Memorandum submitted by British Sugar
Plc
INTRODUCTION
1. British Sugar has been a keen advocate
of the greater use in the UK of biofuels, in particular bioethanol,
as a way of contributing to carbon savings in the transport sector,
improving the UK's fuel security and enhancing the rural economy.
The company announced in December 2005 that it would be going
ahead with the construction of a small bioethanol plant at its
sugar factory at Wissington in Norfolk. This plant, which will
be the UK's first commercial scale bioethanol facility, will use
sugar beet to produce 70 million litres of bioethanol (55 thousand
tonnes) annually from early 2007.
2. The UK Government is committed to reducing
carbon emissions, and considers climate change to be a central
element of its policy framework. In pursuit of this objective,
it has taken a lead in tackling climate change across the EU,
and has set ambitious medium and long-term targets for reducing
carbon emissions in Britain. The most imminent of these targets
is to achieve a 12.5% reduction in greenhouse gases to fulfil
its Kyoto commitment, and a domestic target to reduce CO2
emissions by 20%. Both these targets cover the period 1990-2010.
3. Against this background, efforts have
been made to cut emissions in most key sectors. However, in road
transport, which accounts for a quarter of total UK carbon emissions,
there has been little progress. Far from falling, road transport
emissions are projected by the DTI[6]
to increase by at least 15% between 1990 and 2010. Even more worrying,
there is no sign of this trend being brought under control beyond
2010.
4. This will have serious consequences for
the UK's overall climate change objectives. Because road transport
is about to become the largest single emitting sector, failure
to get its emissions under control will inevitably prevent the
UK from being able to achieve any of its overall emissions targets,
as it will be increasingly untenable for the other sectors to
"carry" the transport sector, in addition to meeting
their own objectives.
5. As stated in the DTI's most recent statistics
and commentary,6 introduction of a large-scale biofuels programme
is crucial to finding a solution to this intractable issue.
STRATEGIC ISSUES
IN WHICH
THE COMMITTEE
IS INTERESTED
What progress the DfT is making against key carbon
reduction targets or forecasts included in the Ten Year Plan (2000),
the Climate Change Strategy (2000), the 2004 Transport White Paper,
the 2004 PSA, Powering Future Vehicles (2004), and other documents
6. British Sugar was disappointed that the
DfT's earlier policy documents, for example the Transport Ten
Year Plan (2000) and the Powering Future Vehicles Strategy (2002)
made little or no mention of biofuels whose carbon reduction benefits
did not seem to be recognised. While a fuel duty rebate of 20
pence per litre was introduced in 2002 for biodiesel, this was
ostensibly to deliver environmental benefit from producing fuel
from waste (used cooking oil). It was not intended to stimulate
more than a very small production which could make very little
impact on carbon emissions from road transport.
7. It seems that the appearance of the European
Commission's proposals for and the subsequent adoption of the
Biofuels Directive in May 2003 has been the real driver for the
UK Government to begin to take the carbon saving and other benefits
of biofuels more seriously. The fuel duty rebate of 20 pence per
litre was extended to bioethanol from January 2005, but biofuel
production remained very small and insufficient to make any material
difference to carbon saving. Against an indicative target for
2005 in the Biofuels Directive of 2% (c 800,000 tonnes), the DfT
was only able to recommend a UK target of 0.3% (c 120,000 tonnes).
None of this has been achieved with domestically produced bioethanol.
The carbon saving value of this against the DfT's PSA targets
is negligible.
8. Perhaps in recognition of the need to
make the road transport sector contribute more to the PSA targets,
following consultation in 2004, in November 2005 the DfT published
a Renewable Transport Fuels Obligation ("RTFO") Feasibility
Study and announced the introduction of an RTFO at a 5% rate from
2010. In the Secretary of State's words—"the Renewable
Transport Fuels Obligation I am proposing today is predicted to
save around 1 million tonnes of carbon dioxide emissions in 2010—the
equivalent of taking 1 million cars off the road. Carbon savings
could also increase in future years. This will help reduce the
impact of transport on climate change, and bring environmental
benefits for us all."
9. Sadly, carbon reduction from the increased
use of biofuels, especially bioethanol, will continue to be very
small until 2010 when the RTFO is finally introduced at a significant
level. In British Sugar's view this could have been done at a
much earlier stage had the Government had the real will to tackle
carbon emissions in a sector that will continue to present growing
environmental problems.
Whether the DfT's carbon reduction target is underpinned
by a coherent strategy stretching across the department's entire
range of activities
10. British Sugar can offer no opinion on
this.
Whether the current balance of expenditure between
the DfT's objectives (as revealed in its 2005 departmental report,
Annex A) adequately reflects the environmental challenges it faces
11. In the field of renewable road transport
fuels the DfT have assumed their responsibility as delivering
policies which are either paid for directly in revenue foregone
by the Treasury (fuel duty rebate, ECAs), or by the consumer (RTFO).
As yet the DfT have proposed no policies to promote biofuels that
would engage with their own budget. If the RTFO fails to deliver
on biofuel use and consequent carbon reduction, this position
may have to change with the introduction of more direct policies
such as biofuel grants.
What realistically the DfT could achieve by 2010
and 2020 in terms of reducing transport-related carbon emissions,
and the role that demand management should play in doing so
Fuel standards
12. The DfT have announced that they will
introduce an RTFO at a 5% level by volume by 2010. This falls
well short of the indicative target set out in the Biofuels Directive,
which stands at 5.75% by energy, equating to a target by volume
of over 8% by 2010. The ostensible reason for this conservative
target is that fuel standards and engine specifications will not
allow a mix of more than 5% as a splash blended fuel. In reality
there are many other ways of introducing biofuels into the fuel
pool, for example dedicated fleets for both biodiesel and bioethanol,
greater use of E85 flex fuel vehicles and greater use of biofuels
in the UK's bus fleets.
13. If the Government will not move beyond
5% before fuel and engine specifications are adjusted upwards,
then it must expedite the procedures to permit these adjustments
to 10% and beyond. This has been advocated in the European Commission's
Biomass Action Plan (December 2005) and their Biofuels Strategy
(February 2006). The government should then ensure that the RTFO
targets are set to at least 10% by 2015 and 15% by 2020. With
sufficient lead time this will allow adequate time for a turn
over of the UK vehicle pool without exposing policy to undue complexity.
A long term RTFO
14. As has been recognised in the acceptance
of the principle of the RTFO, demand management must play a central
role in UK biofuels policy for the short to medium term. The Government
should commit to retaining the RTFO for at least as long as the
Renewables Obligation in the electricity sector (2027). In addition,
the willingness of the oil industry to engage and support the
introduction of biofuels will be crucial to the success of the
programme in the UK.
UK feedstock and land availability
15. Today the UK has sufficient crop surplus
production of cereals and sugar that could be converted to bioethanol
to replace at least 5% of all the petrol used. Beyond this, crop
yields are improving giving a larger raw material volume year
on year. Technologies are also being developed that will convert
lignocellulosic feedstock (woody biomass) into bioethanol to widen
the production scope even more. Raw materials include those parts
of conventional crops that are not currently used for bioethanol
production, wood wastes and energy crops.
16. It should also be noted that there is
also considerable potential for increased biofuel feedstock production
on currently available UK arable land. The DEFRA 2005 census states
that the UK has a total of 5.8 million hectares of land under
arable production, with an additional 0.6 million hectares under
set-aside. If just 10% of this combined total were reserved for
energy crops, (a reasonable long-term target) then an additional
640,000 hectares could be made available, generating another 2
million tonnes of bioethanol. This would be equivalent to an additional
10% of UK petrol substitution, over and above the 5% available
from exported surplus agricultural production (see above). Imports
of either feedstocks or end product would further add to this
contribution. There is consequently potential for biofuels to
substitute a highly significant proportion of UK transport fuel
in both short and medium term with equivalent climate change benefits.
For example, a combination of the above measures demonstrates
that a bioethanol target of 20% would be realistically achievable
by 2020.
What specific steps the department should now
take to reduce road transport carbon emissions and congestion
over the next decade
17. The Government have said that a number
of key decisions will be taken in the context of the Budget 2006.
These are:
— The level of the fuel duty rebate
for 2008-09.
— The interim targets for the RTFO
in 2008-09 and 2009-10, prior to the introduction of the 5% RTFO
target for 2010-11.
— An implied level of buy-out price
(penalty to be paid in the event of non-compliance) for the RTFO.
18. In order to stimulate investment in
this new industry to bring transport sector emissions under control,
the Government must send a strong signal to the industry and must
set bold targets. Our recommendations for the targets required
for the 2006 Budget are:
— Fuel duty rebate of 20 pence per
litre for biofuels for 2008-09.
— Interim targets for the RTFO of 3%
for 2008-09 and 4% for 2009-10.
— Confirmation of the 2010-11 target
for the RTFO of 5%.
— An implied buy-out price for the
RTFO of at least 30 pence per litre for a minimum of five years
from 2008-09 to 2012-13.
19. In addition the Government should:
— Introduce Enhanced Capital Allowances
for biofuels plants as quickly as possible.
— Include flex-fuel vehicles in congestion
charge concessions and the ECA scheme.
The role of the oil industry
20. The oil industry in the UK as represented
by the UKPIA has stated that it will not be in a position to sell
bioethanol in the UK before 2009-10. They will not begin the process
of converting their terminals to use bioethanol until they have
seen the Government's legislation enacted. The DfT tell us this
will not be before autumn 2007 at the earliest. British Sugar
would like to expand bioethanol production beyond our first small
plant to make a volume contribution to biofuels sales. However,
without the oil majors as customers this investment will be impossible.
The DfT and Government should expedite the real engagement of
the major oil companies to ensure that investment in UK bioethanol
production can go ahead as soon as possible so that the much needed
carbon reduction benefits in the road transport sector can be
captured.
CONCLUSION
21. The UK Government has been very slow
to recognise the carbon benefits of renewable transport fuels,
in particular bioethanol. Other countries, notably Brazil, the
USA and, in Europe, Sweden, France, Germany and Spain have made
real progress towards the use of biofuels, which are now delivering
significant climate change and environmental benefits as well
as enhanced fuel security.
22. The UK is in danger of failing to achieve
its medium or long-term climate change objectives because emissions
in the road transport sector are continuing to increase sharply.
23. Introduction of a substantial scale
biofuels industry would help bring road transport emissions under
control thereby enabling the UK to meet its longer-term climate
change objectives, and would also make a substantial contribution
to the nation's fuel security.
24. British Sugar has already demonstrated
its determination to take a lead in investing in bioethanol production,
and is willing to make additional investments to expand this capability
providing an adequate level of commitment and support is confirmed
by the Government.
February 2006
6 DTI projections for energy and carbon emissions
for the UK, 17 February 2006. Back
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