From Brussels to DC - The sticks and carrots shaping the renewable fuels landscape

Speaker A: Welcome to Fuel For Thought Season 7, Episode 7. I'm Sylvain Verdier.

Speaker B: And I'm Michele. Today's episode dives into one of the most powerful forces shaping renewable fuels. And that, of course, is regulation.

Speaker A: Joining us today are, um, Jessica Olson, head of Global affairs at topsu, and Asmara Klein, head of External Relations and Public affairs at zafra. Together, they will help us unpack how policy frameworks, from mandates and incentives to carbon pricing and sustainability criteria, are, uh, creating markets for fuels like saf, renewable diesel and esaf.

Speaker B: We'll explore what makes a good renewable fuel policy, why longevity and stability matter for investment, and how regulations differ across the eu, the UK and the us

Speaker A: we will also discuss ship and road fuels, the challenge of fragmented policies, and why revenue certainty is the, uh, single biggest hurdle for scaling new fuels.

Speaker B: If you want clarity on how regulation drives opportunity and complexity in renewable fuels, this episode is definitely for you.

Speaker C: It is with great pleasure that I am welcoming two friends today to talk about regulation, renewable fuels and what is happening globally. So my two friends today are, uh, first of all, Asmara Klein. Asmara, how are you doing?

Speaker D: I'm good. Excited to be here. Thank you for the invitation.

Speaker C: Of course. Welcome back to the podcast. We had a recording last year about shipping and regulations, and now, uh, we'll talk about, uh, more global regulations and also maybe about your new company you work for. And my second guest and friend is my colleague, Jessica Olson. Jessica, how are you doing today?

Speaker E: Hello. Always lovely to be with you. Silvan and Asmara.

Speaker C: Very good. Before we dig into details about regulatory landscape, changing complexity, uh, what's going to happen or what is not going to happen, maybe, uh, both of you can present themselves. So maybe we can start with Asmara. Ah, Asmara, can you say a few words about yourself and as well the organization you are working for now?

Speaker D: Yes, very happy to. Sylvain. Well, if I can be cheesy a little bit, I think I would describe myself as a power nerd. Um, first, because I've always been fascinated with politics and geopolitical events in particular. So I actually studied political science and developed a particular passion for the interaction between energy, natural resources and power dynamics, which often go together. But I'm also keen on the second meaning of the word, um, because, uh, I've always worked in the energy space. So, first working for different NGOs and think tanks to fight corruption, mismanagement in oil, gas and mining industries, but then transitioning along with our society actually into the renewable space. So that's what landed me in at top two in 2022 where I helped to build up the public affairs team and now at Zafra since March this year where I lead our regulatory and public affairs work as well as our communications and branding efforts. But uh, perhaps also a few words about Zafra. So we are a one year old startup brand standing on the shoulders of giants since we are actually a joint venture between TOPS and Cecil, two formidable technology providers of the product of renewable fuels and particularly saf. So our goal at Safra is to leverage this technology leadership, um, particularly in the power to liquid space to design, build and operate ESAF plants. And so ambition is to become a top quartile ESAF producer by the early 2000-30s, um, and as we say in French, ah, so working hard to turn that ambition into steel in the ground. And we're very proud especially of our project in Germany called Concrete Chemicals, which will be the largest industrial scale ESAF project uh, in Germany and among the first in Europe and for which we receive a grant from the German government of about 350 million euros. So that's quite significant. But we're also looking at working in Spain with our partner Mueve and also looking at the Nordics for opportunities there.

Speaker C: What about you, Jess? So Jess, you are based in D.C. in the U.S. is that correct?

Speaker E: Yes, that's right. So I've been in the Washington D.C. area for about 20 years. Uh, I'm a recovering lawyer, so I'm also a bit of a nerd. We're all kind of nerds here, right? We like to dig into the details and the science and the engineering and things. The common thread for me throughout my career has always been how can we use and leverage policy to build markets for technologies that can give us benefits? Uh, you know, whether that's clean air, whether that's, you know, reducing emissions or making things more efficient, uh, or better in some other way. So I've had the good fortune of working with, you know, experts who wrote the U.S. clean Air act, for example, and working on cap and trade policies and those various kinds of things, mostly for companies, uh, both in private law practice and then in house, uh, in government relations shops. And about two years ago I joined this fabulous company of topso to open our Washington D.C. office where we now have a good crew of folks working on U.S. policy and global policy related to energy and how we bring about these key solutions really to meet the new energy reality.

Speaker C: So my first question in this introduction is we uh, start with you Jessica, is why is regulation such a critical driver for the renewable fuel industry and how does it shape the pace and direction of market development? So very general question, but yeah, why is it such a critical driver?

Speaker E: Yeah, I think that is a key question for so many new technologies that come on the scene. It's really a question of how do we get to scale and regulation and policy being a key feature of how we get to scale. You know, you look at things like saf, you know, sustainable aviation fuel, uh, it's a newer technology, but it's not brand new. Uh, it's still, you know, two to five times the cost of fossil jet. And one of the ways you can bring that down is with incentives that will help scale the production of sustainable aviation fuel production solutions, you know, and that that scaling is really brought on by ways that we shrink the cost gap. We need stable long term policies to avoid as much uncertainty as possible. We all know that, you know, uncertainty can be very challenging for businesses. Um, you know, it's not just regulation, of course, that determines the speed of deployment. I uh, think it's also, you know, what the market is demanding. But of course effective policy design will very much influence how much certainty a business sees and how much they will want to invest in these new solutions. You know, renewable fuels and SAF alike.

Speaker C: Very interesting. I'm taking a lot of notes and I love the concept of policy design. As a chemical engineer, we talk about plant design and here's a concept of policy design is actually a, uh, critical concept. I really like that. Asmara, anything you want to add to what uh, Jess just said? You are mostly focusing on EU now. You mentioned your concrete chemicals project and uh, cooperation in Spain. Any thoughts or comments about the role of regulation and how it's such a critical driver for renewable fuel, especially saf for you?

Speaker D: Yes. No, I completely want to echo what Jess said about scale. Um, for emerging technologies, which is the case of esaf. Um, our price differential is actually even Greater. It's about 10 times more expensive than conventional fuel at the moment. And that's why regulation is really key to drive initial demand, at least to help kick off the market. I don't think it's necessarily needed forever, but you need to uh, level the playing field and disrupt actually a very, um, well functioning market. You know, fossil fuels is a very well oiled machine and so regulation helps break that up a little bit to create opportunities for new technologies to come in.

Speaker C: Okay, my next question is a one million dollar or euro question is what is a good renewable fuel policy? And I'm sorry, but asma I will start with you. So what is a good renewable, renewable fuel policy?

Speaker D: Yes, indeed, tricky question. I think I'll start by saying that there's no one size fits all when it comes to fuel policies or actually any policies, I would say, but fuel policies in particular tied to political objectives which are uh, different from one country to the next. They are tied to political framework conditions. You know, one thing is possible in one jurisdiction which isn't politically in another. So you will see differences of fuel policies because of that configuration of the political space in countries, but also depending on what the ecosystem, the existing ecosystem has. Um, so countries for instance like the US are feedstock rich. Europe, Leicester for instance. When it comes to biofeed stocks, there are some technologies that have been very dominant in some areas. So I think fuel policies will always vary and it's actually important that they do vary and that they take into account, I would say those particularities in each country. But setting those considerations aside and trying to extrapolate what would make a good fuel policy or uh, renewable fuel policy, I would say it's one that strikes a balance between demand driving measures, what we sometimes like to call the stick, because it actually often comes down to imposing certain quotas or for instance performance obligation in terms of GHD savings. Although Japan and Korea recently also showed in the case of clean hygiene and you can do without and use options instead. So there are different options there. But um, yeah, a balance between the stake on the one side and financial or support measures, so the carrot, so to say on the other. And again there are lots of options there to cover or bridge the price cap. You um, can use different taxation systems, tax incentives, you can obviously impose some GHD levies to get the fossil discount as such a CEO like to call it away. You can use grants and contracts with different schemes, tax incentives. So lots of options there. But I do think it's important to have that balance, uh, right between the two and as Jess emphasized in her previous response, also to have that longevity because investments, they are planned over decades. And so if you have a regularly changing regulatory landscape, uh, that can be an issue for investments in the sector.

Speaker C: Jessica, uh, so you have been in D.C. for 20 years and now you're also following uh, global policies. So for you, what is a good renewable fuel policy? What have you seen that works?

Speaker E: Yeah, double clicking on as Mara's comment on the long term certainty. That goes without saying really. Policies that have longevity are going to provide the most certainty to businesses. So that's a key bedrock, uh, feature of any good policy. I think when we think about renewable fuels, topso as a solutions provider for many different types of renewable fuel production, being feedstock agnostic, being, you know, tech neutral in the approach, and letting the market really figure out how to meet the policy goals, whether it be, you know, reducing emissions or efficiency or something else. I think that brings a lot of flexibility to the private sector. That, that's really crucial and in enabling, um, that efficient scale up of all these different technologies. The other piece we look at, when we look at what can be a good policy or an effective policy, is how we align the supply and the demand. Incentives are great for helping to build up the supply side, but you also need the demand piece and there's a cost reducing function that policy can play in the early days of a new sector that's scaling up. I'm, um, thinking about SAF in particular. And in the right regions, in the right jurisdiction, mandates can play a key role in helping to kickstart that demand. I would say the other piece is aligning, uh, the criteria in regulations across jurisdictions. How are we measuring the performance criteria of a fuel that's incentivized, for example, and how can we really align those standards and criteria across jurisdictions to make it more efficient for companies to scale up these projects?

Speaker C: My last question in this introduction is about how to keep up with, uh, changing regulations. Like if it's not daily, it's almost weekly that new things are happening because so many countries are looking into aviation fuels, uh, shipping fuels now, road fuels. Many things are still happening. So how do you keep up with all the changes? We trust resources. Do you use networks? I don't know, um, LinkedIn, social media, you name it. So how do you keep up basically with all of this? Uh, I'll start with Jessica and then I'd love to hear from Asmara. So Jess, how do you do that?

Speaker E: Well, there's a guy I work with, uh, Sylvan, who spends a lot of his time jet setting and meeting with our clients. Uh, and so I always ask him first because I think he knows, uh, more than anyone else does, uh, on, on what's going on, you know, what the pulse is in this industry and that's, I make a little joke, but, uh, really talking to your partners, you know, what they're seeing on the ground, what their challenges are in the jurisdictions that they're trying to build projects, um, or they're operating projects and they're seeing some headwinds. Really, that is the best source of information. But then of course you know, we have many different associations that we belong to which can have a lot of power and make that information sharing more efficient among the members, but also with policymakers to help build an awareness of what newer industries need to really bring that capital deployment and all those economic benefits to their regions. Um, we work with a couple, uh, in the US as examples, the Advanced Biofuels association, the SAFT Coalition, and of course there are many, many others, uh, in other jurisdictions and globally who, you know, are spending a lot of time getting, you know, companies and other organizations who are living the market, you know, challenges and opportunities together to talk about what they see and what they need in a good policy design, you know, to carry these investments forward.

Speaker C: Asmara, any addition or how do you work? How do you operate? How do you keep up with this regulation from your side at Zafra?

Speaker D: Well, um, now that I work in communications as well, I think I'll borrow the term multichannel approach. M. So definitely echoing what uh, Jess said about using the branch organizations to also help you sift through the noise. Because a lot of, um, you know, legislators, whether that's at the EU level or at the national level, produce a lot of pieces of draft, regulation consultations, um, implementation dialogues, et cetera. And so yes, you definitely want that filter through the brands, organizations like, to the work of analyzing and really understanding what will have most impact for your particular industry. I also heavily rely on the network, as just explained. Talking to people is very important to understand the nuances in your regulation. If you can talk to policy makers and obviously you get a little bit of a heads up. I also use actually LinkedIn, uh, as a source to uh, also see how people react to different regulations. What is the thought of the industry? And conferences is another good place, but a bit more onerous to attend and invest in. Yeah, and I think, um, also trying to be proactive, as Jess mentioned, really talking directly to policymakers and trying to um, be ahead of the curve. So to say is a good way to stay abreast.

Speaker C: Let's spend a bit of time now on the regulatory landscape. So the way, uh, we divided the topic here on regulatory landscape is the type of fuel. So we start with aviation fuel, then road fuels and then shipping fuel. So let's start with aviation fuel. I'll start with you, Asmara, about focusing, uh, on eu. So what are the, uh, key regulatory frameworks, uh, shaping SAF adoption, uh, right now in the eu? So what is happening now?

Speaker D: So over the past three years the EU has developed a sophisticated one might also Say, complex, um, regulatory framework to advance the fuel transition in aviation. And I'll start with the most obvious and known One, obviously Refuel EU Aviation, which is a regulation that was adopted in 2023 and that introduces blending mandates at every European airport, at least if it has a sufficient size. And from this year onwards, so 2025, this means that fuel suppliers need to deliver relevant volumes of staff, otherwise they face a hefty fine. And the quotas started at 2% this year and then they jump every five years up to 2050, where the staff should make up about 70% of jet fuel uplifted in Europe. And to ensure that aviation can decarbonize at scale, actually refuel EU also introduced a sub mandate for synthetic jet fuel. So, uh, ESAF or E, kerosene from 2030 onwards. And there it's a little bit of a different approach because it ramps up very slowly in the first five years from 0.6% in 2030 to 5% in 2035. But then it follows the general SAF mandate. And so you have the jumps every five years until you reach 35% in 2050. And just to put this a little bit into numbers for our listeners, um, this means we're going basically from zero at the moment to 20 million tons in 2050, so in 25 years. So that's quite a speed for the industry and a massive challenge, uh, which I'm sure we'll discuss a bit later. So Refuel EU is definitely the most important piece, um, and driver in creating the market, um, for saf. And we now see the results already with the European carriers being the ones that most uplift SAF and Europe being the main destination, I would say, for saf, um, exports. But there are other important elements as well, if I can spend a little bit of time on this. So I'll highlight in particular the Emission Trading Scheme, also called ets, that one was amended a couple of years back. And so the idea there was to reduce the free allowances that the aviation, uh, operates or aircraft operators get. So by the end of next year, 2026, airlines, cargo companies and others will actually have to pay for all their emissions, which are calculated on the basis of the fuel consumption. So this will result in actually a very significant price increase over the coming years. Analysis shows that by 2035, ETF alone could increase fossil fuel costs by over 50%. So it's going to be a real incentive to switch to SAF to be able to maintain regulatory compliance costs low. And here, if I can pitch as well, the idea of entering long term offtake agreements, um, because it also protects you obviously of the price or against the price volatility that you can have with fossil kerosene. The other important aspect around ETFs are the SAF allowances. So basically 20 million allowances were set aside specifically to support SAF uptake. Uh, the idea is that it covers the price differential between conventions, conventional jet fuel, ETS price and the SAF price, sometimes at a very high percentage. So for ESAV the coverage is 95% of the price difference. For normal buy yourself, so to say it's 50%. But still it's actually a really important tool for aircraft operators to be able to offset some of the additional costs related to saf. It only covers intra European flights because that is the scope of each. Yes, um, but it is making a big difference. We could criticize a little bit the UM mode, um, by which the UM allowances are allocated because they're allocated on an ex post basis, um, and also first come first served, which means that it doesn't really give visibility to airlines to be able to enter longer term offtake agreements, which is something we desperately need for investments in the sector. But to round it off, maybe on EU side of things, I would also mention the Renewable Energy Directive, which is not only important because it sets the sustainability criteria for saf, both the bio SAF and the synthetic RFNBO based saf. So RFNBO stands for renewable fuel of non biological origin. Basically that's renewable hydrogen in the eu, but it also sets targets for the transport sector. And so we are actually seeing quite a few member states, including aviation in that. So that creates an additional incentive, um, for SAF adoption. And I know EU is covering a large share of Europe, but not all of it. So if I can maybe end on the UK, then I'd like to say that the UK also introduced a SAF lending mandate, uh, starting this year, which interestingly covers both civil aviation and military aviation. So that's an interesting uh, feat there. It starts at 2% in 2025 and goes up to 2%, 22% in 2040. The Brits were a little bit more pragmatic, I would say, than the EU on the ESAF mandate, um, as it starts at 0.5 from 2030 onwards but then only goes up to 3.5 in 2040. So the industry has a bit more time to scale in the uk. They're also more flexible than the EU on other aspects. Um, for instance, in the UK you can use book and claim to fulfill your obligation. There's also a buyout system by which the fuel suppliers can pay a fixed price when they cannot deliver the SAF that they need to deliver, which is not the case in the eu, because they actually need to deliver double the missed amount the following year. And last but not least, as we discussed in a previous question, the UK also thought about a revenue certainty mechanism for SAF producers. So the industry is waiting on the final details, but that could definitely unlock additional fids there.

Speaker C: Very good summary, Asmara. One tiny question, though, about eu. Do all the member states, have they implemented all of them, this, uh, EU directive into national laws? Or basically, is everything ready in national member states or what is the story? Exactly?

Speaker D: It's a mixed picture. Um, so, yes, some have transposed refuel, EU aviation, international law, but I would say the vast majority of EU countries haven't. Same for the Renewable Energy Directive. I'm not too worried, though, because actually, the last few years, um, Brussels produced a lot of regulations, so it's normal that national parliaments are just, um, lagging behind a little bit, and I think they will catch up in the coming months.

Speaker C: Jess, it's about the US now. So what is happening within SAF and, uh, in the U.S. exactly.

Speaker D: Yeah.

Speaker E: Well, I think it's a, a little less clear of a picture than in the eu. We, of course, had the Inflation Reduction act, uh, tax credit incentives for sustainable aviation fuel. Well, really for renewable fuels writ large, including sustainable aviation fuel. Uh, that was adopted a couple of years ago and we've had some changes with the recent One Big Beautiful bill, or OB3, as people are calling it. This was, uh, a sweeping budget bill. It was done under a budget reconciliation mechanism and so included a lot of changes and many to the Inflation Reduction act credits, uh, including 45Z, which is where the Clean Fuels Production credit lives in that law. The changes were mixed. We saw an extension of that tax credit, uh, for renewable fuels, including saf, uh, out a couple of years, but we lost an adder for sustainable aviation fuel. For renewable fuels, you could get, uh, up to a dollar a gallon credit based on how much you reduced the life cycle carbon intensity of the fuel. And for SAF, it was $1.75 a gallon. That has been reduced now in the new law to a dollar a gallon. But we still have two more years extending the availability of that credit from ending in 27 to ending in 29. So that was a positive change. There were some other amendments to the criteria for eligibility for that tax credit that will cause project developers to take a look at what, what's advantageous for them. There's some new restrictions on foreign feedstocks, for example. And, um, you actually can't be eligible. Fuel produced under the credit can't be eligible if it uses foreign feedstocks. So that's a hurdle when you're, you know, looking at needing more feedstocks to scale this industry, you know, not less. But we do also have a couple of other programs in the US that really influence the market for renewable fuels and saf. When we look at the renewable fuel standard under the Environmental Protection Agency, we've just had a proposed rule come out this year and, uh, EPA is taking a look at the comments on that. It actually increases the required, uh, volumes of production of renewable fuels by, um, pretty significant amount we haven't seen in recent years. So that, that was a positive meaning, you know, more, more renewable fuel will be mandated to be produced. But we're seeing this shift away from foreign feed stocks come through in the RFS program as well. Uh, EPA is proposing, for example, a 50% discount on the credit value that you would get towards meeting this renewable fuel production obligation for foreign feedstocks and fuels produced with foreign feedstocks. So, you know, some headwinds there. SAF is not, you know, a, uh, separate obligated fuel under that program. So, you know, some folks don't see that as a huge incentive for SAF production. We do have some state programs, uh, going on as well that are incentives for SAF production. You know, Illinois has a tax credit, $50 a gallon, for example. Washington state has a $2 a gallon incentive, Minnesota and a few others. And then we also have some of these programs that are like the low carbon fuel standard in California, in Oregon and Washington, that even though, you know, like in the rfs, SAF is not an obligated fuel pool. So there's no mandate to produce saf. It does credit for SAF production. So, you know, that's a bit of an incentive as well. So I would say it's a bit more of a mixed picture in the U.S. um, we do have several programs at the state and federal level that are incentivizing SAF production. But a few more challenges, you know, given the changes in credit values and feedstock restrictions in the past year.

Speaker C: Yeah, so it's really about how can you stack these credits and is it more profitable, for example, to make renewable diesel versus saf and really, really about this, uh, calculation thing. So the support for SAF is not dead but it might be more, uh, relevant from a financial perspective to produce renewable diesel, for example.

Speaker E: Well said,

Speaker C: Jess. You already talk about the proposed renewable volume immunization under EPA. You, uh, mentioned fortified the LCFs. So anything else you want to add about the developments for renewable diesel and uh, biodiesel. So for road transport, anything else happening?

Speaker E: Yeah, a comment perhaps just on the significant shift we're seeing towards domestic feedstocks, um, towards policies that, you know, are really intended to support increased use of domestic feedstocks, uh, like soy and corn, for example, in the US through these programs. So you know that the proposed RFS Renewable Fuel Standard rule, for example, at epa, you know, really has some new criteria in it, uh, some revised criteria in it meant to really incentivize production of renewable fuels with, with those domestic feedstocks. And I don't, I don't expect that trend to slow anytime soon. The Trump administration has been pretty vocal that it, it supports biofuels. That's one of its key technologies that it wants to see grow in the energy space. Pun intended. So I think we'll, we'll see more of that, uh, in the coming years.

Speaker C: Asmara Road fuels not your focus anymore because you are mostly focusing on saf. But what you see in Europe, maybe you mentioned, uh, Red 2 earlier. Anything you want to say about. Yeah, Red 3 and uh, road fuel maybe, or Red 3 in general.

Speaker D: Yeah, I can say a few words because obviously I'm tracking it for, for ESAV purposes as well, but I would say red. The Renewable Energy Directive and its revision is important on two aspects. The first one is obviously the sustainability piece of things. Um, so, you know, what is the GHD savings threshold, which feedstocks are allowed, et cetera. But also it's setting the target for renewable fuels blend in, especially in the transport sector. And so the latest revision, for instance, sets targets for 2030. And member states can actually choose between either a renewable share target, so, uh, 29% of renewables in transport by 2030, or achieve the intensity reduction target. And in that case that ah, would be 14.5. But as we also discussed, unfortunately the transposition is very much delayed. Only actually two member states. So the Czech Republic and Hungary have fully transposed the Renewable Energy Directive. Uh, three. So to say, um, you also have Denmark and Finland which have transposed just a transport target, and they're still working on industry and other elements. Um, so that's a little bit disappointing. But as I mentioned, natural, I think it was expected. We are seeing some proposals in other countries, especially Bigger fuel markets like Spain, France, Germany, the Netherlands. Um, so we do have an idea of where those countries will be heading and I expect actually that they will adopt by the end of 2025. And we can also see that there's already a lot of um, divergence between those countries. For instance some countries decide to include maritime and aviation, others don't, saying that those are already covered by either refuel EU aviation or fuel EU maritime. We also see some differences in the multipliers that are available to differentiate between renewable fuels. So in particular for RFN burs there's quite a large variation there and you can also see different approaches in terms of rewarding over compliance and uh, that will be interesting for the pricing of SAF in particular going forward. And perhaps the last thing that is creating some headaches is sustainability criteria are also not uniform across the different member states. So some actually don't like the feedstocks listed in the so called Annex 9 and take some of those out. Um, so it is a miss and uh, it will be interesting to track and see where we land on all those countries.

Speaker C: Just one comment on the RED3 goal which is 29% renewable fuels in 2030 which is in 5 years right now we are 10 to 12% in EU and 5 years basically you need to triple. So I think the gap is massive and obviously we're not going oh it's unlikely we're going to meet it. So uh, at least it's inspiring. It's a long term goal also with uh, maybe not with Red3 but with refugee EU fury maritime. So but it's a massive, massive uh energy transition objective. So let's see how uh, this will be met to some extent I imagine the 29% target agree and I think

Speaker D: it's also about setting the direction right. If you look at for instance how the grid is decarbonizing in Europe, the Renewable Energy Directive is the main driver for that and we're really heading in the right direction. And so yes countries might be missing their targets but they're still progressing uh in comparison to before the regulation. So that is I think the important thing to watch.

Speaker C: Let's talk about shipping fuels now. So when we prepared this uh, discussion we agreed I could start and then uh, you can uh, chip in and contribute. So marine fuels to my knowledge, uh, EU is the only country that have implemented or the only uh, part of the world that has implemented regulation with EURY maritime objective until 2050. We had a podcast last season uh detailing this uh, and we people can Also of course check online to hear about that. What's happening at imo so the International Maritime Organization. So there was a meeting in April uh 25th that agreed on the net zero framework. Uh, that was agreed. So it's just an agreement, it's not uh enforced yet. I think the meeting is it in October, Asmara or Jess? I think October 25th there will be a follow up meeting.

Speaker D: October.

Speaker C: Yeah, October where these measures will be uh, hopefully adopted and then there's up to 10 months after that where some flag states can still oppose to it is a majority or something like that. It's a bit. Yeah IMO is obviously as you can hear not my super strength but basically some measures were proposed and it's what I've seen. It's actually a very ambitious goal and a uh, very interesting approach. So they have established a uh global fuel standard with a target reduction on fuel, uh intensity reduction from 28 to 2035 and also indication until 2040. It's also very long term and as we said long term is key. So I really like that. There were also some penalties on uh emissions from $100 USD per ton of CO2 to $380 per ton of CO2 for different type of uh, non compliance. If ships owners were using what they call zero and net zero fuel which is basically low carbon intensity they would get some reward. We don't know how big this reward would be but that's also very interesting. So that is support mechanism that uh both Asmara and um Jess mentioned initially. So the credit trading system for where overcompliant ships can sell their credits to under compliant vessels. And then there's also this uh IMO net zero fund where revenue from penalties can uh, support decarbonization efforts. So a lot of measures actually really interesting and hopefully in season eight next season we'll have a podcast just focusing on that and see how it would impact shipping. Jess asked Mara, any comments on shipping IMO before we move to the third part of the discussion.

Speaker E: Perhaps just to emphasize the comment you made uh early on uh in this section Silvan around the ambition. I do think it's quite ambitious and the compliance mechanism, how it would be enforced is really the key thing to watch uh if it moves forward in October. The shipping industry is such an interesting one because it's relatively consolidated compared to other harder to abate sectors. I think I'm right in recalling there are only about 100,000 ships worldwide. Yes, uh, yeah and so you know and a relatively small number of companies compared to, you know, other industries. So I think it's a super interesting industry to watch. That could be, you know, kind of the, on the tip of the spear as we look at which sectors are transitioning first. But I think in terms of this IMO policy, um, I agree it's quite ambitious and the effectiveness of the compliance mechanism will be the thing to watch for.

Speaker C: Asmara, anything on imo?

Speaker D: Yeah, perhaps, um, also to second this idea of uh, it's a remarkable uh, progress that we're seeing at the imo. The shipping sector has often been considered a laggard in the, in terms of decarbonization. We were not seeing a lot of movement and so now they're suddenly, as Jess said, the uh, head of the spear. So, and particularly I think with this aspect of it's a global industry and that's something that the aviation sector is struggling with actually. That, yes, we have a very strong sophisticated framework in Europe, but that is actually also creating a headache for those aircraft operators and airlines in particular that have lots of different systems to report to, lots of different carbon levies to take into account, et cetera. Whereas the IMO will set a global carbon price, so to say. And I think that uh, will really help the industry to scale and make sure that um, the price increase that will come from the adoption of renewable fuels will be spread equally and will not create disadvantages for certain regions or certain carriers over others. That's an important aspect.

Speaker C: So what are the biggest regulatory hurdles or uncertainty that you see out there for renewable fuels? Whether aviation, road, marine, maybe. I don't know from. You already addressed that somehow in your comments before, but could you summarize it again, maybe from a US perspective?

Speaker E: Sure. And I'll go back to the certainty point because I really do think that is the biggest hurdle. We had that 45Z tax credit for a couple of years for SAF, for example, from the Inflation Reduction act. And you know, that expired in 2027 as we mentioned, under the original uh, enacted credit under the Biden administration. That was not all that helpful from a certainty standpoint. You know, project developers need a longer timeline to plan and make investments. Uh, and then, you know, we've had this one big beautiful bill, gave us a couple more years, but changed the criteria again. So this thread of, you know, long term policy signals bringing investment. It's just, it's really important for the industry and I think there's a recognition that it'll never be perfect and we always want to keep improving it. And that requires some changes but we need a little more steadiness to really send that market signal to bring investment. So I mentioned 45Z as an example, but I think also the RFS program needs to embed in it some longer term policy certainty. These are obligated volumes that are set almost on an annual basis now, sometimes retroactively. Very difficult for a producer to plan and execute a business model if they don't know how much credit, um, or what the value of the credit is going to be under the RFS program that is so important to meeting that cost gap for them.

Speaker C: Very good, thank you, Jess. Asmara M. So what do you see as the biggest regulatory hurdles or uncertainty within your segment and field?

Speaker D: Yes, well, when it comes to regulatory uncertainty for SAF deployment in Europe, I'll obviously focus on aviation here. I could discuss how we are still waiting on member states to transpose, refuel EU aviation as we talk discussed a little bit earlier, or how we're still waiting on the final rules for the Low Carbon Hydrogen Delegated Act. But I, um, wouldn't say that those are actually the biggest hurdles to scale SAF production in Europe and in particular esaf. And yes, you could bemoan for instance that um, lacking booking claim is not helping to scale. And it actually seems like the commission is moving on that position in particular. So it will be interesting to watch. And I could also talk about very stringent production rules, especially for RFNVO compliant esav. Or the fact that you have this jump every five years in the blending volumes, um, which does not quite align with industrial realities, uh, you cannot plan overnight to triple your volumes for instance. But I wouldn't say again that those are the biggest hurdles. I think really the crux of the matter is the revenue certainty for SAF producers and in particular for esafe. And so that revenue certainty would actually require solid long term offtake agreements which at the moment unfortunately neither the airlines nor the fuel suppliers are currently willing to enter. Um, the first ones because they fear first mover disadvantage, they don't want to lock in at a very high price. And the second because they have no incentive to buy something that's very expensive now and that they might not even need, uh, if the mandates are soft or removed. Even so, um, yes, ESAV is very expensive, As I mentioned, 10 times more expensive based on the latest IATA figures of €7,695 per ton of ESAV. But at Zephyr we don't think that is the problem. Because if you break it down at the passenger level and counting about 2 liters of jet fuel consumed over 100 kilometers per passenger. You come to a very digestible figure. So you come to a surcharge of about €5 per passengers in, in 2035. And for a transatlantic flight you would be at around €60. So we think that's actually manageable. What we're missing at the moment is this market orchestration. So to overcome the current deadlock where the producers need revenue certainty but don't get offtake agreements and the offtake is not willing to end those and that's where we need the EU and in particular, um, more action at the EU level so that we have a scalable market. Um, and we are really betting on the upcoming Sustainable Transport Investment Plan which the Commission has announced for late October, early November. The idea being to offer support measures to scale clean fuels for marine and aviation. I think that will be really a uh, make it or break it moment in particular for ESAF to really see opportunities to get more support and hopefully what we are pushing for, together with an alliance that brings together different ESAV players across the value chain called Project Skypower, we are advocating for a market intermediary. The idea is that to resolve that deadlock, uh, you have a state backed intermediary that on the one hand organizes auctions and allocates long uh, term offtake agreements to the producers who can then go to the bank and unlock financial close and they resell or the middleman resells those long term offtake agreements into smaller trenches to off takers, whether those are airlines, cargo forwarders or uh, fuel suppliers, so that they can actually manage price risk uh, in a better way. So that's what we are hoping to see in the sip. So Sustainable Transport Investment Plan.

Speaker C: Jess, what is next for you? Which regulation are you keeping an eye on now?

Speaker E: Yeah, there, there are three buckets. We are always looking at federal legislative action and I think, you know, we're not done yet with 45Z, which is to say for the SAF incentive piece, I think there are a lot of folks who still see the need and for, and strongly support that additional incentive in 45Z for staff. So um, I would keep a watch on that and whether we see uh, legislation introduced at some point to restore that attr. The RFS proposed rule, you know, will be final at some point, probably six to nine months. Uh, so keeping an eye on that and then the states is the third bucket and everyone thinks of California because there's a lot of policy action always coming out of California. But I also Wouldn't count out other states with some serious players who want to produce safety. And I think the states will show up to help support those investments and jobs.

Speaker C: What about you Asmara? Which regulations are you keeping an eye on?

Speaker D: Well, we've already mentioned a few of those. So obviously the Sustainable Transport Investment Plan, it will be a communication by the Commission, uh, towards the end of the year and then we'll hopefully see some policy proposals following that. I mentioned the Renewable Energy Directive. Transposition at the national level, important factor for SAF pricing going forward. I also look forward to finalizing the rules for the Low Carbon Fuels Delegated act which is on the hydrogen and decarbonized gas package. An important aspect because we really think that can be game changing for ESAF production in particular as you can use both RFNBO compliant or low carbon fuels or ESAF to fulfill the mandates. So you don't have to worry about additionality and some of those very stringent requirements on the RFNBO when you go the low carbon route because you can just connect to a grid. Obviously that grid needs to be already pretty clean to meet the 70% G saving threshold. But it is something I think that really can help bring down costs of production. And perhaps the last piece I'll mention which will come up next year is the revision of the Emission Trading System. So the ETS Directive, I think that can have multiple effects on our sector. The scope could change. At the moment ETS is intra European flights, but it could actually cover all flights departing from from Europe. So that would significantly increase compliance costs for airlines and perhaps incentivizing further to switch to saf. It could also offer the opportunity to redirect the revenues coming from aviation going to the member states at the moment towards a middleman or some kind of support mechanism. So that would be an important source actually of funding for the sector.

Speaker C: Excellent. Jess, what is the one thing that you're optimistic m about when it comes to uh, the future of renewable fuel and regulation?

Speaker E: That it's happening. I mean we talk about all the challenges because we have to and these are the things that you know, we're responsible for mitigating in terms of risk every day. Right. These, these projects are large investments, but I think if you open the aperture and you look at the trajectory longer term it is happening. We are scaling these fuels, uh, perhaps more slowly than we'd like to and there are policy supports that are helping that. So we're going to keep iterating and make it a more perfect system. But it's happening.

Speaker C: I agree. Asmara, same question. What is the one thing you're optimistic about?

Speaker D: Well, I'm an optimist by nature. I guess you have to be in this industry in a startup wanting to produce esap. But, uh, as Jess mentioned, I really do see that we're moving in the right direction. And if I can add a little bit of public affairs nerd elements for it, I also. So I'm amazed to see that there's more and more professionalism in how the staff players are organizing themselves, coming together as a political force as well. So there's more and more collaboration, and I do think that will also help to have a bit more political weight, um, and push for further improvements of the policy.

Speaker C: On this note, I would like to thank you both again, Jess and Asmara, for your time. A fantastic discussion, as usual. We could speak for hours and hours. At least I could with you, and I'm learning so much. So thank you again to both, and I, uh, wish you a very good day. Bye. Bye. Bye.

Speaker E: What a pleasure. Thank you, Silvan.

Speaker D: Thank you, Silva.

Speaker B: Silvan. That was an interesting conversation, and I kind of imagine that this must be the favorite episode of all for you.

Speaker A: It's like, if you have many children, you like them all. But I really like this one especially. So, not only because Jess and Asmara are close friends of mine. It's also Jess is a lawyer. Um, Asmara studied political science. So it's very different way to see things. So I love. I'm very elevated each time I talk to them because they don't see things the same. And I'm learning a lot. And besides being very nice, being very knowledgeable, they elevate the way I understand things and see things. So for me, it's always a pleasure discussing with them. And here they're so up to date about what's happening. And it's at one point, it's not philosophical, but it's almost, what is regulation? What should it do? What is fair, not fair, how it should be adjusted to each country. So for me, it was a, uh, very special episode. But yet, to all my other guests, I loved you as well, but this was very special. But joke aside, Michaela, what is it you took out of this discussion?

Speaker B: I think Jess mentioned something about legislation longevity. And this is what we constantly talk about. And what we see is that if legislation needs to have an impact.

Speaker A: Huh.

Speaker B: It also needs to be in place for quite some time.

Speaker A: We've been discussing about this finish line concept that. Look at the finish line. It's a marathon. Let's look ahead. And that you need support across this whole marathon. And that's what you need, this lifeline of regulation on the side to guide you, you through the finish line. So I also agree, to me it's really important that regulation is long term and it brings stability and you know where to go. So.

Speaker B: But if we stay in the analogy, and maybe we shouldn't stay in the analogy for too long, but this whole point about having a stick versus a carrot, and I have been a really strong, uh, spokesperson for the carrot because it gets projects moving, uh, that you have a big carrot, that you have a lot of money, where you can sort of see the pot of gold at the end of the rainbow.

Speaker E: Right.

Speaker B: If you, if you do this. But I think there was some very good points in the conversation about that you can't, you can't just have the carrot all the time, but at some point in time you might also want to have like a little stick or a larger stick to sort of uh, get stuff moving. And I think it's a balance that needs to happen. And uh, it was just enlightening to me to recognize that depending on where you are in the development of the market, different kinds of legislations are needed.

Speaker A: And those regulations are obviously political. So it's a political decision. So it's not only technical or economic, it's a political decision. What do the uh, regulators want to do for their country? What have been elected for? And it's dynamic because governments change. So we want the long term, but they will adjust. And also I can see in the eu, the EU commission and the uh, regulators are very well aware of the challenges. So they're also adjusting regulation to the market. Same in the uk, uh, in different parts of the world. So it's long term, ideally, but it's also dynamic and adjust to the needs. It's a political decision.

Speaker B: It's a political decision, but also it's a matter of where you are intergenerational in the journey. Exactly where you are in your marathon, whether, uh, you're at the starting line or.

Speaker C: Yeah.

Speaker A: And if you're getting tired, do you need more support? And it's also that kind of adjustment that regulation is doing anything else. Michaela, in your Asmari was talking about

Speaker B: that it was also important to not have the same legislation everywhere.

Speaker C: Mhm.

Speaker B: And I think that's very interesting because obviously there are some countries which are, are the ones who are growing the feedstock for the renewable fuels and there are some that are the producers of the renewable fuel. And if you have the same legislation everywhere, it might not make the industry go the right way.

Speaker A: No. And also history of if you take biofuels, many countries have history of biofuels because so many mandates and you're often building regulation for SAF shipping and so forth on top of the existing biofuel regulation. And this regulation has been initially adjusted to the local ecosystem. So not all countries, not only because of GDP and development, but it's also because of historical reasons, I feel, and also nature of the ecosystem, of the farming, of the waste, of the refinery, you name it. Different factors, different regulations. Ideally though, if I can say a few words, I agree, but don't agree. If we could use the same greenhouse gas methodology, same sustainability requirements, because otherwise it makes a product only specific to a market. And we are happy to see that that many regulators looking at SAF roadmap want to use a Corsia framework, which

Speaker C: is really good news.

Speaker A: And for shipping, I believe only EU has a few EU maritime. So the new countries, like people, will use IMO regulation, which will be a global market. So this is good news.

Speaker B: But that's of course, I think that's a very good point, is that if we could agree globally on how we calculate the greenhouse gas emissions or which models we use, that would benefit everybody because it would have an easier country conversation and you would compare apples to apples instead of comparing apples to bananas.

Speaker A: I don't think that what is done will be uh, removed, but at least for the new countries implementing uh, renewable fuels regulations, hopefully they will use uh, off the shelf regulation, sustainability criteria and so forth. Anything else, Michaela, that you wanted to address?

Speaker B: Other than. And I'm repeating myself, I want to listen to this podcast episode again because again, so much knowledge was shared. Ah, so many insights that I actually think it takes time to digest it.

Speaker C: Yes.

Speaker A: And uh, we also often said that in our podcast that uh, legislation is dynamic. So we recorded the episode in uh, summer 25. When it's out, maybe things will have changed. So it's really, you need these kind of people like Jess and Asmara and I'm sure in your organization you have or in your ecosystem people who are really on the top of the game because it's a dynamic world.

Speaker B: Yeah.

Speaker A: So yeah, stay tuned to this podcast but also keep on networking to know. And it's a discussion we had at the beginning. How do you keep up and please follow the advice that uh, yeah, Asmara and Jess had at the beginning because it's dynamic. It's changing. And, uh, that's really something important to know that it's never set in stone fully.

Speaker B: No.

Speaker C: Good.

Speaker A: Thank you, Mikaela.

Speaker B: Thank you.

Speaker A: That brings us to the end of this episode of Fuel For. A big thank you to Jessica and Asmara for sharing their insights, and to you, of course, our listeners, for tuning in. If you found today's conversation helpful, please share it with friends and colleagues.

Speaker B: In our next and final episode of the season, we will talk with Peter Rosenthal, CEO of Seaboard Energy, about agricultural integration and innovation in renewable fuels. See you then. Bye.

Speaker A: Uh, bye,

Speaker C: Sam M.