Implementation of ILUC Directive (meaning Directive (EU) 2015/1513 of the European Parliament and of the Council of 9 September 2015 amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources) in Poland was undertaken in a way of bill of the act amending the Act on Bio-Components and Liquid Biofuels and Certain Other Acts issued on 6 September 2016 by the Minister of Energy (hereinafter: “Amendment of the ILUC”).

Pursuant to the bill, the ILUC Amendment will enter into force on 1 January 2017, i.e. 9 months prior to the deadline for the transposition provided for in the ILUC Directive.

Material changes arising from ILUC Directive

The purpose of the ILUC Directive is to establish mechanisms that will reduce the increase of greenhouse gas emissions by designating hitherto non-agricultural lands for the production of biofuels (the so-called ILUC impact) and at the same time ensuring that by 2020, EU member states reach at least 10% of the energy share in transport from renewable energy sources.

Therefore, among others, the following provisions have been included in the ILUC Directive and the ILUC Amendment that will implement it into the Polish legal system:

a) Determination of a limit for so-called first generation biofuels that cause the highest increase of CO2 emission to calculate the share of energy from renewable sources of energy in all types of transport; the maximum amount of biofuels taken into account produced from grain crops and other starch crops, sugar and oil crops and crops cultivated primarily for energy-absorption purposes, i.e. so-called first generation biofuels, may not exceed 7%;

b) Supporting biofuels not subject to the ILUC (hereinafter: “Modern Biofuels”) – by introduction of the system of so-called double classification. The share of biofuels produced for specific resources (Modern Biofuels) (listed in Appendix IX to the ILUC Directive) for the purpose of the performance of 10% of the share of energy from renewable sources of energy in transport shall be considered as two times higher and will not be included in the 7% limit. Modern Biofuels comprise, inter alia, agricultural waste, wood waste, straw or alga;

c) EU member states are obliged to determine the national purpose regarding the use of Modern Biofuels by 6 April 2017. The reference value provided for in the ILUC Directive amounts to 0.5 % in the energy value of the energy share in renewable resources of energy in all types of transport performed through repeatedly classified biofuels. This value has been adopted in the ILUC Amendment;

d) Increase of the required level of limitation of greenhouse gas emissions by the assembly of systems producing biofuels and bio-liquids up to 60% for systems that will commence production on 1 January 2017 or later. In the case of currently operating systems, the criterion of limitation of greenhouse gas emissions by 31 December 2017 amounts to 35% and as of 1 January 2018 – 50%.

Changes to provisions regarding biofuels and bio-components not arising from ILUC Directive

According to the ILUC Amendment, apart from the direct implementation of the abovementioned changes arising from the ILUC Directive, the legislator also intends to implement into legal acts regulating the production of biofuels and bio-components, among others, the following regulations:

a) Decrease of the National Index Target in subsequent years until 2020 (hereinafter: “NIT”). In 2017, NIT will amount to 7.10%, in 2018 – 7.50%, in 2019 – 8.00%, and in 2020 – 8.5%;

b) Introduction of a substitution fee – the possibility to perform the NIT by obliged entities through the payment of the substitution fee will apply to entities that will prove performance of the NIT at a level not lower than 90% of its value;

c) Decrease of the penalty for non-performance of the NIT from PLN 0.49/MJ to PLN 0.20/MJ;

d) Imposing a blending obligation – starting from 2017, entities performing the NIT will be obliged to perform by at least 50% through bio-components included in liquid fuels and document the fulfilment of this obligation by submitting quarterly reports to the President of the Energy Regulatory Office (hereinafter: “ERO”). The goal of introducing the obligation to prove the use of liquid biofuels is to prevent the resale of these biofuels abroad after applying them towards the performance of the NIT;

e) Imposing an obligation to submit quarterly statements by the entities performing the NIT and cancellation of the quarterly statement of the producers.

Effect of the ILUC Amendment on producers of biofuels and bio-components

The entry into force of the ILUC Amendment will result in increased profitability of investment in the production of second generation of biofuels, through imposing a limit on the performance of the NIT through the first generation of biofuels and double counting  on the performance of the NIT of the second generation of biofuels.

For the producers of first generation biofuels and bio-components that do not meet the criteria of greenhouse gas emissions, it will be indispensable to incur costs of modernisation or closure of production systems.

Concurrently, the producers of first generation biofuels whose systems comply with the criteria of the limitation of greenhouses gas emissions, taking into account the current level of performance of the NIT by Poland (stagnation at 5-6% level), should be guaranteed that there will be demand for their products.

From the perspective of the producer, it will be favourable to release them from the obligation to submit quarterly statements. It should, however, be indicated that the ILUC Amendment does not provide for any solutions that could cause a prompt increase in the share of biofuels on the fuels market. The decrease of the NIT level and a lack of penalties for the non-performance of the NIT proves that the authors of the ILUC Amendment actually accepted the fact that Poland will not meet the requirement of a 10% share of energy from renewable sources of energy in transport by 2020.

Amendments to the Act of 22 July 2016 on the Amendment of the Act – Energy Law and Certain Other Acts regarding biofuels and bio-components

On 2 September 2016, an amendment to the provisions regulating trade in fuels entered into force, its main purpose being to limit illegal trade in fuels. The amendment has also introduced changes that are material for producers of biofuels and bio-components, the most important of which include:

a) Tightening the concession system with regard to trade in biofuels abroad should limit the illegal trade in fuels and consequently reduce the grey market and increase demand for fuels, including biofuels (data collected after the first days following entry of the amendment into force show an increase in trade in fuels by 15-20%);

b) The obligation to document by the obliged entities at least 50% of performance of the National Index Target through bio-components of liquid fuels. This will translate into increased profitability of the production of bio-components included in liquid fuels.