Select Committee on Environmental Audit Written Evidence


Memorandum submitted by the Renewable Energy Association

  1.  The Renewable Energy Association (REA) welcomes the opportunity to submit this evidence. The REA has over 400 members, active across the entire range of renewable energy resources and technologies. The REA specifically represents the interests of some 40 members involved in the development of a market for renewable road transport fuels (biofuels), particularly biodiesel, bioethanol and biogas.

  2.  With its specific interest in biofuels, the REA's response to the Committee's inquiry will therefore be limited to this somewhat narrow scope when considering how the Government is working to reduce carbon emissions from transport.

  3.  In summary the REA has been disappointed that the Government has taken so long to recognise the carbon saving benefits of renewable road transport fuels. It would appear that significant policy developments have only emerged in response to initiatives from the European Commission and the UK Government has been slow to embrace changes away from fossil fuel use.

  4.  Looking forward, the Government has committed to introduce a Renewable Transport Fuels Obligation (RTFO), that has the potential to deliver a strong market for biofuels. At the proposed target for 5% of road transport fuels to come from renewable sources by 2010, this measure could deliver annual carbon savings of one million tonnes per annum.

  5.  However, the Government has yet to determine whether the RTFO, which mirrors many of the features of the Renewables Obligation in the UK power sector, will impose strong penalties upon those obligated oil companies that choose not to supply biofuels. Weak penalties may simply result in these parties opting to "buy-out" of their Obligation, imposing costs on the consumer but failing to secure either the supply of biofuels or carbon savings.

  6.  Similarly, weak targets set by Government for the early stages of the Obligation, will fail to provide meaningful market growth and will fail to incentivise the development of the supply chain. Consequently, Government's target for 5% of road transport fuels from renewable sources by 2010 may not be met.

RESPONSE TO QUESTIONS RAISED

1.  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.

  7.  Neither the Government's Transport Ten Year Plan (2000) nor the Climate Change Programme (2000) made any mention of biofuels. While the Government was clear in the Climate Change Programme that greenhouse gas emissions from the transport sector would rise from 39.7 MtC in 1990 to 47.8 MtC in 2010, none of the targets and policies referred to covered biofuels. In effect biofuels appear to have been largely ignored at this time.

  8.  Instead there was a heavy focus upon vehicle efficiencies, including the Voluntary Agreements on the reduction of CO2 emissions from new cars, changes to Vehicle Excise Duty and company car taxation as well as improvements in distribution, public transport and modal shift. It is somewhat ironic, in this respect, that the EU Biomass Action Plan identifies biofuels as a potential means by which the Voluntary Agreements on CO2 reductions from new cars will be met.

  9.  Some biofuels (but not biodiesel) were included in the scope of the Government Green Fuel Challenges in 2001 and 2002. This inclusion was the only reference to biofuels in the Powering Future Vehicles Strategy of 2002.

  10.  Biofuels only begin to feature seriously in UK Government policy after the appearance of the European Commission's proposals for and the subsequent adoption of the Biofuels Directive in May 2003. The fuel duty rebate of 20 pence per litre for biodiesel was extended to bioethanol from January 2005. In practice, however, this level of support has proved insufficient to make any material difference to carbon saving. This fact is reflected in the unambitious target for sales of biofuels in the UK by 2005 of 0.3% (c.120,000 tonnes) against an indicative target in the Directive of 2% (c 800,000 tonnes).

  11.  Since 2003 the DfT has put biofuels closer to the heart of policy culminating in the publication of their Renewable Transport Fuels Obligation Feasibility Study[59] and the announcement in November 2005 of the introduction of an RTFO from April 2008[60]. This is considered in more detail in question 5.

  12.  It is difficult to see, when the DfT say that a 5% use of biofuels will result in an annual carbon saving of one million tonnes, why it took such a long time for Government to acknowledge the key role that biofuels could play in reducing carbon emissions. It is all the more puzzling and disappointing when many other countries in Europe and beyond had recognised the value of biofuels considerably earlier.

2.  Whether the DfT's carbon reduction target is underpinned by a coherent strategy stretching across the department's entire range of activities.

  13.  Biofuels are handled by a relatively small group of officials in the DfT and as far as we are aware there is a coherent, if somewhat measured, strategy across the department.

3.  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.

  14.  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, Enhanced Capital Allowances), or by the consumer (RTFO). As yet the DfT have proposed no policies to promote biofuels that would impact directly upon 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.

  15.  This may prove to be pressing problem if the major road transport fuel suppliers resist a move to supply 5% ethanol blends in standard gasoline (petroleum) products—known as E5 Blend under the Renewable Transport Fuels Obligation. A combination of technical and commercial factors suggests that the major suppliers will seek to switch from conventional gasoline to E5 in a single coordinated action. This will imply an increase from current levels of supply of 70,000 tonnes to one million tonnes per annum, over a timetable of months. This provides little opportunity for an orderly increase in production capacity. Furthermore, the timing of this switch is likely to be determined by the commercial perspective of the major transport fuel suppliers, and could therefore be subject to delay against the Government's target for 5% of fuels from renewable sources by 2010.

  16.  In these circumstances, Government may need to pursue direct incentives for the development of markets for ethanol, either to provide for a staged introduction of ethanol into the road transport fuel market, or to compensate for a resistance to move to E5 blends on the part of the major fuel suppliers.

4.  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.

  17.  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 EU Biofuels Directive 2003/30/EC, which stands at 5.75% by energy, equating to a target by volume of over 8%. 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 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.

  18.  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 the Fuel Quality Directive 2003/17/EC and the related fuel specifications to 10% and, if appropriate, beyond. This has been advocated in the European Commission's Biomass Action Plan[61] (December 2005) and their Strategy for Biofuels[62] (February 2006). The government should then ensure that the RTFO targets are set to at least 10% by 2015, in line with these adjustments. With sufficient lead time this will allow adequate time for a turn over of the UK vehicle pool without exposing policy to undue complexity.

  19.  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 a minimum of 15 years from its date of introduction. In the short term, until the market and the investing community have adjusted to the incentivising nature of the RTFO, the Government should retain the fuel duty rebate.

5.  What specific steps the department should now take to reduce road transport carbon emissions and congestion over the next decade.

  20.  The Government has committed to introduce a Renewable Transport Fuels Obligation (RTFO) in April 2008, as the principal means by which it will bring forward the supply of biofuels to the UK road transport fuel market. Government have announced a target for renewable fuels to meet 5% of the demand for road transport fuels by 2010, and estimate that this measure will deliver carbon savings of 1.1 to 1.4 Mtonnes per annum at this target level[63]. The obligation to supply fuels is expected to rest with suppliers of road transport fuels that currently pay Fuel Duty on these fuels, including both the major oil companies and independent suppliers.

  21.  The RTFO bears a number of similarities to the Renewables Obligation already operating in the UK electricity sector. A central element of both Obligations is the option for the obligated parties to "buy-out" of their obligation through the payment of a penalty charge. The level of the "Buy-Out Price" remains to be set by Government, and will determine whether the oil companies have a commercial incentive to supply biofuels, or whether it is preferable to buy-out of their obligation.

  22.  Decisions reached by Government over the key elements of the RTFO will be critical in determining whether the RTFO becomes an effective means of transforming the UK road transport fuels market to physically deliver 5% biofuels and thus secure Government's carbon savings target. The Government has already announced 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 Fuel Duty rebate is the principal policy measure in place today for promoting the development of biofuels supply.

    —  The interim targets for the RTFO for 2008-09 and 2009-10, prior to the introduction of the 5% target for 2010-11.

  23.  An early decision from Government on the Buy-Out Price will also be necessary in order to provide the maximum possible information to the market and so assist in driving the investment necessary to meet the Government's 2010 target in a timely and efficient manner.

  24.  To deliver an effective RTFO the Government must be bold in its use of Buy-Out Price penalties, targets, and rebate. The industry has sought the following framework of measures from Government:

    —  A Buy-Out Price of 30 pence per litre of biofuels, in order to deliver a powerful incentive for obligated parties to supply biofuels.

    —  Interim targets of 3% for 2008-09 and 4% for 2009-10, to achieve an orderly and efficient programme of investment that reflects the growing maturity of the market.

    —  Retention of the Fuel Duty rebate for a sufficient period to retain current investor confidence and effect an orderly transition from the current support framework to the incentive mechanism of the RTFO. The Budget 2006 should retain the rebate at 20 pence per litre for biofuels supplied in 2008-09.

  25.  In addition, the Government should set targets for post-2010 that move rapidly into line with the reference value of 5.75% recommended in the Biofuels Directive, and thereafter rise to a level of 10% of road transport fuels from renewable sources by 2015, in line with expected revisions to the Fuel Quality Directive and corresponding fuel standards. This approach will present a growing market, that will present an opportunity to bring forward the second generation of biofuel technologies that can deliver greater resource efficiency once a functioning biofuels market has been established.

  26.  There is a concern that Government will regard the RTFO as a single, simple means of delivering its policy objectives, and so overlook other complementary measures that could assist in developing a functioning biofuels market.

  27.  These measures include the early introduction of Enhanced Capital Allowances for biofuels plant, that would provide early incentives for the development of the most efficient and lowest-carbon biofuels facilities. The Government has indicated that in the long-term it wishes to encourage lower-carbon biofuels feedstock supply and production chains.

  28.  Changes in the fuel specification to increase the biofuel content in mass-market fuels provide the opportunity for wholesale increases in biofuels utilisation. However, vehicle manufacturers' warranties typically limit the biofuel content in the fuels that that their engines may use. Since vehicle manufacturers will seek to limit their potential liabilities under these warranties, transition to a higher proportion of biofuels in mass market fuels will tend to occur as a series of step changes, the timing of which will be dictated by the rate of turnover of the existing stock of cars (the "car pool").

  29.  The development of a market for higher biofuels blends, such as 85% ethanol blend (E85) and 100% biodiesel (B100), provide an opportunity for a steady and progressive evolution of biofuel demand, outside of these constraints. This steady evolution is more consistent with a normal pattern of market maturing, and will tend to encourage orderly investment. Demand for higher biofuel blends could be driven by:

    —  Incentives for flex-fuel vehicles, that can automatically switch between various blends of ethanol and gasoline.

    —  Further incentives for investment in new or adapted refuelling infrastructure.

    —  Incentives for the conversion and specification of captive fleets (logistics, municipal contractors, bus fleets, etc) to utilise higher blends.

  30.  A range of fiscal and financial incentives could be employed to deliver this demand growth, including Enhanced Capital Allowances, Vehicle Excise Duty concessions, congestion charge concessions and capital grants. Similar measures could also be employed to stimulate demand for, and production of biogas, that can be used in place of fossil methane in natural gas vehicles.

March 2006






59   RTFO Feasibility Report, Department for Transport, November 2005.
http://www.dft.gov.uk/stellent/groups/dft_roads/documents/pdf/dft_roads_pdf_610329.pdf 
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60   Darling Takes Action To Make Transport Fuels Greener, 10 November 2005
http://www.gnn.gov.uk/environment/mediaDetail.asp?MediaDetailsID=135355&NewsAreaID=2&ClientID=202 
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61   Biomass Action Plan, COM(2005)628 final, European Commission, Brussels, December 2005
http://europa.eu.int/comm/energy/res/biomass_action_plan/doc/2005_12_07_comm_biomass_action_plan_en.pdf 
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62   An EU Biofuels Strategy, COM(2006)34 final, European Commission, Brussels, February 2006
http://europa.eu.int/comm/agriculture/biomass/biofuel/com2006_34_en.pdf 
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63   Partial RIA Biofuels, Department for Transport, November 2005 http://www.dft.gov.uk/stellent/groups/dft_roads/documents/pdf/dft_roads_pdf_610330.pdf Back


 
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