Visual indications:

1. The two documents contain several comments by the Commission about elements that will be subject to further developments, decisions or communications. These elements are systematically highlighted in blue boxes.

2. Examples illustrating the principles analyzed are systematically highlighted in green boxes.

1. Communication on the practical implementation of the EU biofuels and bioliquids sustainability scheme and on counting rules for biofuels

1.1) General principles for the application of sustainability criteria

Limit of the scope and application of sustainability criteria Designed "to assist Member States and to facilitate a consistent implementation of the sustainability criteria", the first communication mentions in its introduction that sustainability criteria apply to bioliquids and biofuels only for given purposes summarized in table 1.

Table 1 – Summary of purposes when sustainability criteria apply

Member States must ensure that biofuels produced and imported in their country meet sustainability criteria when they:
1	Are counted towards their renewable energy targets under the RED (article 17)
2	Are used for compliance with renewable energy obligations
3	Receive financial support for their consumption
4	Are counted towards the target of the Fuel Quality Directive for reducing GHG
5	Receive investment and/or operating aid according to EU guidelines on state aid for environment protection (notice OJ 2008/C 82/01)
6	Are taken into account under the provisions for alternative –fuels vehicles of the Regulation on CO2 from passenger cars

Therefore, biofuels that do not meet sustainability criteria – because they failed to meet the requirements of a certification scheme or because they did not apply to any – can still access the EU market if the economic operators distributing them work outside the scope delimited by the six cases summarized in table 1.

Economic considerations can push fuel distributors to put biodiesel not complying with the EU sustainability scheme on the market if it is cheaper than conventional diesel.

Methodologies to show compliance with sustainability criteria If they are obliged or wish to apply under the cases summarized in table 1, economic operators must prove to Member States’ authorities that the totality of biofuels put on the market comply with sustainability criteria defined in article 17 of the RED. They have three ways to do so:

1. Providing required data to the relevant authority according to the national system that every Member State must put in place by December 5, 2010.

2. Using a voluntary scheme recognized by the EU Commission.

3. Referring to a bi/multilateral agreement concluded by the EU.

They can use more than one of the abovementioned methods to show that one particular parcel of biofuels respects sustainability criteria.

For example, a fuel distributor placing PME on the EU market could use the RSPO certification scheme to prove that its product has been made from feedstock complying with the land related criteria. He would then have to provide data concerning GHG savings calculations according to the national system’s requirements to the national authority. Therefore, he would use a mix of methodologies n° 1 and 2 to prove that the PME sold fully complies with sustainability criteria. Of course, the RSPO certification scheme would first have to be recognized by the Commission as an eligible voluntary scheme before the fuel distributor can use it as a proof of its compliance.

Burden of submitting requested data The Commission recommends that Member States choose the economic operator who pays the excise duty on transport fuels as the one responsible for submitting the requested information. He will then have to make available to the authorities the complete information related to the entire fuel chain (from the grain to the distributed fuel). The Mass Balance System will help him gather all the information needed (see synthesis of the second communication on this topic).

Audit If they use the national system to prove their compliance, economic operators will have to "arrange for an adequate standard of independent auditing of the information submitted" in accordance with article 18(3) of the RED. This audit's organization will already be integrated into voluntary schemes and bi/multilateral agreements recognized by the Commission.

Criterion applied only for biofuels produced in the EU All GHG and land-related criteria contained in article 17 of the RED are equally applied to biofuels produced within and outside the EU, except for one: the agricultural and environmental requirements and standards for EU farmers criterion. Although it is not addressed in the RED, this criterion has to be taken into account by Member States for the purposes summarized in table 1. The Commission invites Member States to make sure that this criterion is also fulfilled by biofuels sold in the EU. They should do so by relying on their existing control system defined in Regulation (EC) No 73/2009.

Harmonization of sustainability criteria The Commission aims at guaranteeing that sustainability criteria contained in the RED are harmonized across the Union for purposes 1 to 4 displayed in table 1. It would like to avoid that some countries set stricter sustainability criteria than the RED's. However, given that this principle is not mentioned in the Directive, the EU cannot impose its will on this topic to any country. In the communication, the Commission underlines that "the Directive's sustainability criteria are fully harmonized at Community level and were adopted under Article 95 (internal market) of the EC Treaty". This Article stipulates that Member States can maintain national provisions on ground of major needs by notifying the Commission.

Concretely, it means Germany and the UK could stick to their current sustainability schemes which contain stricter criteria than the RED. However, the majority of governments should stick to the RED’s criteria considering that the implementation process will already be complex.

Publication of data Although the RED does not make it obligatory for Member States to make the information it will gather public, "the Commission encourages Member States that publish such information to do this in a consistent manner for all fuels". Interestingly, this piece of advice given to Member States could bring more transparency about biofuels' origin and compliance with sustainability criteria.

1.2) Greenhouse gas emission savings criterion

Exception Biofuels produced by installations that were already in operation before January 23, 2008 do not have to comply with the GHG emission saving of 35% (RED article 17(2)) before April 1, 2013. This exception has been included in the Directive in order to provide enough time to companies already active along the biofuels' value chain to adapt to the new requirements. The communication makes it clear that "if at least one of the processing installations used in the production chain was in operation on 23 January 2008" the criterion does not apply before April 1, 2013.

If next year (2011) a fuel distributor buys biodiesel from a company which operates a plant inaugurated on December 1, 2008 with regular processing of rapeseed crushed at a local unit already in operation since 1996, it will not have to comply with the GHG emission saving of 35% criteria, even for the biodiesel unit.

The Commission specifies that companies should not intentionally include a specific production facility in their value chain only to qualify for the exemption explained above. However, one can wonder how controls will be performed to avoid such practices. Indeed, several companies might be tempted to change their feedstock supplier so they could avoid complying with the GHG emission saving criterion.

Moreover, it seems that the majority of supply chains used in the biodiesel market includes production facilities that were in operation before January 23, 2008. In effect, this means that the GHG emission saving criterion shall not be binding for the big majority of biofuels sold in the EU before April 1, 2013.

Default and actual values In its Annex 1, the communication provides a very useful scheme explaining when default and actual values can be used. Default values are extensively discussed in the second communication issued by the Commission (see page 6). Where no default value exists or for EU regions where the use of default values is not allowed for the cultivation of some feedstocks (RED article 19), the Commission recommends the use of averages calculated from the zoning process for a particular geographical area. Every Member State had to provide before March 31, 2010 a comprehensive zoning of their agricultural land in order to allow the settings of GHG emission saving value for the cultivation of a given area. However, according to our latest information, only 6 countries have so far provided the Commission with the requested data.

On its transparency platform, the Commission intends to publish annotated examples of calculations of actual values as well as a set of standard values – derived from the datasets used to establish the default values – that could be used in the calculation of actual values.

The document also specifies that the typical values displayed in the RED cannot be used by economic operators to prove their compliance with the GHG emission saving criterion. Typical values can only be used by Member States when they report to the Commission on the progresses of their renewable energy use.

1.3) Land related criteria

Exceptions The communication provides few indications on the definition of each kind of land considered as not eligible for biofuels production. It however specifies exceptions that considerably diminish the constraints related to the application of land related criteria.

Among them, two can be mentioned as especially favourable for potential feedstock cultivation:

• In the RED, it is clearly mentioned that raw material for biofuels production should not come from wetlands, considered as land with high carbon stock. However, the communication says that "if raw material is taken from land that was wetland in January 2008 and is still wetland when the raw material is taken, using such material would not breach the criterion."

• An exception is also possible for raw material grown on peatlands if evidences that the soil was completely drained in January 2008 or that there has not been draining of the soil since January 2008 are provided.

In 2010, the Commission intends to establish the criteria and geographic ranges to determine which grassland can be considered to be highly biodiverse grassland (and thus determine more lands from which raw material cannot be taken).

Evidence of compliance The communication details the various forms evidences of compliance to these criteria can take:

Table 2 – List of evidences of compliance

Evidence
1	Aerial photographs
2	Satellite images
3	Maps
4	Land register entries/databases
5	Site surveys

The criteria refer to the status of the land in January 2008 and evidences of compliance can be positive or negative.

Positive evidence can be the satellite image of a land planted with rapeseed or a map displaying agricultural areas before January 2008. Negative evidence can be a forest register showing that the land used to grow raw material is not contained in the register.

1.4) Counting rules for biofuels

Double counting Article 21(2) of the RED forces Member States to double count certain biofuels to demonstrate compliance with the 10% renewable-energy target in transport in 2020. The communication specifies that when biofuels are partially produced from materials that count double, the double counting only applies to that part of the biofuel.

Definition of wastes and residues The Directive does not contain any definition of wastes and residues. The communication specifies that "waste can be understood as any substance or object which the holder discards or intends or is required to discard". Moreover, "raw materials that have been intentionally modified to count as waste (…) should not be considered as qualifying".

Tallow and used cooking oil can therefore be considered as waste. However, if a biodiesel feedstock is constituted by a mix of pure rapeseed oil and used cooking oil, only the physical share of the used cooking oil can be double counted.

Besides residues from the agricultural, aquaculture, fisheries and forestry sectors, the communication includes processing residues in the definition of residues qualifying for double counting. These can be defined as substances "that are not the end products that a production process directly seeks to produce".

Crude glycerine is considered as a residue.

2. Communication from the EU Commission on voluntary schemes and default values in the EU biofuels and bioliquids sustainability scheme

The second communication aims at explaining how the Commission intends to proceed with the two major tools it has set to reduce the administrative burden for economic operators: voluntary schemes and default values. These tools are designed to help Member States and market players to show compliance with the sustainability scheme more easily. Auditing procedures, calculations of GHG emission savings, the burden of proof and recognition of compliance will be directly integrated into voluntary schemes (for one or all sustainability criteria) or avoided with the use of default values (only for the GHG emission reduction criterion).

2.1) Voluntary schemes' recognition process

Assessment procedure The communication details how the Commission will assess a voluntary scheme when it receives a request for recognition. It also provides the reader with a bulk of principles on which the assessment procedure will be based.

Recognition procedure The communication details what institutional means will be used to officially recognize voluntary schemes and communicate on the results of the process.

2.2) Voluntary schemes' requirements for verification systems

The Communication details what requirements must be fulfilled to consider a voluntary scheme as eligible for the recognition process. It provides details about how to include an independent and efficient verification system within a voluntary scheme.

Economic operators' pre-requirements The communication lists three conditions that economic operators should meet if they plan to participate to a voluntary scheme:

Table 4 – List of economic operators' pre-requirements

Conditions economic operators must meet to participate to a voluntary scheme
1	Have an auditable system for the evidence related to the claims they make or rely on
2	Keep all evidence for a minimum of 5 years
3	Accept responsibility to prepare any information needed by auditors

Adequate standard of independent auditing Organizations managing voluntary schemes should make sure that any economic operator willing to be part of the scheme is audited before allowing him to participate. The communication specifies that "group auditing" can be preformed based on samples of production units when areas concerned are similar (land related criteria) or production systems are similar (GHG savings criterion). By this mean, the Commission aims at reducing the administrative burden when possible. No binding requirements are made for the choice of auditors but the Commission provides a bulk of principles that should lead the auditors’ selection process (as shown in table 5).

Table 5 – List of principles for choosing reliable auditors

An auditor should be:
1	External to the economic operator or the scheme itself
2	Independent from the activity being audited and free from conflict of interest
3	Skilled to perform general audits
4	Skilled to perform specific audits related to the scheme’s criteria

When an organization sends a recognition request, it should contain the demonstration that "audits will be properly planned, conducted and reported on". As a consequence, the auditor must ensure that its tasks (as shown in table 6) will be performed in accordance with the Commission's requirements.

Table 6 – List of auditors' tasks

1	Identification of the activities and systems relevant to the scheme's criteria
2	Checking of the effective implementation of control systems
3	Establishment of a “limited assurance level” that contribute to the audit’s risk management
4	Analysis of the risk which could lead to a material misstatement
5	Drawing up of a verification plan including risk analysis and sampling methodologies’ definitions
6	Carrying out of the verification plan by gathering evidence
7	Requesting economic operator to provide any missing element
8	Reporting on a final verification conclusion

Mass balance system The communication reminds that the compliance with the requirements of the Directive over sustainability criteria concerns final products (biofuels) only. As a consequence, a link must be made between the sustainability characteristics of raw materials, intermediate products and final products. To do so, the method selected by the Commission and laid down in the Directive is the Mass Balance System. This method ensures that the information related to sustainability characteristics and origins of each intermediate product are recorded and remain available at each step along the value chain.

When biofuels volumes with the same sustainability characteristics are mixed together, only the size of the parcel is modified. The communication specifies that "sustainability characteristics are likely to be the same where the same feedstocks are used and use is made of "default values" or "regional actual values"".

When biofuels volumes with different sustainability characteristics are mixed together, "the separate sizes and sustainability characteristics of each parcel remain assigned to the mixture". Then if a mixture is split up, "any consignment taken out of it can be assigned to any of the sets of sustainability characteristics (accompanied with sizes) as long as the combination of all consignments taken out of the mixture has the same sizes for each of the sets of sustainability characteristics that were in the mixture".

In any case the balance of the system must be respected, meaning that a deficit of sizes and characteristics shall never occur. A deficit can occur when there is more sustainable material that has been withdrawn than there is that has been added. Importantly, the communication clearly mentions that "the balance could be achieved over an appropriate period of time and regularly verified".

Given that assessments of voluntary schemes have yet to start, the communication recognizes that flexibility over procedures, or even changes, may be necessary. The Commission intends to make the information related to possible changes available on the transparency platform.

2.3) Recognition of bilateral or multilateral agreements

The communication only mentions that after the EU signs bilateral or multilateral agreements with third countries containing provisions on RED's sustainability criteria, they will have to follow the same recognition process as voluntary schemes (see scheme 3).

2.4) Default values

Calculation background The long awaited clarification about default values' calculation is provided by the Communication but remains very limited. Default values are constructed on the basis of three elements: a scientific data set, the methodology in the Directive and a rule for transforming typical values into default values.

*The factor is used in order to prevent from overestimating default values used by economic operators. Therefore, default values are conservative. The factor of 40% is applied only to "processing" elements, not to "transport and distribution" (Linked GHG are negligible) nor "cultivation" (issue of conservatism is already taken into account).

However, the communication fails to provide information about specific data used for representing each biofuel's production pathway. A debate on this topic has been ongoing for several months and the Commission will have to address eventual criticisms on this particular matter. Indeed, the choice of scientific data set conditions the final result of default values.

Future updates and addition Starting in 2010, the Commission intends to update and/or add default values every two years. While the Commission shall update default values in the required report it has to prepare according to the Directive, it could very well publish updates during intermediary periods.

In order to decide if default values must be added or updated, the Commission makes the difference between "general pathways" and "specific pathways". Default values for additional general pathways will be included only if (1) they have significance in the EU market and at least one plant/pathway exists or shall soon exist and (2) there are relevant data available.

Default values for specific pathways will be added only if (1) the difference between the default value of the general pathway and that of the specific pathway is significant and (2) the proportion of biofuels made from the specific pathway reaches at least 10% of the EU general biofuels pathway consumption. However, the addition of default values for specific pathways shall be related to technologies or specific technologies, not to feedstock’s geographical origin.

Conclusion

Several issues addressed by the RED have been highlighted in the communication in order to avoid immediate negative economic repercussions for the transport fuels market. Several ambitious sustainability criteria like the GHG emission saving of 35% have been made less constringent in order to mitigate the negative impacts of the RED over EU companies’ business.

The communication also confirms that the Commission wants to limit the administrative burden that will inevitably arise from the implementation of the RED. Notably, the period of time allocated to companies active along the biofuels chain value to implement the RED has been extended.

In general, the level of explanations is satisfactory and should ensure a concrete implementation of the sustainability scheme. However, market players will have to continue to monitor new information released by the Commission as the information today available is not sufficient to optimize certification strategies. Moreover, new issues are likely to be raised in the coming months during the setting of national systems and schemes recognitions.

Despite the fact that the additional information contained in the two communications brings more clarity on RED's implementation, biofuels players will have to wait for the list of recognized voluntary schemes and for national systems' creation. These major steps shall not occur before the end of the year which makes the December 5, 2010 deadline illusionary.