eThesis - School of Business electronic theses

European Union aims to decrease the consumption of fossil fuels with the objective of decreasing greenhouse gas emissions and improving security of supply. One method to achieve this is to increase the share of renewable resources in producing transport fuels. To prevent negative environmental or social impacts, the European Union has determined minimum criteria for the sustainability of biofuels. This thesis reviews the objectives of the European Union regulation on promoting the use of biofuels and analyses, how the regulation supports or prevents innovations related to biofuels.

The data used for this thesis includes European Union regulation as well as national regulation in Finland. In addition, requirements of a voluntary scheme were analysed. The material also included company publications, reports of governmental and interviews of national regulator as well as a case company producing biofuels in Finland.

After setting targets for increasing share of biofuels in European Union, the Commission increased the targeted share and set sustainability requirements for biofuels. The requirements include minimum greenhouse gas reduction over the lifecycle of the product, ban of use of land with high biodiversity value and ban of converting high carbon stock land areas. Thereafter, there has been discussion on changing the sustainability requirements.

The national regulation in Finland is based on the European Union regulation and the national authority is Energy Authority. The authority decides on the approval of sustainability management systems as well as what feedstock is considered to be waste or residue.

Characteristics that are considered to promote the development of innovations include flexibility, predictability and gradual tightening. Biofuels regulation can be considered to be flexible, as it does not stipulate the production technology. On the other hand, the regulatory framework does not take into account the special characteristics of some new feedstock. In practice, this can lead to barriers for development. Even though the regulation has been clear, there has been a constant uncertainty on whether it will be changed in the future. The development of the regulation has in practice lead to gradual tightening, but these steps have not been known for the market in advance. Current regulation only includes a step of gradual tightening for the minimum greenhouse gas reduction of the biofuels.

Based on the companies analysed, it is clear that the regulation has led to development of new feedstock alternatives based on wastes and residues. This can be considered to be an innovation effect of the regulation. On the other hand, the uncertainties related to regulation as well as practical barriers related to the use of feedstocks with complex supply chains, may have prevented the development of innovative new products.