RED III: Transforming Europe’s renewable energy landscape

The Renewable Energy Directive (RED) is a cornerstone of EU climate policy, driving the transition away from fossil fuels across member states and beyond. The latest iteration, RED III, introduces significant changes that will reshape the renewable energy sector, with particular implications for biofuels and forestry biomass. These updates aim to accelerate Europe’s journey toward its 2030 climate targets and the ultimate goal of climate neutrality by 2050.

The evolution of the RED

The RED has evolved into more than just a European regulation. It has become a global standard that influences markets and practices worldwide. Countries like Malaysia and Brazil that supply significant amounts of renewable energy products to the EU must comply with these regulations, effectively establishing global benchmarks for sustainability in the energy sector.

The introduction of RED III follows the European Commission’s 2020 progress report, which highlighted that while the EU achieved an 18% share of renewable energy overall, the transport sector significantly lagged behind at just 8%. There were also growing concerns about the sustainability of bioenergy, which constitutes around 60% of the EU’s renewable energy, mainly from forestry biomass.

Key changes in RED III

Shift in focus from renewable energy to carbon intensity

One of the most significant changes in RED III is the shift from focusing on renewable energy alone, to instead emphasising carbon intensity reduction. Member states now have the option to implement either a renewable energy target or a greenhouse gas (GHG) emissions intensity reduction target for transport fuels. This flexibility allows countries to pursue the most effective pathway for their specific circumstances while still contributing to overall climate goals.

RED III substantially raises the ambition level with new, higher targets for renewable energy use:

• increasing the overall renewable energy share to 42.5% by 2030
• setting a binding target of either 29% renewable energy in transport or a 14.5% reduction in GHG intensity
• raising the advanced biofuels target from 3.5% to 5.5% of final consumption in road fuels
• introducing a mandatory 1% minimum share for Renewable Fuels of Non-Biological Origin (RFNBOs), primarily hydrogen-based fuels

Introduction of RFNBOs

Perhaps the most innovative aspect of RED III is the explicit inclusion of new targets for RFNBOs – hydrogen-based fuels produced using renewable electricity from non-biological sources like solar, wind and hydrothermal power. These fuels represent a significant step forward in decarbonising sectors that are difficult to electrify directly. The 1% minimum share requirement is driving major energy companies to explore implementation strategies, with applications ranging from refinery operations to heavy-duty vehicles and potentially aviation and maritime transport.

Heavy-duty vehicles, which usually account for the majority of diesel consumption in most European countries, including Germany, represent a particular challenge. While passenger cars are steadily electrifying, lorries, agricultural machinery, and trains on non-electrified routes will require alternative solutions such as advanced biofuels or hydrogen-based fuels.

Forestry biomass under scrutiny

Forestry biomass, which constitutes about two-thirds of the EU’s bioenergy consumption, is another key area that faces enhanced sustainability requirements under RED III.

The directive introduces clearly defined ‘no-go areas’, including highly biodiverse forests, grasslands, peatlands and heathlands, where biomass harvesting is effectively banned. At the same time, sustainable harvesting practices have been redefined to prohibit forest conversion to plantations, while requiring forestry operations to minimise clear-cutting and prevent the extraction of roots and stumps.

A cornerstone of the new approach is the ‘cascading principle,’ which establishes a hierarchy for wood utilisation. Under this principle, woody biomass should primarily serve as raw material for wood-based products such as furniture. Once these products reach the end of their useful life, they should be reused where possible, then recycled, with energy recovery considered only as a final step before disposal.

The directive also restricts public financial support, prohibiting member states from granting direct subsidies to electricity-only installations using forest biomass. Additionally, RED III reduces the threshold for sustainability criteria reporting from 20 MW to 7.5 MW, bringing many smaller biomass plants under compliance requirements for the first time.

Road ahead

The transition towards RED III compliance will require significant investment in infrastructure, technology development and certification systems. For many businesses, particularly those in the fuel supply chain, RED III necessitates strategic adjustments and potentially new business models. Voluntary certification schemes like ISCC (International Sustainability and Carbon Certification) can play a crucial role in helping businesses comply. Additionally, the introduction of a Union Database (UDB) should enhance supply chain transparency by requiring registration of renewable fuel batches and their provenance.

As RED III enters its implementation phase in May 2025, businesses should thoroughly assess their current operations against the new requirements and develop comprehensive compliance strategies. With the right approach, these regulatory changes can be transformed from challenges into opportunities for innovation and sustainable growth in the renewable energy sector.