017 to enact the reformed legislation. It has not been transposed yet to Portuguese law.

Based on the profile of raw materials used in 2016 the Portuguese biofuel industry is already operating well below under the 7 percent cap limit. Food crop based raw materials in 2016 represented 54 percent of the biofuel produced in Portugal, which until 2016 when the national preference still prevailed, was fairly similar to what was consumed in Portugal.

  • EU Policy Developments affecting Portugal

At the EU level, regulations influencing EU biofuels use in transport include the Renewable Energy Directive (RED), and the Fuel Quality Directive (FQD), both amended by the Indirect Land Use change Directive (ILUC). EU Directives are not directly applicable to Member States as they require prior transposal. While RED and FQD have already being transposed to Portuguese law, the ILUC Directive is yet to be transposed.

On November 30, 2016 the EC announced the new biofuels policy for the 2020-2030 period, failing to set mandatory targets for biofuels consumption. The future of biofuel in EU is currently under discussion for the 2021-2030 period. The revised RED proposal sets a cap on food crop-based biofuels starting at 7 percent in 2021 and decreasing gradually to 3.8 percent in 2030 and a GHG emissions reduction of 40 percent compared to 1990 levels.

Biodiesel Market and Feedstock Use

  • Capacity

Portugal biofuel production consists mostly of biodiesel. Repsol has been producing domestic bio-ETBE in the Sines Complex since spring 2015. Plans for HVO production in the same location as of 2017, with an annual capacity of 50 million litres.

In Portugal, two types of biodiesel producers coexist: medium/large producers and small dedicated producers (SDPs). The latter are granted with a special status, including, but not limited, to hydrocarbon tax exemption. At the moment, there are eight medium to large-size biodiesel plants; most of them started operations between 2006 and 2009.

  • Production

Biofuel produced in Portugal consists mainly on fatty acid methyl ester (FAME), obtained through the transesterification of vegetable oils. Given the “national preference” prevailing until 2016, domestic production was highly correlated with domestic sales, which aremandate driven. Production of biodiesel by medium and large producers steadily increased over the years until 2012, when it collapsed. Biodiesel production constrained further in 2013 and rebounded in 2014 in parallel the conventional diesel trend. Despite the higher mandate, which went from 5.5 in 2014 to 7.5 percent in 2015 (36 percent increase), production growth was just over 10 percent. In 2016, biodiesel production in Portugal declined by nearly 15 percent. The slowdown in growth, and later reduction of production levels in 2015 and 2016 respectively, are a direct consequence of the alternatives put in place to meet mandates without exceeding volumetric blending limits.

In 2017, with the Portuguese biodiesel market more open to trade along with the alternatives to substitute biodiesel will be very challenging for domestic biodiesel producers. However, the more strict control in double counting raw materials sourcing, the slight increase anticipated in conventional diesel consumption in the stable mandate scenario along with the bioethanol specific mandate phase-out could prevent domestic biodiesel production from further constrictions.

As it regards to petrol blends, since 2015 there is BioETBE production in Portugal. Gasoline specific mandates enforced in 2015, along with the fact that the higher overall mandate that was not compatible with the volumetric blending limits, drove the increase in gasoline substitution by national and imported BioETBE. However, the bioethanol specific mandate was retroactively eliminated for 2016and the years to follow at the end of2016. Consequently, in the absence of a specific mandate,from 2017 on, Portugal’s BioETBE production and consumption will solely depend on its price competitiveness and petrol’s companies need to observe volumetric blending limits.

  • Other Renewable Biofuels

Production of biodiesel from Used Cooking Oils or Animal Fats at the commercial level is very limited. It includes Small Dedicated Producers (SDP) output along with Enerfuel, a GALP-owned plant based in Sines (Portugal), able to produce biodiesel out of Animal Fats and Used Cooking Oils, with a capacity of 31,000 m per year. In addition, Medium and Large producers have certain, but limited, capacity to process these raw materials.

Increased competition in the procurement of raw materials (UCOs) has resulted in a production decline in 2016 by Small Dedicated Producers, who are specialized on innovative processes.

  • Feedstock

Portugal biodiesel sector is heavily reliant on imported raw materials. Domestic oilseed production, essentially limited to olive oil and sunflower oil, is used almost exclusively in the food market.

Area planted to sunflower in Portugal in 2017 is projected at 15,000 Ha, down from the 18,000 MT planted in 2016. The use of domestic rapeseed for biodiesel production in 2016. Other than this, the in-country supply for biodiesel production comes down to Animal Fats and UCOs. These markets are fragmented and, until 2015, the procurement of Animal Fats and UCOs was only feasible for the SDPs.

The deficit in domestic oilseed production for the biodiesel industry is normally compensated by imports of oilseeds to be crushed in the country or oil imports (palm oil, soybean oil or other Vegetable oils. However, the extensive imports of UCOs in 2016 not only has resulted in the reduction of all crude oil imports, but also in reduced oilseeds imports for crushing in 2016, affecting more significantly to rapeseed crushing, which has traditionally being the preferred oilseed for biodiesel-oriented oilseed crushers due to its higher oil content, compared for instance to soybean, which is largely preferred by those crushers more focused in the protein content of the meal for feed rations.

Oilseed crushing capacity in Portugal is managed by three companies. The Sovena-Bunge partnership manages two crushing facilities located in Palença do Baixo, one of them devoted to soybean crushing and the other one that can switch between rapeseed and sunflower. Iberol’s plant in Alhandra can switch between the two main oilseeds (soybeans and rapeseed). Oleocom plant operated by Reagro resumed soybean crushing in 2016.

In 2016 the use of UCOs as a feedstock for biodiesel grew further and, both soybean and palm oil use hit bottom in this same year. Some biodiesel producing companies opted for an extensive use of raw materials eligible for double counting (UCOs mainly). This resulted in total biodiesel sales reduction, as biodiesel produced out of double counting eligible feedstock contributed to meet mandates with without an increase in the volume of biofuel consumed.

Moreover, this situation further increased Portugal’s reliance on imported raw materials, as the large majority of the UCO is being imported from outside the EU. On a positive note, double counting also contributes to meet mandates while observing the seven percent cap (energy basis) to the contribution of food crop based biofuels to the 10 percent target for renewable energy in transport by 2020, which is yet to be transposed to Portuguese law.

Available data for March 2017 indicate that a significant use of double counting eligible raw materials continue to represent a large share of the feedstock used. Having said that, for UCOs of exclusively vegetal origin as of April 1, 2017a traceability certificate issued by a recognized Voluntary Scheme in order to be doubled counted is required. In addition to that, for fats and oil preparations derived from animals according to Commission Implementing Decision 2016/1196 as of January 1, 2017, the Common Veterinary Entry Document (CVED) to pre-notify the arrival of each consignment is required. Moreover, Portaria 145/2017 defines the rules for residues transportation within the country. According to this piece of law, residues must be accompanied by an “e-GAR”, that is, an electronic certification that ensures traceability and serves as proof for sustainability compliance purposes. These additional requirements for UCOs and AFs since 2017 may contribute to slow down the growth of double counting raw materials.

  • Consumption and Marketing

With all other incentives phased out, consumption mandates are the sole drivers for the biofuel market. Hence, consumption mandates together with conventional fuels demand evolution define the Portuguese biofuels market size. As in the large majority of EU Member States, diesel is the main transport fuel in Portugal. However, while the EU diesel-gasoline average ratio is 2:1, in Portugal it is 4:1, which means that the potential for ethanol and gasoline to contribute to meeting the RED 10% goal is much less than is the case in the EU-wide fuel market. Road transport diesel and gasoline consumption has followed a downward trend since 2008as a consequence of the lower economic activity. However, since2014statistical informationshows a slight recovery in diesel use, while gasoline consumption continues shrinking.

In 2016, as a consequence of the extensive use of double counting raw materials, biodiesel sales hit its lowest level in five years, and HVO/BioETBE consumptionalso declined drastically.

For 2017 this tendency towards meeting mandates with lower volumes of biodiesel could continue. However, the more strict control in double counting raw materials sourcing may prevent the use of double counting raw materials from further growth.

In Portugal, bioethanol direct blending takes place, however, the large majority of renewable gasoline substitutive consumption occurs in the shape of bioETBE. Consumption of gasoline substitutive from 2017onward is anticipated to be rather limited in the absence of a bioethanol specific quota retroactivelyeliminated since 2016.

  • Trade

As the aftermath of the national preference in the biodiesel sourcing biofuels trade in Portugal until 2016 has been limited9. Biofuel imports mainly consisted on Bio-ETBE/Bioethanol or HVO and in most occasions originated in neighbouring Spain.

Since 2017, higher imports from other EU Member States may be registered. However, heavy duties applied to the largest will still keep away the more competitive extra EU suppliers, at least until August 10, 2017, date when the EC plans to implement WTO recommendations.

The higher overall consumption mandate and specific bioethanol mandate triggered HVO and BioETBE imports in 2015. On the contrary, in a smaller number of TdBs was issued to imported biofuels in 2016 as the market was sufficiently supplied by the extensive use of double counting raw materials in domestic biodiesel production. Based on statistical information available for 2017, no TdBs have been issued so far to imported biofuels. Nevertheless, increased competition by registered foreign producers may open up import opportunities.

With regards to exports, Spain, Belgium, France and Italy are the main destinations for Portuguese biofuel production.

Future Perspectives

With all other incentives phased out, consumption mandates are the sole drivers for the Portuguese biofuel market. At the moment the Portuguese blending targets are amongst the highest blending mandates in the European Union. Diesel is the main transport fuel in Portugal. Consequently, the non-fuel specific mandate-driven market mainly creates opportunity for both domestic and, since 2017, for European biodiesel producers. The small and shrinking size of the gasoline pool the contribution of bio-ETBE/Bioethanol to meet the increasing overall mandates is rather limited.

In 2017, the tendency towards meeting mandates with lower volume of biodiesel may be slowed down by a more strict control in Animal Fats and UCOs sourcing, but at the same time, since 2017, with the domestic biodiesel market more open to trade, Portuguese producers may face stiffer competition from other European Member States, which could negatively affect domestic production levels as well.

The increased mandate (9 percent) for 2018 along with the slow growth consumption of regular diesel may open up room for increased in-country biodiesel production. The transposal to national law of Directive 1513/2015 among other factors such as competition from imports, the profile of the raw materials use and petrol companies blending strategy will be critical to understand 2018 biofuels consumption and production dynamics in Portugal.

The 2020 target is exactly 10% of renewable energies in transport established by the Renewable Energy Directive, leaving no role to renewable energy other than biofuels in the transport sector.

Going forward, the future of biofuel in EU is currently under discussion for the 2021-2030 period. The Portuguese biofuel industry fears the negative effects for their first generation assets use optimization impacts of a switch towards a GHG emission system that further limits crop based biofuels, given the limited second generation in-country production capacity.