What you need to know about the Swedish biofuel reduction mandate

In January 2022, the diesel price in Sweden rose above SEK 20/litre for the first time. When the national election campaign started a few months later, the price had passed SEK 25 on several occasions. Prominent politicians gave speeches about rampant fuel, electricity and food prices, and the "reduction mandate"-policy that had previously been relatively unknown to the broad public started to appear in speeches. Several parties argued that the reduction mandate was too high and should be lowered in order to push down fuel prices. Preferably to the minimum level of the EU. But what is the reduction mandate actually, why does it exist and does the Swedish mandate differ from the rest of EU?

What is the Swedish reduction mandate?

The reduction mandate obliges fuel distributors to mix biofuel into petrol and diesel in order to reduce their emissions by a certain percentage. In 2023, the reduction level was 7.8% for petrol and 30.5% for diesel. In January 2024, the level was lowered to 6%, but in August 2024, the government announced that the level will be raised to 10% in 2025. When the emissions reduction under the reduction mandate is calculated the life cycle emissions of the biofuel that are blended in are also included (the life cycle emissions include the emissions associated with production of the biofuels). This means that for biofuels with low life cycle emissions, a smaller amount of biofuel is needed to achieve the emission reduction, while more biofuels are needed if they have high life cycle emissions. If fuel distributors fail to meet the mandate they have to pay a penalty charge.

Why does Sweden have a reduction mandate?

The reduction mandate was introduced in Sweden in 2018 and Sweden was then one of the last countries in the EU to introduce some form of blending mandate for biofuels. Before the reduction mandate was introduced, Sweden had a tax reduction for all biofuels. However, the tax reduction was counted as "state aid" according to EU regulations, and Sweden needed continuous approval from the EU Commission in order to keep it. There was uncertainty as to whether Sweden would continue to be granted permission for the tax reduction. This created uncertainty for the fuel industry and the Swedish goverment wanted to switch to a  long-term policy. As a result of the tax reduction, Sweden already had the highest percentage of biofuel use in the transport sector in the EU before the reduction mandate was introduced. The original reduction levels were set to 2.6% for petrol and 19.3% for diesel, largely since this corresponded to the biofuel consumption in Sweden at the time. 

Is the Swedish reduction mandate high compared to other EU countries?

All EU countries have some form of blending mandate for biofuels today. However, they are designed in different ways, which makes them difficult to compare directly. In most countries, fuel distributors are required to blend a certain amount of biofuels into gasoline and diesel, either based on volume or energy content. Sweden, Germany, and from 2022 also Denmark, are the only countries that make use of a reduction mandate. In our research, my colleagues, Jonas Zetterholm and Olivia Cintas Sanchez, and I have recalculated all blending mandates and reduction mandates within the EU into a common unit in order to be able to compare them. There we can see that Sweden's reduction mandate has been the highest in the EU. This has enabeled the Sweden's transport sector to reach the, by far, largest emission reductions of all EU countries. The reduction mandate has also led to a high consumption of so-called "advanced biofuels" in Sweden, compared to other countries. This is mainly because advanced biofuels have low carbon dioxide emissions, which is rewarded under the reduction mandate.

At the EU level, the Renewable Energy Directive from 2009 introduced the target that 10% of the energy use in the transport sector sould be renewable by 2020. The Fuel Quality Directive, from the same year, set a target for a 6% reduction in emissions from transport in 2020 compared to 2010. 

According to the updated renewable energy directive, which was recently published, all EU member states are obliged by 2030 to either achieve a 14.5% reduction in greenhouse gas intensity in the transport sector or that energy use in the transport sector consists of at least 29% renewable sources. In addition, there is also a specific goal that advanced biofuels and renewable fuels of non-biological origin (for example, renewable hydrogen) should constitute at least 1% of the energy in 2025 and 5.5% in 2030.

What will happen to the Swedish reduction mandate now?

On November 30, 2023, the parliament voted to lower the reduction obligation to 6% starting in 2024. The purpose of the reduction was to lower fuel prices, especially for diesel. However, this also means an increase in emissions of 4.8–8.7 million tons of carbon dioxide per year, according to the government’s own calculations, and the proposal has received criticism from several reference bodies.

It was said that the new level would apply for the rest of the mandate period, but in August 2024, the government announced that the level would be raised to 10% in 2025. The increase is made with the aim that Sweden should be able to meet its commitments for emission reductions within the ESR sector (the sectors not included in the EU’s emissions trading, including the transport sector) towards the EU by 2030. To balance the increased reduction obligation, the government plans to lower the tax on fuel.

The government estimates that the increase in the reduction obligation will lead to total emissions from the transport sector being about 3.1 million tons lower by 2030. However, the reduction in fuel tax is estimated to lead to an additional 1 million tons of emissions, so the total effect of the new proposal is an emission reduction of about 2 million tons.

One factor that will affect how large the emission reductions will be is that fuel suppliers will be allowed to include electricity from public charging stations in their emission reductions, according to the new proposal. Including electricity reduces the pressure to blend in biofuels, so the actual emission reduction from fuels will be less. How much less depends on how the rules are designed, and the details of this have not yet been presented by the government.

Does the reduction mandate lead to higher fuel prices?

The reduction mandate affects the price of petrol and diesel because the biofuels that are mixed in to reduce emissions are more expensive than fossil fuels. In our research, we have looked at the relationship between petrol and diesel prices and biofuel consumption in all EU countries between 2009 and 2021. There we see that the world market price of oil has had a much stronger impact on petrol and diesel price fluctuations than the mixing of biofuels.

In Sweden, we can see that when the reduction mandate was raised from 26 to 30.5% at the turn of the year 2021–2022 , the diesel price rose by about 1 SEK (approximately 0,1 EUR), from 19 to 20 SEK per liter. During 2022-2023 the reduction mandate remained at the same level, while the diesel price fluctuated between 20 and 28 SEK per liter. These fluctuations were alas not due to an increased blending of biofuels, but rather to fluctuations in the global oil price, and in the price of biofuels. Exactly how much of the price fluctuations that can be attributed to increased biofuel prices vs. fluctuations in the global oil price is something that we will focus on in future reserach. 

When the reduction mandate for diesel was lowered from 30.5% to 6% in January 2024, the diesel price dropped by about 4 SEK. How the price will be affected by the planned increase in the reduction mandate 2025 remains to be seen. 

How does the reduction mandate relate to the Swedish climate goals?

In addition to the goal of acheiving nett zero emissions by 2045, Sweden have climate goals for 2030, which include a specific target for the transport sector. The road traffic sector accounts for about 30% of Sweden's greenhouse gas emissions today, and the target is that by 2030 emissions in the sector should be 70% lower than in 2010. Most researchers and experts agree that, in the long term, electrification will be the main driver for emission reductions in road transport. Despite that, the Swedish Energy Agency, the Swedish Transport Agency and the Swedish Environmental Protection Agency have all stated that even with a high rate of electrification, a significant use of biofuels is needed if Sweden is to reach the climate target for 2030. The Swedish Energy Agency, that has been tasked with evaluating the reduction mandate have suggested a gradual increase of the reduction levels until they reach 75% for diesel and 14% for gasoline by 2030 in order to meet the climate target.

The high need for biofuels by 2030 in order to meet the target stems from the fact that not enough cars will be electric by then. Today, pure electric cars make up about 5% of the passenger car fleet in Sweden. Even if only electric cars were sold in Sweden, starting today (the real share of electric cars in new car sales in 2022 was 30%), only about half of the vehicle fleet would be electrified by 2030. For freight traffic, the proportion of electric vehicles is even lower, and the development there can both take longer time and require other technologies. Therefore, solutions are needed to reduce emissions for the remaining gasoline and diesel-powered vehicles that will be on the roads in 2030.

Since the target for 2030 is formulated so that emissions in that particular year must be at least 70% lower than 2010's emissions, it is still possible to achieve the target even if the reduction mandate is reduced in the short term. As long as it is possible to ensure in 2030 that the emissions from the remaining fossil vehicles are sufficiently low that year, through, for example, a sufficiently high reduction mandate, some other policy to increase the share of biofuels, or a reduced need for transport.

What about biofuel production in Sweden?

Approximately 5.2 TWh of liquid biofuels and 2.3 TWh of biogas were produced in Sweden in 2022. At the same time, approx. 25 TWh of biofuels were consumed. This means that a large part of the biofuels used in Sweden are imported (which is also seen in the imbalance between consumption and production in the figure above). In our research, we see that even though a country encourages consumption of biofuels, through a blending or reduction mandate, it does not mean that production capacity automatically is built in the country. Similarly, support for production is not a guarantee that the biofuels that received support will be consumed in the same country. This is due to that biofuels are traded on an international market.

It is likely that the demand for biofuels will increase in the EU in the coming years, as climate ambitions are raised. This means that production capacity needs to be expanded, and in Sweden, companies such as Preem and St1 have increased their production capacity of biofuels during 2024.

The need for biofuels for the road transport sector will however likely start to decrease after 2030 in many countries as the share of electric vehicles increases. In our research, we see that this is something that biofuel producers are well aware of. When they invest in new biofuel production capacity it is often with the intention of being able to convert the plant to production of, for example, biojet for aviation or bioproducts for the chemical sector. Hence, even if the demand for biofuels in the road transport sector grows in the coming years, this does not necessarily mean that high levels of biofuels will be consumed there in the long term. That "short-term" demand may however lay the foundation for investments needed to produce products for other sectors where electrification may not be an option. 
 

Would you like to know more?

Read our article ”The impact of blending mandates on biofuel consumption, production, emission reductions and fuel prices” in Energy Policy. 

or visit the homepage for our research project at f3 for more information (in Swedish). 

Our research has been funded by the Swedish Energy Agency and f3-Swedish Center for Renewable Transport Fuels (Project number: 50479-1) and by the Swedish Research Council FORMAS (Project number: 2020-00184_Formas).

*In the first figure, the reduction mandate has been recalculated from a emission reduction in percentage to how much biofuel (as a percentage of the total energy use in the road transport sector) that would be needed to achieve the reduction. When the emissions reduction under the reduction mandate is calculated the life cycle emissions of the biofuel that are blended in are also included (the life cycle emissions include the emissions associated with production of the biofuels). This means that for biofuels with low life cycle emissions, a smaller amount of biofuel is needed to achieve the emission reduction, while more biofuels are needed if they have high life cycle emissions. The shading for the reduction mandate in the figure shows the range of how much biofuel is needed if you were to use biofuels with high (the lower part of the range) and low life cycle emissions (the upper part of the range). The full method can be found in our reserach articel.