Germany blocks oil firms from using past emissions credits to support biofuel industry

Nov 13 (Reuters) - The German cabinet on Wednesday approved reforms to restrict oil companies from carrying excess emissions reductions credits forward, in a step aimed at boosting the biofuel industry that was hit by a quick drop in carbon prices in recent years.

Under current law, oil companies must gradually lower the carbon impact of their fuels, with a target to reach a 25% reduction by 2030, from 9,35% today.

Companies can meet these goals by using advanced biofuels, synthetic fuels, green hydrogen, and supporting electric vehicle infrastructure.

In recent years, oil companies have met emissions goals by selling extra biodiesel; in 2022 alone, they exceeded the target by 24%, or 3.4 million metric tons, data from the environment ministry showed.

According to the reforms, oil companies can no longer use past greenhouse gas reduction quotas to meet targets in the coming two years, with this option only reopening in 2027. The rule, which does not require parliamentary approval, will come into force immediately.

Environment Minister Steffi Lemke said the move will safeguard carbon reduction goals and improve the outlook for biofuel producers, green hydrogen suppliers, and electric vehicles charging providers.

As demand for clean fuel alternatives rises, she added, it will also strengthen long-term climate action in transportation.

Germany’s biofuel industry last week issued an urgent appeal to the government, citing severe fraud in the greenhouse gas reduction quota market that has driven prices down sharply and threatened the sector’s stability, causing quota prices to plummet to around 90 euros ($95.23) from nearly 500 euros in two years.

In a joint letter addressed to the environment minister, biofuel industry and companies involved in the greenhouse gas reduction quota said the fall of quota prices forced companies into insolvency and stalled investment in clean energy alternatives such as advanced biofuels, green hydrogen, and electric vehicle infrastructure.

In September, Germany's Environment Agency said it had rejected carbon credits for 215,000 metric tons of CO2 emissions from oil companies due to suspected fraud involving climate projects in China.

($1 = 0.9451 euros)

(Reporting by Riham Alkousaa and Markus Wacket; editing by Jonathan Oatis)

((Riham.Alkousaa@thomsonreuters.com;))