Green hydrogen – New rules for the transport sector

On 14 March 2024, the German parliament approved the amendment to the Thirty-Seventh Ordinance on the Implementation of the Federal Immission Control Act (37th BImSchV) proposed by the German government. By doing so, it transposed the EU requirements for the production of renewable fuels of non-biological origin (RFNBO) for use in the transport sector and for determining the greenhouse gas savings of these fuels (see our previous article). As soon as the amendment is published in the Federal Law Gazette the national legal requirements for green hydrogen will come into force.

Significant (new) regulations

The amendment defines in which cases electricity used for the production of RFNBO, including green hydrogen and fuels based on green hydrogen (eFuels), is considered fully renewable. Thereby, for the first time, the German law stipulates when hydrogen can actually be considered "green".

According to the amended ordinance, this is the case where the electricity used to produce the hydrogen can be considered to fully originate from renewable, non-biogenic resources. To qualify, the fuel production installation (i.e., in particular the electrolyser) may have a direct connection to a renewable energy production facility (biomass being excluded). Fuel production plants supplied with grid electricity will have to meet further requirements to guarantee the use of renewable energy: Where no exceptions apply, fuel producers will need to purchase electricity via a power purchase agreement from the renewable generation asset, and the renewable electricity supply will need to comply with further requirements such as the additionality, the geographical and temporal correlation criteria (more details).

These requirements form the basis for the classification of the produced hydrogen (and its derivatives) as RFNBO, i.e., "green" hydrogen. At the same time, where fuels supplied to the transport sector meet those requirements, they will count towards the German greenhouse gas reduction quota (GHG Quota) in accordance with Section 37a of the Federal Immission Control Act (BImSchG). To boost demand for green hydrogen, the avoided GHG emissions associated with the use of those green fuels in the transport sector are taken into account three times their actual value. In order to be considered for the purpose of the GHG Quota, RFNBO must be supplied to the transport sector by means of an eligible fulfillment option (Erfüllungsoption) within the scope of the GHG Quota, and their use must achieve at least 70% of greenhouse gas emissions savings over their entire lifecycle compared to the fossil base value of 94 g carbon dioxide equivalents per megajoule. For the exact calculation of the greenhouse gas savings achieved through the use of RFNBO, Section 10 para. 2 of the 37th BImSchV refers to the Annex to the Delegated Regulation (EU) 2023/1185, which sets out in detail the method for determining greenhouse gas emission savings.

In order to demonstrate compliance with the requirements for the production and supply of RFNBO, a proof of compliance system based on certification of the relevant companies in the supply chain is being introduced. Various voluntary certification schemes have already applied for recognition by the European Commission, but the recognition procedures have not been concluded yet. Accordingly, an important building block for the compliant production and use of green hydrogen and other e-fuels is still missing, resulting in open questions when it comes to the application of RFNBO requirements.

EU legal background

The legal basis for the amendment to the 37th BImSchV is provided by the Delegated Regulations (EU) 2023/1184 and 2023/1185, which entered into force in July 2023 supplementing the Directive (EU) 2018/2001 (Renewable Energy Directive II - RED II). For the transport sector, the recently revised RED II ("RED III") stipulates that EU Member State must increase the share of renewable energy in final energy consumption to at least 29% by 2030 or reduce the greenhouse gas emission intensity by at least 14.5%. RED III further defines requirements for the use of fuels produced from electricity to count towards those national targets. Those requirements were further specified by the Commission in the aforementioned delegated acts and adopted by the German legislator unchanged.

Conclusion

Overall, the amendment to the 37th BImSchV sets the framework conditions for the production of green hydrogen and e-fuels and promotes investment in the production and use of RFNBO. Even though the requirements currently do only apply to "green" hydrogen consumed in the transport sector, it is expected that this will serve as a blueprint for other sectors as well. But the legislator will need to act swiftly, as there remains uncertainty in particular with regard to the certification process as well as the definition of green hydrogen in other sectors and legal areas: For example, the ordinance on requirements for the production of green hydrogen provided for in Section 93 of the Renewable Energy Sources Act 2023 has still not been adopted. As a result, the use of green hydrogen in the production process will be disregarded in the second round of tenders for offshore wind energy sites.

We would like to thank Johanna Marek and Linda Teuber for their valuable support in the creation of this article.