On May 20, 2021, the German Parliament passed the draft law for the Further Development of the Greenhouse Gas Reduction Quota. It provides for an increase of the greenhouse gas reduction quota in the transport sector to 25% by 2030. In addition – and contrary to prior efforts of the Federal Government – biogenic hydrogen can now be counted towards the greenhouse gas reduction quota, if it was obtained directly from biomass or with electricity from waste-to-energy plants (so-called "orange" hydrogen). In its statement accompanying the draft law, the Parliament gave additional important positive signals for the biogenic hydrogen economy in Germany.

Content of the draft law for the Further Development of the Greenhouse Gas Reduction Quota

The passed draft serves to implement the Renewable Energy Sources Directive (EU) 2018/2001 (RED II). The RED II obliges the member states to ensure that by 2030 at least 14% of the final energy consumption of the transport sector is derived from renewable energies. The EU Climate Protection Regulation (EU) 2018/842 (also: Effort Sharing Regulation – ESR) contains further mandatory greenhouse gas targets for the transport sector. Currently, Germany is not achieving its effort-sharing goals, which is partly due to rising greenhouse gas emissions in the transport sector. Reforms to increase climate protection in the transport sector are therefore urgently needed.

To this end, the draft law gradually increases the greenhouse gas reduction quota of Sec. 37a para 4 of the Federal Immission Control Act for petrol and diesel fuels to 25% from 2030 onwards. This goes beyond the requirements of the RED II. This decision can be seen in connection with the latest requirements of the Federal Constitutional Court in its ruling on the Climate Protection Act of March 24, 2021 (1 BvR 2656/18 and other). Therein, the Federal Constitutional Court declared parts of the current German Federal Climate Protection Act to be unconstitutional and ordered the legislature to achieve greenhouse gas neutrality in an generation-friendly manner. To implement these requirements, a draft of a First Law Amending the Federal Climate Protection Act (dated May 11) has already been issued. The Constitutional Court’s ruling was taken into account in the draft law on the Further Development of the Greenhouse Gas Reduction Quota through an increase of quotas in the transport sector. The increase is intended to create stronger incentives to achieve the goals set out by the Federal Constitutional Court.

The draft law also contains important new regulation for biogenic hydrogen. It is to be evaluated against the draft law submitted by the Federal Government at the beginning of March this year (printed matter 19/27435), which barred all types of biogenic hydrogen from counting towards the greenhouse gas reduction quota. For this purpose, Sec. 37b para 8 sentence 1 of the Federal Climate Protection Act which lists substances that cannot be counted towards the greenhouse gas reduction obligation was to be amended with a new number 4: "hydrogen from biogenic sources".

The Federal Government justified this policy decision with an alleged obligation to inhibit biogenic hydrogen. The purported aim of the draft law would be to create incentives for the expansion of electrolysis capacities in view of the upcoming ramp-up of the hydrogen economy. The inclusion of – biogenic – hydrogen not obtained by means of electrolysis would jeopardise this goal. Only so-called "green" hydrogen generated by electrolysis would be expressly promoted by the Federal Immission Control Act (see printed matter 19/27435, p. 24).

The Federal Council opposed the general exclusion of biogenic hydrogen in its statement on the draft law (printed matter 19/28183). It would be imperative to exhaust all available technology options, inter alia with a view to the considerable additional demand for hydrogen, as envisaged in the Federal Government's hydrogen strategy (5 GW production capacity in Germany by 2030). In its counter-statement, the Federal Government rejected the proposed changes.

The Environment Committee of the German Parliament thereafter presented its recommendations (printed matter 19/29850), which were accepted in full in the draft law. They contain a mediatory solution with significant positive signals for biogenic hydrogen:

As suggested, biogenic hydrogen is incorporated into Sec. 37b, para 8 sentence 1, number 4 of the Federal Climate Protection Act (see above) and biogenic hydrogen thereby generally excluded from counting towards the greenhouse gas reduction quota. At the same time, however, Sec. 37 b of the Federal Climate Protection Act is amended with an exception that allows crediting in certain cases:

“Notwithstanding sentence 1 number 4 and paragraph 1 sentence 1, from July 1, 2023 onwards hydrogen from biogenic sources of Annex IX part A of Directive (EU) 2018/2001, which is used in road vehicles, will count towards the fulfillment of section 37 a paragraphs 1 and 2 in conjunction with section 37 a paragraph 4 (...)."

While the RED II does not contain any regulation on the promotion of biogenic hydrogen, section 37 b Federal Climate Protection Act now provides – to a limited extent – for the promotion of "orange" hydrogen. In order to ensure the sustainability of the energy product, the Federal Government is authorized to regulate the criteria for the crediting of biogenic hydrogen by way of a directive. The directive requires the approval of the Parliament.

Overall, the passed draft law reaffirms that currently no competition is wanted between biogenic hydrogen and hydrogen from electrolysis. The exception that allows crediting in certain cases is justified with the existence of corner cases areas in which biogenic and green hydrogen do not compete – an example being the use in fuel cell vehicles. Biogenic hydrogen would also be useful for regions with limited access to non-biogenic renewable energy sources.

On occasion of passing the draft law, Parliament also issued several material findings on biogenic hydrogen:

• The upcoming ramp-up of the German hydrogen economy is to be designed in a technology-neutral manner.
• The promotion of biogenic hydrogen is a useful supplement under certain conditions. In particular, sustainability principles must be observed. Cross-sectoral negative effects from relocating the raw materials used for extraction are to be avoided.

The Parliament further called on the Federal Government to "examine the possibility of promoting the use of biogenic hydrogen in refineries in accordance with EU law from 2026 onwards".

Assessment and outlook

The draft law for the Further Development of the Greenhouse Gas Reduction Quota as passed by Parliament and the associated material findings contain important signposts for the future of biogenic hydrogen in Germany. The rejection of the Federal Government's plan to categorically downgrade biogenic hydrogen by the Federal Council and the Parliament opens up new planning opportunities for biogenic hydrogen projects. Parliament’s call for technology-neutrality and an assessment of the funding possibilities for biogenic hydrogen allows for the hope that in the future alongside “green” hydrogen also biogenic hydrogen will play a greater role.