Your guide to the RED III Directive: What this means for biofuels

The European Union's Renewable Energy Directive (RED) plays a central role in its climate strategy, setting legally binding targets for renewable energy consumption across Member States. Originally introduced in 2009 before a revision in 2018 as RED II, the directive aimed to accelerate the adoption of renewables, particularly in sectors such as transportation and heating, where fossil fuel dependency remains high.

With the adoption of RED III in 2023, the EU has taken a decisive step forward. Replacing RED II, RED III introduces more ambitious targets and compliance measures to align with the broader Fit for 55 climate package. By 2030, the EU seeks to achieve a 42.5% share of renewables in gross final energy consumption, with a stretch target of 45%. For the biofuels sector, this means increased scrutiny, stricter sustainability criteria, and mandatory traceability.

For businesses operating in this space, compliance with biofuels regulation under RED III is no longer optional. The directive's shift toward enforceable certification and mass balance traceability systems marks a new era of transparent, auditable, and cross-border accountability.

What is RED III? 

RED III applies across key economic sectors, including transport, electricity, heating and cooling, and industry, setting differentiated targets and compliance mechanisms. The transport sector, in particular, faces a new target: 29% renewable energy by 2030, up from the previous RED II goal of 14%.

GHG savings thresholds for biofuels are also becoming increasingly stringent. Existing installations must now achieve at least 70% savings, while new installations must reach 80%. 

RED III continues the 7% cap on food- and feed-based biofuels and further prioritises advanced biofuels (Annexe IX, Part A) and renewable fuels of non-biological origin (RFNBOs), such as green hydrogen. Importantly, all fuels must now meet mandatory sustainability verification and certification requirements, tightening control across the value chain.

RED II vs RED III: Key differences businesses should know

With RED III, traceability and compliance become legally enforceable. Chain of custody systems are no longer a best practice; they are a requirement. This means that every actor in the biofuels value chain (producers, traders, blenders, and end-users) must now demonstrate clear documentation linking the physical product to its sustainability claims. Companies must implement verified tracking mechanisms to prove that each batch of fuel meets RED III’s environmental criteria, from the origin of feedstock to its final use.

The need for traceability in mass balancing is now embedded in the directive’s DNA, mandating granular monitoring of sustainable content across all product batches. This model allows for the co-processing of certified and non-certified materials, but requires that the ratio of certified content be accurately recorded and maintained throughout the chain. RED III’s insistence on this method reflects the EU’s broader ambition to digitise and harmonise sustainability data reporting.

For businesses, this shift redefines the compliance landscape. Under RED II, many aspects of biofuel sustainability were subject to voluntary interpretation or discretion of third-party schemes. RED III transforms these elements into enforceable obligations backed by national audits and European Commission oversight. Companies must now move beyond static documentation and adopt digital, interoperable systems that can withstand scrutiny and support real-time reporting. Those who fail to adapt may risk exclusion from subsidy programmes, export markets, or public procurement opportunities.

How RED III regulates the biofuels market

The updated EU biofuel directive governs a wide array of fuels, ranging from first-generation biodiesel and bioethanol (produced from food and feed crops) to second-generation or advanced biofuels, such as lignocellulosic ethanol and biogas, as well as RFNBOs derived from renewable electricity. The directive favours advanced biofuels and RFNBOs through differentiated targets and incentive eligibility.

Eligibility under RED III is no longer just about emissions; it’s about origin, process, and documentation. Feedstock classification under Annexe IX is essential, with Part A identifying the most desirable feedstocks, while Part B is more restricted. The geographical origin and level of processing also determine whether a fuel qualifies for incentives or contributes towards national targets. Producers, refiners, importers, distributors, and energy-intensive industries are all required to meet new reporting and verification standards.

This regulatory framework doesn’t operate in isolation. RED III aligns with other instruments, such as the EU Emissions Trading System (ETS), the Carbon Border Adjustment Mechanism (CBAM), and the EU Deforestation Regulation (EUDR), creating a complex yet coherent regulatory ecosystem. For a deeper dive into enforcement issues, you can read our recent article on biofuel fraud which explores its implications for EU RED III, US RFS, and global sustainability claims. 

Mass balance traceability and chain of custody under RED III

Mass balance traceability is central to RED III compliance. It allows certified and non-certified materials to be mixed along the supply chain, provided that the certified volume is tracked proportionally and transparently throughout. This flexible yet robust model replaces older, looser frameworks such as book & claim, which lacked physical connection to the product, and identity preservation, which proved cost-prohibitive in large supply chains.

Under RED III, the mass balance system must document the origin of feedstocks, lifecycle greenhouse gas (GHG) emissions per lot, and full chain of custody records through production, processing, and distribution. With so many actors involved (across borders and certification schemes), manual processes are no longer adequate. Digital platforms like Circularise’s traceability solution enable real-time compliance monitoring and reduce the risk of audit failures or market exclusion.

This directive signals a broader shift: mass balance traceability is no longer just a sustainability buzzword; it’s becoming the EU standard for demonstrating environmental integrity in renewable energy markets.

How are Member States transposing RED III into national law? 

As with all EU directives, RED III requires Member States to transpose the rules into national legislation. While the EU sets the destination, each country charts its own legal and administrative path, which can lead to variation in how the directive is implemented on the ground. Transposition involves not only adjusting legislation to new targets set by RED III, but also implementing permitting reforms and designating “Renewables Acceleration Areas” to streamline project approvals. 

Germany, a long-standing leader in renewable energy, has already aligned its national biofuel quota system with RED III by tightening sustainability verification protocols and mandating digital reporting of biofuel blends. 

France, meanwhile, has adopted a digital registry system for tracking biofuel feedstocks, enhancing chain-of-custody documentation and transparency across importers and blenders. 

The Netherlands is also developing advanced biofuel blending mandates that exceed the minimum EU requirements, signalling its commitment to front-running the transport sector’s decarbonisation. Dutch authorities are revising the national Renewable Energy for Transport (HER) framework to include stricter blending obligations and higher greenhouse gas reduction thresholds. The country has also introduced a system of tradable tickets (HBEs) to enforce compliance, while incentivising the use of advanced biofuels and renewable fuels of non-biological origin (RFNBOs). These measures are supported by a robust digital registry that tracks fuel origin, sustainability characteristics, and delivery points, enabling a more transparent and auditable supply chain across the sector.

For businesses, these early national examples illustrate a key reality: while RED III creates a common compliance baseline, implementation may vary widely. This creates both risks and opportunities. Companies operating in multiple countries must closely monitor local regulatory calendars, updates from certification bodies, and communications from energy agencies to stay ahead of the curve.

Fraud risks: A cautionary tale for RED III compliance

The shift to mandatory certification and traceability under RED III has also brought the issue of fraud within voluntary schemes to the forefront. One of the most high-profile investigations around biofuel fraud uncovered instances of falsified documentation and mislabelled feedstocks being passed off as sustainable biofuels. This case revealed systemic vulnerabilities in the verification of sustainability claims, particularly when physical audits and data reconciliation were weak or inconsistent.

The biofuels fraud case serves as a wake-up call for both regulators and industry stakeholders. It demonstrated how fraud can undermine not only market trust but also the credibility of established certification schemes. In response, the European Commission has raised its expectations for voluntary schemes under RED III, demanding more rigorous auditing protocols, better digital tracking systems, and clearer accountability frameworks.

For businesses, the lesson is clear: relying on outdated or opaque verification processes is no longer sufficient. Companies must carefully select certification partners, ensure that traceability tools are integrated into their operations, and prepare for the possibility of stricter enforcement as authorities continue to tighten oversight under RED III. To learn how Circularise is helping to address these challenges, read our article on digitising the ISCC PLUS mass balance certification process.

Getting RED III certification

Under RED III, only European Commission-approved voluntary certification schemes are valid for compliance. These schemes must meet stricter standards, including third-party verification, increased auditing frequency, and transparent reporting. The EU is raising the bar for what counts as credible certification.

This matters because certification now plays a direct role in market access, incentive eligibility, and corporate ESG performance. Without proper certification, businesses may lose access to renewable fuel quotas, tax credits, and procurement contracts. In turn, stakeholders (from investors to regulators) will expect greater transparency and proof of supply chain sustainability.

Certification has evolved from a bureaucratic requirement into a strategic differentiator. Companies that build robust certification systems will not only mitigate compliance risks but also gain reputational and commercial advantages. Circularise's traceability platform helps not only companies that are already certified, but also those seeking certification to provide verifiable proof of claims with ease.

What should businesses do to prepare for RED III?

Compliance with RED III will require early, structured preparation. Businesses should begin by evaluating their existing fuel mix against the directive’s classifications, with a particular focus on feedstocks listed in Annexe IX. Companies using Part A feedstocks may benefit from preferential treatment, while those relying on Part B materials will need to adjust expectations and strategy.

A comprehensive review of existing traceability and certification systems is also critical. Many companies will find that their current systems (built under the more flexible RED II regime) fall short of RED III’s demands. This is the moment to implement a digital mass balance traceability solution that delivers real-time insights, automates reporting, and scales with future regulatory changes.

Finally, regulatory tracking should become a core part of compliance operations. RED III is still being transposed into national legislation, and the landscape is shifting. Businesses should subscribe to updates from relevant energy authorities and certification bodies, and consider joining sector alliances that provide early access to drafts and interpretations.

For support in building a RED III-aligned traceability strategy, check out Circularise’s compliance automation tools.

Conclusion

RED III marks a pivotal shift from flexible guidance to enforceable accountability. It sets a new standard for renewable energy governance by embedding traceability, certification, and emissions transparency into the core of EU climate law.

For businesses, the message is clear: early action will drive both compliance and competitiveness. Those who prepare now (by updating systems, aligning with national laws, and embracing mass balance traceability) will be better positioned in a climate-conscious market that demands real proof of sustainability.

The RED III is roadmap for the next decade of renewable energy. Start preparing now, because traceability is no longer optional.