What does RED III mean for renewable fuels?

The EU’s updated Renewable Energy Directive (RED III) is a major step forward in its efforts to decarbonise the European economy and reduce greenhouse gas emissions. RED III not only raises the bar for renewable energy targets, but also introduces new provisions for the use of Renewable Fuels of Non-Biological Origin (RFNBOs), most notably renewable hydrogen.

Overview of RED III

RED III, which countries had until May 2025 to implement, sets a binding target for the EU to achieve a minimum 42.5% share of renewable energy in its total energy consumption by 2030 – up from the previous target of 32%.

The directive aims to accelerate the energy transition by setting sector-specific targets and streamlining the permissions process for renewable energy projects. Priority sectors include industry, transport and buildings.

Renewable fuels of non-Biological origin (RFNBOs)

RFNBOs are fuels produced from renewable sources other than biomass. Renewable hydrogen is the most prominent example. RED III introduces strict criteria for what qualifies as an RFNBO to ensure these fuels deliver genuine carbon savings and do not indirectly incentivise fossil fuel use.

To be considered renewable, hydrogen must be produced using additional renewable electricity from sources like wind, solar, geothermal, tidal or hydroelectric. This ‘additionality’ principle is key. It is designed to prevent the diversion of existing renewable electricity from other uses and to drive further investment in renewables. In addition, the directive sets out specific criteria to ensure the hydrogen is produced close to the source of renewable electricity and at times when renewable generation is high.

Certification schemes, such as ISCC and REDCert, are vital to demonstrate compliance with these requirements. Companies must register with a recognised voluntary scheme, undergo audits and maintain detailed documentation to prove their hydrogen or other RFNBOs meet the EU’s sustainability criteria.

Implications for businesses

The introduction of RED III and its focus on RFNBOs has significant implications for businesses. For energy companies, particularly oil majors, the directive creates both opportunities and challenges. Many are now investing in green hydrogen projects, seeking to replace fossil-based hydrogen in refineries and to develop new markets for hydrogen in heavy industry and transport.

However, the transition is not without its complexities. The regulatory landscape is rapidly evolving. Companies must navigate a maze of certification requirements, reporting obligations and market uncertainties.

There are also considerable practical challenges in integrating RFNBOs into existing operations. For instance, oil companies are required to source renewable electricity through power purchase agreements (PPAs) with wind or solar farms, adding complexity and cost to their supply chains. The need for robust traceability is also heightened, as regulators and customers demand greater transparency to prevent fraud and prevent ‘greenwashing’.

RED III also introduces a new ‘Union Database’ (UDB), a central EU database designed to track renewable and recycled carbon fuels throughout their supply chains. This will be mandatory for tracking compliance, reducing fraud and preventing market abuses.

Industry

In the industrial sector, RED III requires a 1.6% annual increase in renewable energy usage and sets specific targets for renewable hydrogen. By 2030, at least 42% of hydrogen used for energy and non-energy purposes must come from RFNBOs, rising to 60% by 2035. This creates a strong incentive for industries to invest in green hydrogen production and to explore new applications for hydrogen in manufacturing processes.

Transport

The transport sector faces a dual challenge: increasing the share of renewables while reducing greenhouse gas intensity. Member states must choose between a binding target of at least 29% renewables in final energy consumption or a 14.5% reduction in greenhouse gas intensity by 2030. The inclusion of RFNBOs in the transport fuel mix is a significant development. It opens the door for hydrogen-based fuels to play a role in decarbonising heavy-duty transport, shipping, and aviation – sectors where electrification is more challenging.

Buildings

For the building sector, RED III sets an indicative target of at least 49% renewable energy by 2030, with binding annual increases for heating and cooling systems. While RFNBOs are less prominent in this sector, the directive’s focus on renewable heating solutions could drive innovation in district heating and the use of renewable gases.

RED III represents a landmark shift in the EU’s approach to renewable energy, setting ambitious targets and introducing robust mechanisms to drive the uptake of RFNBOs.

As the EU moves towards its 2030 targets, businesses that proactively adapt to the new regulatory landscape will be well positioned to capitalise on the growing demand for renewable hydrogen and other RFNBOs. The success of RED III will depend not only on the ambition of its targets, but also on the ability of industry and regulators to work together to overcome the practical challenges of implementation.