In the current market situation, abolishing the biofuel blending requirement alone would not guarantee a reduction in fuel prices, the Ministry of Climate and Energy (KEM) stated while commenting on possible measures to lower fuel costs.
The ministry explained that removing the biofuel blending requirement does not oblige fuel retailers to reduce prices at filling stations, unlike a reduction in excise duty, which would automatically lower the final price for consumers.
This is because fuel traders have existing contracts for the purchase of biofuel, and revising or terminating these agreements could result in additional costs, including contractual penalties. As a result, the potential effect on retail prices would neither be immediate nor straightforward, the ministry noted.
KEM added that diesel prices are primarily influenced by excise tax, while the underlying fuel resource prices on the market are similar and more dependent on competitive conditions. At the same time, compared to fuel prices in the Baltic states, Latvia has a proportionally higher share of oil reserve storage fees relative to other components such as VAT, excise duty, and the base fuel price.
Taking into account developments in the Middle East,
the ministry noted that diesel market prices have approached the price level of biofuel.
Under certain scenarios of further escalation in the Middle East, abandoning the biofuel blending requirement could even increase the final product price rather than reduce it. At the same time, biofuel blending replaces part of fossil fuel in the end product, thereby reducing pressure on the availability of fossil diesel in the market and indirectly helping to stabilize prices.
KEM stressed that any changes in this area must also be assessed in a broader context of energy security and diversification of transport energy sources. The aim of the Transport Energy Law is to reduce dependence on imported fossil fuels and promote the development of local alternative fuels in Latvia.
Currently, various possible solutions for stabilizing fuel prices are being evaluated. The Ministry of Economics, in cooperation with the Bank of Latvia, KEM, and
the Ministry of Finance, is assessing potential policy options to mitigate the negative impact
of developments in the Middle East on Latvia’s economy.
These include analysing which mechanisms — or combinations thereof — could be most effective in stabilizing retail fuel prices, such as changes to excise duty, the use of strategic oil reserves, enhanced market supervision, and improvements to the pricing model for maintaining fuel reserves. Ministries will announce specific decisions once the evaluation is completed.
As of the 1st of January, 2026, the Transport Energy Law has entered into force, replacing the Biofuel Law. Under its transitional provisions, diesel without biofuel blending may be sold in Latvia until the 31st of March, 2026, after which diesel must contain at least 6.5% biofuel by volume.
At the same time, a minimum biofuel blending requirement of 9.5% applies to 95-grade petrol, while no mandatory blending requirement is set for 98-grade petrol.
LETA previously reported that, in order to reduce rising fuel prices, the requirement to add biofuel was suspended from the 1st of July, 2022 until the end of 2023, and was reinstated in 2024.
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