Memorandum submitted by the Renewable
Energy Association
INTRODUCTION
1. The Renewable Energy Association represents
a wide range of renewable energy technologies in the UK and has
some 100 members producing and/or associated with transport biofuels.
The Association has been active for a number of years in developing
acceptable forms of assurance for both greenhouse gas (GHG) savings
and wider sustainability criteria, both under the auspices of
the UK's Low Carbon Vehicle Partnership and more directly with
the Department for Transport in developing a carbon and reporting
scheme under the Renewable Transport Fuels Obligation.
QUESTION 1
What are the possible positive and negative social,
environmental and economic consequences of biofuels? How might
trade-offs between climate benefits and environmental and social
impacts be made? Is there a need to develop a new biofuel strategy
for the UK or EU, to balance the environmental, social, economic
and climate impacts of biofuels?
2. The nascent biofuels industry in the
EU, including the UK, is being developed in response to two key
drivers:
— The need for transport, in particular
road transport, to make a contribution to combating climate change.
At present road transport accounts for about 25% of UK's CO2 emissions
and continues to rise. There is a limit to how much other energy
intensive sectors in the economy will be willing to continue to
make their contribution without input from the transport sector.
Currently, biofuels are the only fully commercially viable option
for fossil fuel substitute that ensures a valuable reduction in
CO2 emissions from transport.
— The need to contribute to fuel security
in the face of geo-political instability and the approach of "peak
oil". Road transport is almost entirely dependent on fossil
oil which for the most part has to be imported.
3. To these drivers must be added a number
of other relevant factors:
— Consumers are becomingly increasingly
concerned about what they can do to contribute to cutting the
UK's carbon emissions. With regard to personal transport, the
use of biofuels is at present the only option available, without
major capital expense, where vehicle use cannot be avoided. With
proper safeguards in place, biofuels can make an immediate contribution
to cutting carbon emissions and encouraging consumers to begin
to change behaviour towards more carbon-efficient fuel usage,
without major changes to existing engines and fuel infrastructure.
— Biofuels offer potential for rural
development in many countries. In the UK biofuels can give an
alternative market for agricultural products and the increasing
use of waste and residues offer additional income possibilities
and environmental gains.
— The imperative of combating climate
change means that action to develop alternative fuel markets and
to change consumer behaviour is pressing. This will be an evolutionary
process which should start now. There is nothing to be gained
by awaiting the development of future technologies before establishing
a working market. Once the market is there technological developments
and consumer demand will follow.
— The UK biofuels industry is pioneering
a totally new approach to carbon and sustainability, which should
lead the way for all those sectors for whom agricultural crops
are the feedstock to adopt. Biofuels have provided a route to
draw attention to the potential problems of indiscriminate production
and to provide the start of workable solutions to combat environmentally
and socially damaging practices.
— Biofuels can also offer significant
air quality improvements.
4. The UK Government has set out a strategy
for the development of a biofuel market based initially on the
application of fuel duty rebates and from April 2008 on the introduction
of the Renewable Transport Fuel Obligation (RTFO). Significantly,
the operation of the RTFO is defined in large part by the accompanying
requirement to report on GHG savings achieved by the use of biofuels
and on the observance of key sustainability criteria. These criteria
and the development of a carbon intensity calculation methodology
have, over the past four years, been the subject of intense debate
and collaboration among all stakeholders, including the emerging
biofuels industry, the oil industry, vehicle manufacturers, the
NGO and academic communities as well as many of the relevant Government
Departments. The environmental, social, economic and climate impacts
of biofuels have underpinned this debate and have informed the
development of the RTFO at all stages. Furthermore, on 21 June
2007 the UK Government announced that they would move from the
mandatory reporting stage of the RTFO to the second stage, which
would directly link environmental outcomes with Government support.
The Secretary of State for Transport said:
"From April 2010 the Government aims to
reward biofuels under the RTFO according to the amount of carbon
they save. This will be subject to compatibility with EU and WTO
requirements and future consultation on the environmental and
economic impacts", and;
"From April 2011 the Government aims to
reward biofuels under the RTFO only if they meet appropriate sustainability
standards. This will be subject to the same proviso as above and
subject to the development of such standards for the relevant
feedstocks".
5. It is the REA's view that there is no
need for a new UK biofuels strategy. The UK's strategy has been
developed through meticulous stakeholder engagement. The direction
is sensible and takes into proper account the many difficult issues
that must be faced if carbon savings in the transport sector are
to be delivered in an environmentally and socially sustainable
way.
6. In stating this view, the REA would like
to point to two specific conditions that will be essential for
financially sustainable biofuels businesses to emerge and stay
in business in the UK:
— The need for a parallel development
of carbon and sustainability policies for biofuels at EU level.
The European Commission is due to publish its proposals for a
Renewable Energy Directive in December 2007. Following their consultation
earlier this year, we understand that the Commission will include
a sustainability scheme within these proposals. It is important
that this EU-wide scheme is as closely aligned as possible with
the RTFO carbon and sustainability criteria so that UK biofuels
companies are not put at a competitive disadvantage. In this context
we await the emergence of an EU biofuels sustainability strategy
before commenting on whether a new one will be needed. We note
that the EU Summit decision in March 2007 on a binding 10% biofuels
inclusion target by 2020 said that this was "subject to production
being sustainable."
— The need for forward visibility of
UK and EU policy. The UK biofuels industry has been under acute
observation through the development of policy. It is to the Government's
credit that it has maintained its commitment to biofuels in the
face of some ill-informed and misleading public commentary. This
commitment must be re-enforced by an early signal as to targets
after 2010. Investors require policy stability and longer-term
commitment. Without investment there will be no industry and if
there is no industry the UK will not be in a position to deliver
GHG savings from biofuels in the transport sector. Already it
is significant that investment in the UK is stalling as investors
re-assess the policy environment in which they will be working.
QUESTION 2
Should biofuels be regulated to minimise the negative
environmental and social impacts, and in what way? How might regulation
fit in with international trade agreements and rules? Should there
be regulation of the entire carbon cycle of biofuels?
7. As pointed out in the UN report "Sustainable
Bioenergy: a Framework for Decision Makers", "international
standards and certification systems are critical to ensure that
bioenergy is produced using the most sustainable methods possible".
The REA believes that the fairest and most effective certification
systems will be those that have been agreed internationally and
we would add our voice to calls for this process to be accelerated.
In the meantime, we respect the recognition by such countries
as the UK to introduce unilateral schemes but repeat our concern
about the competitiveness of our industry if our competitors are
not subject to the same regulation.
8. In addition to the need for internationally
agreed regulation, there is also a pressing need for an internationally
agreed methodology for calculating carbon intensity. Currently
there is insufficient international agreement, which leaves the
field open for special pleading. The consequences of this will
be the frustration of attempts to ensure genuine GHG savings and
the loss of credibility for the biofuels industry. Once again
the transport sector would be left with little contribution to
make to reducing global carbon emissions.
QUESTION 3
How successful are existing international structures,
such as the Roundtable on Sustainable Palm Oil, at ensuring that
imports of biofuels can be obtained from sustainable sources?
To what extent is it currently possible to identify the provenance
and production standards of imported biofuels?
It is the REA's view that international bodies
such as the Roundtable on Sustainable Palm Oil provide a valuable
function in making more public the need for sustainable commodity
production, both environmentally and socially. However, such initiatives,
including the Roundtable on Sustainable Soy and the Better Sugarcane
Initiative, are still in their infancy and it will be some time
before the standards they recommend are adopted as the norm for
the industries concerned. This will be all the more so if there
is insufficient international determination to make the respect
for such standards a part of the requirement for international
as well as domestic trade.
10. It should also be recognised that these
initiatives also have their limitations. Thus far, no "roundtable"
has specifically adopted the reduction of GHG as a criterion for
their operation. Also they have been developed for commodities
with other end-uses in mind—mainly food, pharmaceuticals,
cosmetics etc—for example, biodiesel only accounts for about
3.5% of palm oil use. It will take time for the schemes to get
to grips with the carbon agenda for all end-uses and they too
will need the backing of Governments at the international level.
11. Finally, it would be invidious to rely
on these schemes to deliver the carbon and sustainabilty outcomes
that we all say we want. Many feedstocks are not covered by such
schemes and it would be better to have internationally agreed
criteria as suggested in Question 2 above. In this context, it
should be noted that a number of international initiatives have
been started fairly recently with the general aim to ensure that
biofuels are produced sustainably and deliver carbon savings,
including the Roundtable on Sustainable Biofuels, the Global Bioenergy
Partnership, the International Bioenergy Platform and the International
Biofuels Forum. None has yet achieved the requisite international
agreement.
12. The UK RTFO carbon and sustainability
reporting scheme is intended to make the provision of Government
support for the sale of biofuels in the UK dependent on the achievement
of certain standards. It remains to be seen what proportion of
biofuels sales will be of known provenance. What the REA and its
members fear is that, without at least the same standards applying
at EU level, UK industry will be put at a competitive disadvantage.
QUESTION 4
At what stage is biofuels technology? Is there
enough support for the development of biofuel technology? A UN
report found that the climate change benefits of solid biomass
outweigh those of liquid biofuels. Are current policies promoting
the development and deployment of a range of biofuel technologies?
How successful have EU strategies and Directives been in stimulating
biofuel usage?
13. Technology using conventional crops
and process technologies has been available for some time. However,
with oil prices relatively low and biofuel production costs relatively
high, it has hitherto not been economic to exploit this technology
at any scale. While the GHG savings benefits have been acknowledged,
it is also only relatively recently that the dynamics of climate
change have accelerated the need to find low carbon solutions.
As with many environmentally beneficial technologies, the lack
of up-take for biofuels has, until recently, represented a clear
case of market failure. It is for this reason that the UK and
a number of other Governments around the world are now looking
to implement biofuel obligations as a way to stimulate market
development. Once the market has been established on the basis
of the new parameters of carbon saving and sustainability, and
there is predictable consumer demand, it would be reasonable to
suppose that the private sector will invest in technological innovation
to move transport to low carbon usage at the lowest cost possible.
Until then, there will be a need for Government and international
support for biofuel technology that delivers outcomes that take
into account the competing uses for different feedstocks and promotes
the use of wastes and residues. These technologies are sometimes
referred to as "second-generation". What is clear is
that wherever the funding for such technological development comes
from, there will need to be a functioning market based on current
technology for these products to find an outlet. Governments and
companies cannot invest large sums of money into new technologies
on the off-chance that the resulting products will be sold.
14. Thus far UK biofuels policy has done
little to stimulate a market of such a size that would deliver
significant amounts of GHG savings. (Only 0.3% was reached in
the UK for 2005 against a target of 2%, the indicative target
in the EU Biofuels Directive 2003.) The RTFO is intended to save
a million tonnes of carbon by 2010 at an obligation level of 5%
by volume. Compared to the indicative target in the Directive
2003 of 5.75% by energy (about 8.3% by volume), this is a modest
outcome. As yet the UK Government has not indicated what targets
they would set for the RTFO after 2010-11, only 3 years away.
In these circumstances, the 5% target will be reached, but will
act as a ceiling and not a stimulant to biofuel uptake. In the
face of such a ceiling, investment in conventional biofuel plant,
leave aside innovative technologies, will falter. As mentioned
above, investors need forward visibility and stability.
15. In 2008-09 support under the RTFO will
operate through a combination of "carrot"—a 20
pence per litre fuel duty rebate for biodiesel and bioethanol—and
"stick"—a buy-out price penalty of 15 pence per
litre to be paid by obligated companies who fail to meet their
obligation. The combined duty rebate and buy-out price will continue
to be 35 ppl in 2009-10 and drop to 30 ppl in 2010-11. The Government's
intention is to reduce the fuel duty rebate progressively and
to alter the buy-out price in the light of market circumstances.
With no certainty as to how the proposed support levels will operate
in practice, and with feedstock prices currently higher than those
prevailing when the business plans of many biofuel companies were
devised, there is a clear case for maintaining support levels
at at least the 35 ppl level. If support levels go down and the
future obligation levels for the RTFO remain unclear, the REA
believes that there is a grave danger that the UK biofuels industry
will not develop. This will frustrate the delivery of carbon savings
in the transport sector so the Government needs to make sure that
there is an industry that delivers and that obligated companies
do not buy out which will may deliver higher consumer prices for
no carbon benefit.
16. It has been claimed that the climate
change benefits of solid biomass outweigh those of liquid fuels.
In responding to this the REA would point out that:
— Biomass grown for power generation
(used in solid form) and for transport fuel (used in liquid form)
must be subject to the same carbon and sustainability constraints.
It would be illogical and unfair to apply different sets of rules
for different end-uses.
— Currently vehicles require liquid
fuel as their power source. Liquid fossil fuels will need to be
replaced by liquid biofuels if transport is to make its contribution
to reducing GHG emissions.
— Urgent action is needed to stimulate
the move to lower carbon transport. It is not an option to wait
for future technologies to deliver the "perfect" solution
while no effort is made to change consumer behaviour and to create
a market for alternative fuels.
QUESTION 5
The EU Strategy for Biofuels claims that biofuels
"are a direct substitute for fossil fuels in transport and
can readily be integrated into fuel supply systems". What
proportion of UK domestic transport and energy generation could
be fuelled by UK produced biofuels? Is it possible for biofuels
to entirely replace oil for transport purposes? Is there a role
for public procurement or public transport? Will biofuels improve
fuel security? How secure are biofuel crops from unexpected events
such as drought or disease?
17. Biofuels as such are not routinely used
in the UK for power (energy) generation, although there are potentially
efficient applications of biodiesel for power and heat using CHP.
In addition, certain co-products, for example Distillers Dried
Grains (DDGS—from the production of bioethanol) and rape-meal
(from the production of biodiesel) can be co-fired for power generation
but this represents only a fraction of the biomass used for such
purposes.
18. As far as UK domestic transport is concerned
it would be possible to reach the full 5% target for 2010 and
beyond using domestic wheat surpluses for bioethanol and increasing
domestic oil seed rape production for biodiesel. This is not the
same as using domestically-produced feedstocks to make those biofuels.
According to the NFU there is sufficient UK-grown feedstock currently
to supply 5% (by volume) by 2010, using exportable surpluses of
both cereals and sugar and land that is currently set aside under
the EU Common Agricultural Policy. With technological developments,
including technical improvements to achieve higher yields for
UK crops, it may be possible to achieve higher levels using conventional
crops, but the REA has always envisaged that the market would
be supplied by a combination of UK and imported feedstock for
conversion into biofuels. All agricultural commodities for whatever
end-uses are subject to the vagaries of weather and disease. "Biofuel
crops" are no different. In the future, with the development
of advanced technologies that can make greater use of industrial,
commercial, municipal and agricultural waste streams, there will
be the potential to replace a much larger proportion of oil for
transport purposes.
19. In the meantime, biofuels can only play
a part in replacing oil for transport purposes. In order to reach
a level of fossil fuel substitution to ensure fuel security and
GHG savings, a wide range of policies and technologies, well beyond
the scope of biofuels, will be required. But it should be remembered
that biofuel technology is available now and can be deployed immediately
to create the market.
20. There is a role for biofuel use in both
public procurement and public transport. A number of local authorities
are looking at measures that can be taken to reduce GHG emissions
and the use of biofuels is one of the options. For example, Somerset
County Council co-ordinates the Somerset Biofuel Project Partnership
in which a number of local vehicle fleets, including the Council
itself, the Avon and Somerset Constabulary and Wessex Water use
flex fuel vehicles (using E85 blend bioethanol). The use of biodiesel
in higher blends is also a possibility for fleet use. In this
context it is worth noting the major public support given to the
use of high blend biofuels through flex fuel vehicles in Sweden.
This support permeates Government and local authority/municipal
bodies and has targeted a wide range of policy options.
QUESTION 6
What impact would an expansion of UK production
of biofuels have on the ability of the UK to produce its own food?
How might this impact on greenhouse gas emissions from international
trade patterns? What impact might the expansion of biofuels have
on international food security and prices?
21. As noted in Question 5 above, the UK
has sufficient crop availability to supply at least the RTFO target
of 5% by 2010. Using surpluses and set-aside land, this would
have no impact on the ability of the UK to produce its own food.
Clearly there is a finite amount of land in the UK and imports
of both feedstock and finished biofuel will be required to reach
the 10% target agreed by the EU Summit in March 2007. Produced
according to the criteria set out for reporting under the RTFO,
UK crops will be produced sustainably and should deliver significant
GHG savings. The announcement of the Secretary of State on 21
June 2007 (see Question 1 above) indicates that the linking of
the reward for reaching appropriate sustainabilty standards under
the RTFO will come a year after the link for carbon savings. There
is a danger that this year's delay might encourage the continuation
of unsustainable practices in the production of biofuel crops
in third countries. UK crop production will be subject to sustainabilty
criteria set out in the Assured Combinable Crops Scheme and other
schemes under Assured Farm Standards, which have recently been
amended to bring them into line with the requirements for reporting
under the RTFO.
22. The impact of biofuels on international
food security and prices has been subject to a considerable amount
of inaccurate reporting in the media and other reports in recent
months. International commodity prices have risen for a range
of reasons, including poor harvests in Australia and Ukraine,
the prospect of poor harvests in the EU, increasing demand in
China and India as they move towards a protein diet and diminishing
world stocks. Although maize demand in response to US policies
to encourage the production of bioethanol has affected sentiment
in the markets and helped to raise prices, with similar responses
seen in the EU in relation to biodiesel demand, actual use of
wheat for bioethanol in the EU was only 1.4% in 2006 and can have
had no effect on prices. However, the best cure for high prices
are high prices as producers initiate a supply response. For example
the US maize harvest this year has increased by 23%. The European
Commission has clearly indicated that there is no danger of food
shortages in the EU.
QUESTION 7
How might farm viability in both developed and
developing countries change with an expansion of biofuels? What
implications are there for poverty in developing countries? Should
we be concerned about large monopolies forming on the biofuel
sector?
23. The REA will leave others better qualified
to give views on farm viability in the UK. We would only note
that biofuels have been hailed in the UK as a useful additional
market outlet for UK farmers and a contribution that farming itself
can make to combating the effects of climate change. Furthermore,
history shows that farmers invest more money at a time of higher
prices into developing yields and increasing production. In the
developing countries, while high prices affect the urban poor,
by the same token higher prices give their farmers a better income
and encourage increased production leading to overall economic
development and the provision of greater domestic food supply.
The recent problems in Mexico were reportedly caused by the Mexican
Government itself when it decided to keep prices high precisely
to stimulate domestic maize production.
5 October 2007
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