House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by D1 Oils plc (Bio 20)

BACKGROUND ON D1 OILS PLC

1. D1 Oils plc is a UK-based global producer of biodiesel from renewable energy crops.

2. We are building a global supply chain and network that is sustainable and delivers value from "earth-to-engine" via:

— Agronomy—the science, planting and production of crude vegetable oils.

— Refining—the designing, building, owning, operating and marketing of biodiesel refineries.

— Trading—the sourcing, transport and trading of seeds and seedlings, crude vegetable oils and biodiesel.

3. Our primary feedstock is jatropha curcas, a tree that grows widely in the developing world. Jatropha seeds produce high yields of non-edible vegetable oil that can be refined into biodiesel. D1 selected jatropha for its productivity, longevity and ability to grow in the poor soil conditions often found in developing countries. We are building a global supply chain to harvest jatropha oil from D1 plantations across the developing world, refine jatropha and other vegetable oil feedstocks into biodiesel using our proprietary refinery technology, and to source, trade and transport crude vegetable oils and biodiesel to market.

EXECUTIVE SUMMARY

4. The introduction of a 5% biodiesel blend under the RTFO will require around 1m tonnes of biodiesel by 2010. D1 Oils has already invested significantly in both upstream planting of energy crops in developing countries to produce biodiesel feedstock, particularly jatropha curcas, and downstream refining technology. We believe that this investment will enable us to supply a proportion of the 1 million tonnes required from our own feedstock supplies by 2010 and to supply further demand should the government introduce a higher level of obligation.

5. Research undertaken with the cooperation of D1 indicates that the production of jatropha derived biodiesel has a primary energy requirement of slightly less than Used Vegetable Oil (UVO) and 40% that of rapeseed methyl ester (RME). Even when the energy required to ship jatropha biodiesel from developing countries where it is produced to the UK where it is consumed requires a lower primary energy requirement and results in lower GHG emissions than RME. Importing jatropha feedstock to the UK does not therefore create an unacceptable energy or emissions balance.

6. We fully support the creation of an environmental assurance scheme as proposed under the RTFO to demonstrate sustainability of supply. In jatropha we have an energy crop whose environmental impact is positive.

7. D1 welcomes the government announcement of the RTFO. We see this as a significant encouragement to the UK biofuels industry, whether the feedstocks come from domestic sources or overseas. A decision on the next step up of the target in terms of a higher percentage and a firm date for the increase would be of benefit to the industry.

8. Currently the biofuels industry in the UK is small and by definition the commercial players in the sector are often small, entrepreneurial operations. Given the need to bring these growing businesses to profitability as soon as possible, the industry requires subsidies from the government and the fuel rebate of 20ppl has been a significant enducement to investment. However, a higher level of rebate would provide stronger encouragement.

9. UK agriculture can produce a significant proportion of the UK's demand for biodiesel and bioethanol. However, as note above, it will be impossible to meet all demand from domestic agriculture. A mix of home production and imports will be needed.

10. Importing jatropha feedstock from the developing world offers greater security of supply to the UK in terms of energy supply while benefiting considerably the agricultural sectors of developing countries.

D1 RESPONSES TO SPECIFIC ISSUES

Q1. What is the real scope for biomass and biofuels to contribute to tackling climate change? What proportion of the UK's energy and transport fuel needs could they provide?

11. The introduction of a 5% biodiesel blend under the RTFO will require around 1m tonnes of biodiesel by 2010. This effectively springboards the UK biodiesel market to a level where significant investment in feedstock and refining technology is now attractive. D1 Oils has already invested significantly in both upstream planting of energy crops in developing countries to produce biodiesel feedstock, particularly jatropha curcas, and downstream refining technology for use in the UK and for export.

12. Jatropha is an energy tree crop that has the necessary characteristics to become a major biodiesel feedstock:

— Potential for high yields—up to 40%.

— Outside food chain: not an edible oil.

— Grows on non arable land—no threat to food crops.

— Hardy and long life span—up to 30 years.

— Oil characteristics favourable for biodiesel.

— Useful byproducts, eg seed cake for fertiliser.

13. We believe that this investment will enable us to supply a proportion of the 1m tonnes required from our own feedstock supplies by 2010 and to supply further demand should the government introduce a higher level of obligation.

14. D1 is working on planting up to 250,000 hectares of marginal or waste land in India and Africa during 2006. If our projections for the development of jatropha yields prove correct, this amount of land should be able to produce around 675,000 tonnes of biodiesel, enough to meet over 50% of UK demand. D1 aims to plant at least 250,000 hectares each year beyond 2006. Although a considerable portion of the vegetable oil and biodiesel we produce will be consumed in the countries where the crops are planted, we will be in a position to supply through imports a significant proportion of an RTFO of 5% and above.

Q2. How do biofuels compare to other renewables, and with conventional fossil-fuels, in terms of carbon savings over their full life-cycle?

15. When compared with other renewable transport fuels in terms of life cycle primary energy inputs, biodiesel compares favorably with bioethanol. Biodiesel required energy inputs of 1.6MJ/km compared to 2.3MJ/km for bioethanol and 2.0MJ/km for electric vehicles ("Alternative Road Transport Fuels—A Preliminary Life Cycle Study for the UK", Report ETSU-R-92, Vol 2, ETSU, Harwell, UK, March 1996).

16. It is recognised that manufacture of fossil-based diesel uses less energy than the manufacture of biodiesel. This is because the conversion of ancient animals and plants into oil and coal with high calorific value has already been largely completed by millions of years of geology. Therefore we should revise the comparison to include calorific value of fossil-based fuels in the energy balance on the grounds that this energy is supplied from a finite resource. The energy content of renewable fuel does not deplete a finite resource and so should be omitted from the energy balance.

17. Biodiesel has energy by volume of 35.6 MJ/L, which compares favourably to mineral diesel at 37.9 MJ/L. In comparison, petrol has an energy content by volume of 31.5 MJ/L and bioethanol has an energy content by volume of 21.1 MJ/L.

18. Research undertaken with the cooperation of D1 indicates that the production of jatropha derived biodiesel has a primary energy requirement of slightly less than Used Vegetable Oil (UVO) and 40% that of rapeseed methyl ester (RME). This is primarily due to the difference in agricultural processes. Jatropha does not require inputs of nitrogen-based fertiliser and rape production in the UK is significantly more energy intensive than jatropha production in for example India. Jatropha production relies less on mechanised agricultural practices and the trees remain standing for up to 30 years, whereas rapeseed is an annual crop. (Tobin, 2005. "Life Cycle Assessment of the production of biodiesel from Jatropha", University of Reading.)

19. The table below shows the energy and greenhouse gas (GHG) assessment of jatropha biodiesel when compared to RME and used vegetable oil (UVO).

20. The different models demonstrate the impact on energy and GHGs of importing Jatropha feedstock from developing countries to Europe. Model 1 represents production and local use. Model 2 adds costs of shipping to Europe. Even when the energy required to ship jatropha biodiesel from developing countries where it is produced to the UK where it is consumed requires a lower primary energy requirement and results in lower GHG emissions than RME. The improvement in primary energy use is so great that the energy requirement for shipping (/t km) would need to be increased in the region of 800% to reach the lifecycle energy requirement of RME.

21. Importing jatropha feedstock to the UK does not therefore create an unacceptable energy or emissions balance.

Q3. Not all biomass is equal—potential carbon savings depend on, for instance, farming practice. What can be done to ensure energy crops are sustainably produced?

22. We fully support the creation of an environmental assurance scheme as proposed under the RTFO to demonstrate sustainability of supply. In jatropha we have an energy crop whose environmental impact is positive:

— Jatropha does not require arable land.

— Jatropha can reclaim waste and depleted land.

— Jatropha can assist in arresting desertification.

23. Jatropha can also be intercropped with other agricultural crops, and need not result in monocropping. Because jatropha does not require arable land, it can be grown on land that is already waste, unused, marginal or degraded and should not result in deforestation. Jatropha is a sustainable biodiesel feedstock that can produce surpluses for developing countries to export to the developed world.

24. As our operations get underway, we will be in a position to demonstrate the sustainability of jatropha planting on a large scale.

Q4. What impact will UK Government and EU actions have in increasing demand for, and production of, biomass and biofuels?

25. D1 welcomes the government announcement of the RTFO. We see this as a significant encouragement to the UK biofuels industry, whether the feedstocks come from domestic sources or overseas. The target effectively creates a market overnight and is encouraging investment. However, the UK remains well behind France and Germany in the levels of biofuels currently used within the economy, and we note that the current announced level of a 5% RTFO by 2010 still falls below the 5.75% recommended by the EU Fuels Directive. A decision on the next step up of the target in terms of a higher percentage and a firm date for the increase would be of benefit to the industry.

Q5. What level of financial and policy support do bioenergy technologies require in order to achieve the Government's targets for renewable energy?

26. Currently the biofuels industry in the UK is small and by definition the commercial players in the sector are often small, entrepreneurial operations. D1 is such a business, having been floated on the Stock Market in 2004. Given the need to bring these growing businesses to profitability as soon as possible, the industry requires subsidies from the government and the fuel rebate of 20ppl has been a significant enducement to investment. However, a higher level of rebate would provide stronger encouragement. The industry is starting from a low base and needs support. Germany for example exempts biofuels from duty altogether.

27. As noted above, the RTFO has created the beginnings of a market. However, if the RTFO ends up replacing the rebate the impact on the industry will be negative.

28. Enhanced capital allowances (ECAs) are unlikely, given the existing structure of the industry, to encourage further investment. They favour companies entering the market who have existing profitable operations to offset the allowances against rather than focused start-up biodiesel companies who have existing tax losses to absorb. We do not therefore regard ECAs as a significant means to stimulate the industry. We would see regional grants as a more effective means to stimulate the deployment of refining capacity.

29. From D1's point of view, the bulk of our refineries will in the long term be operating overseas, therefore the impact of ECAs for D1 will be limited. Furthermore, the extremely high environmental and technical standards that are required for refining production in the UK could prove too costly to implement in developing countries who require rugged technology that will operate in remote areas.

Q6. Should UK and EU policy focus on increasing domestic production of energy crops and biomass, or are there merits in importing biomass for energy production, or raw feedstock or refined biofuel, from outside the EU?

30. UK agriculture can produce a significant proportion of the UK's demand for biodiesel and bioethanol. However, as note above, it will be impossible to meet all demand from domestic agriculture. A mix of home production and imports will be needed.

31. Importing jatropha feedstock from the developing world offers greater security of supply to the UK in terms of energy supply while benefiting considerably the agricultural sectors of developing countries.

32. D1's initial operations indicate that jatropha offers significant potential to benefit developing economies developing world:

Q7. Benefits to agriculture in the developing world

— Jatropha planting will stimulate rural agriculture—agriculture can provide the scale of growth that many developing countries, particularly in Africa, require to stimulate economic growth.

— Every 5,000 ha of jatropha creates 4,000 jobs—planting 1,500/maintenance 2,500. (In the UK one job is created for every 20 hectares of biofuel crop.)

— New cash fuel crops can be grown on marginal, waste and unused land.

— Redundant cash crops, eg coffee in East Africa, can be replaced with jatropha.

— Jatropha can be intercropped with existing crops.

— Refinery operation will transfer skills and technology.

Q8. BENEFITS TO ENERGY USE IN THE DEVELOPING WORLD