Viewpoint: German E10 sales to benefit from higher fees

Tougher environmental legislation in Germany is likely to bolster E10 demand in 2022, but middle distillate sales in the country should be less affected.

From the start of the year Germany's CO2 tax goes up to €30/t CO2 equivalent from €25/t CO2e, and the country's greenhouse gas (GHG) emissions mandate, or GHG quota, rises to 7pc from 6pc. These are applied at wholesale level, which is normally at the point of loading at a storage facility or refinery. They will push wholesale prices up by about €16/t for heating oil, €32/t for diesel and €30/t for E5 gasoline. The latter increase may encourage consumers to purchase E10 gasoline, which is sold at a 6¢/l discount to E5 at the pump in Germany.

There is a chance that the difference in retail prices between E5 and E10 will widen in 2022. Some suppliers own retail filling stations, giving them an opportunity to sell more E10 at the pump to comply with the GHG-quota. The penalty for missing the quota also rises next year - to €600/t CO2e from €470/t CO2e in 2021.

For diesel and heating oil, German companies are not expecting the higher CO2 tax and GHG quota to have a major impact on demand. Stocks were built up ahead of the introduction of the CO2 tax at the start of 2021, which in turn significantly dampened demand in the first quarter of this year. But stock levels in private heating oil tanks are at historically normal levels of around 58pc this month, 14 percentage points below last year's record high. Industrial diesel stocks are even lower.

German fuel station operators are broadly optimistic on road fuel demand in 2022, based on the pace of the country's vaccination roll-out and recent consumption trends. Even though Berlin introduced stricter Covid-19 measures at the end of November, road fuel demand slipped only slightly on the month. Retail operators expect sales to remain around these levels unless a new lockdown is introduced.

Longer-term, rising costs and continued subsidies for alternatives are bound to weigh on overall fuel demand in Germany. The GHG quota will rise to 25pc in 2030 and the CO2 tax is due to increase annually until it peaks at €55/t, at which point it will be replaced by a trading regime with the bottom price at €55/t. Germany's new government said it will revise the legislation that forms the basis for the CO2 tax in its coalition agreement and is likely to increase the minimum CO2 price to €60/t from 2026.

Other environmental legislation is having a clear effect on German car sales, with ramifications for future fuel demand. Since the introduction of car purchase subsidies in July 2020, the number of electric vehicle (EV) sales has gone up significantly while the share of fossil-fuel cars has fallen. One of the first actions in office of the Green Party-led ministry for economics and environment has been to prolong government aid in favour of EVs until the end of 2022.

By Alina Rapoport