Dentons – Hydrogen Future: Navigating RED III and RFNBO in the Netherlands
As part of the European Green Deal, the “Fit for 55” legislative package aims to reduce greenhouse gas emissions by 55 percent by 2030 compared to 1990 levels. A key component of this initiative is the increased use of renewable hydrogen. To support this goal, the European Union has updated its Renewable Energy Directive (RED III).
In the Netherlands, RED III will be implemented through various measures, including the proposed “Act on the Annual Obligation for Renewable Fuels of Non-Biological Origin in Industry” (Wet jaarverplichting hernieuwbare brandstoffen van niet-biologische oorsprong in de industrie) (Annual Obligation Act). The Annual Obligation Act is expected to enter into force in the course of 2025 and requires industrial users of hydrogen to replace a portion of their hydrogen consumption with RFNBOs each year, starting from 1 January 2026.
RFNBOs
RED III mandates that by 2030, at least 42 percent of the hydrogen used in industry must come from renewable fuels of non-biological origin (RFNBOs), increasing to 60 percent by 2035. Additionally, RED III requires that by 2030, at least 1 percent of the energy supplied to the transport sector consists of RFNBOs.
Under RED III, RFNBOs are defined as liquid and gaseous fuels derived from renewable sources other than biomass. This includes renewable hydrogen and carriers such as ammonia and methanol. The definition in RED III expands on what was set out under RED II by including all renewable fuels of non-biological origin, regardless of their end use.
Application of the Annual Obligation Act and reporting requirements
The proposed annual obligation will apply to operators of industrial installations in the Netherlands that use more than a minimum threshold of 0.1 kton of hydrogen per year. The obligation applies at the installation level, not at the company level.
To facilitate this, a tradable unit is introduced, called a “renewable hydrogen unit industry” (hernieuwbare waterstofeenheid industrie) (HWI). One HWI represents one gigajoule of RFNBOs used in Dutch industry. These units are registered and traded in a system overseen by the Dutch Emissions Authority (NEa).
At the end of a calendar year, operators subject to the annual obligation must have a sufficient number of HWIs in their account to meet their annual obligation. The required number of HWIs per calendar year is determined by the NEa based on the reported hydrogen usage by the operator. Companies can obtain HWIs by either using RFNBOs in their operations and registering this usage or by purchasing HWIs from other companies.
An independent auditor must verify the reported hydrogen usage. While only companies meeting or exceeding the abovementioned threshold must comply with the reporting and RFNBO usage obligations, other companies can choose to participate voluntarily.
Correction factor
As mentioned, RED III also requires that by 2030, at least 1 percent of the energy supplied to the transport sector consists of RFNBOs. This obligation can be fulfilled through direct use of renewable hydrogen in the transport sector or by using renewable hydrogen in refineries to produce transport fuels (the “refinery route”). Each option generates a certain number of credits, which are used to prove the RFNBO-target is met.
Due to its direct CO2 reduction benefits, the Ministry of Infrastructure and Water wants to encourage direct use of hydrogen in the transport sector by implementing a correction factor. The proposed correction factor for renewable hydrogen used in refineries is 0.4. This means that each kilogram of green hydrogen used in refineries counts as only 0.4 kilograms. Therefore, green hydrogen that is directly used in the transport sector generates 2.5 times the number of credits compared with green hydrogen used to produce fuels in refineries.
Companies in the refinery sector are critical of the correction factor, fearing it may restrict rather than boost the use of green hydrogen in refineries. They believe that it may decrease refineries’ willingness to pay for renewable hydrogen, as fewer credits are earned per kilogram of renewable hydrogen that is used.
For more information regarding RED III, or if you want to discuss whether any of the obligations described in this article might apply to you, please don’t hesitate to reach out to one of the members of our Energy team.
This contribution was published in the January 2025 edition of the Pulse newsletter. Click here to access the other articles in this edition.
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