Memorandum submitted by the Low Carbon
Vehicle Partnership
1. LOWCVP BIOFUELS
ACTIVITY
This Memorandum has been prepared by the Low
Carbon Vehicle Partnership (LowCVP) in response to the Environmental
Audit Committee Inquiry, "Are Biofuels Sustainable"?
LowCVP is an action and advisory group whose
members work to accelerate a sustainable shift to low carbon vehicles
and fuels in the UK and thereby stimulate opportunities for UK
businesses. The Partnership is a multi-stakeholder forum with
over 260 members including many leading vehicle manufacturers
and fuel suppliers, major fleet operators, environmental and consumer
groups, academics and representatives of the public sector including
government departments.
LowCVP has undertaken a considerable programme
of cutting-edge work in the area of biofuels including activities
to:
— Identify environmental impacts of
biofuels production & UK capacity to supply biofuels from
indigenous sources.
— Achieve consensus amongst leading
research groups on WTW GHG calculation boundaries and methods
demonstrated through detailed examination of the wheat to ethanol
conversion.
— Examine the feasibility for carbon
certification and sustainability (C&S) assurance within the
Renewable Transport Fuels Obligation (RTFO).
— Examine the feasibility of developing
voluntary standards for sustainability assurance of biofuels to
be used by fuel suppliers amongst others—work on-going.
— Develop guidance for reporting of
carbon and sustainability criteria as part of the Renewable Transport
Fuels Obligation for the Renewable Transport Fuels Agency. (Draft
guidance has been issued for consultation and piloting, the outcomes
from these activities have informed finalisation of the guidance
that is underway and expected to be complete by November).
LowCVP has also been encouraging the incorporation
of robust carbon and sustainability criteria as part of forthcoming
European legislation on biofuels.
2. MONITORING
AND MANAGING
BIOFUELS SUSTAINABILITY
USING REPORTING
2.1 Sustainability impacts of biofuels
Most organisations accept, and evidence indicates,
that biofuels can be sustainable and make a worthwhile contribution
to reducing road transport greenhouse gas emissions. However,
their impacts are highly variable depending upon where, and the
manner in which they have been produced. Some biofuels undoubtedly
cause more harm than good. UK industry has recognised the environmental,
social, political and reputational risks arising from supplying
unsustainable feedstock and that these must be managed.
There is broad consensus that the challenge
is to develop robust assurance systems to distinguish between
biofuels that perform well and those that perform poorly (in both
GHG saving terms and against sustainability criteria). In addition
there is a need to put in place adequate complementary policies
to manage indirect consequences of increased biofuel demand such
that the global capacity to supply fuels sustainably is not compromised.
Whilst the UK Government has shown leadership in the development
of a robust assurance scheme, it has not to date engaged in developing
an approach to address these wider issues such as indirect land
use change.
The initial inclusion of C&S reporting within
the RTFO is broadly supported by most stakeholders but has always
been seen as a "stepping stone" to more effective controls.
The Government's recent announcement to move towards rewarding
biofuels on the basis of their GHG saving and excluding unsustainable
feedstock is broadly supported by most stakeholders; although
there is debate how quickly the UK should proceed and extent to
which it should align with more limited EU proposals.
2.2 RTFO reporting proposals
The C&S reporting proposals within the RTFO
are designed to encourage suppliers to source sustainable biofuels.
This will be achieved through the Renewable Fuels Agency (RFA)
requiring fuel suppliers to submit reports on both the net GHG
saving and sustainability of the biofuels they supply in order
to receive Renewable Transport Fuel Certificates (RTFCs). The
initial reporting stage provides an environment in which to test
the robustness of the criteria and methodology; and for suppliers
to develop information-flows through their supply chains. It also
reduces the risk of challenge under trade rules. Most NGOs would
prefer mandatory criteria to be introduced from the start of the
scheme.
The scheme is presently being finalised but
draft guidance proposes all biofuels will be eligible for RTFCs
irrespective of how they have been produced, but to receive RTFCs
suppliers must report on the sustainability of the fuel supplied.
Data must be provided monthly on each "administrative batch"[18]
of biofuel that has been supplied. "Not known" reports
will initially be permissible as it will be difficult to provide
information for some fuels sourced from overseas—particularly
those purchased on the spot market. Permitting "not known"
reports weakens an assurance scheme but was considered necessary
by Government to reduce the risk of successful challenge under
WTO rules (see Section 8) since requiring actual data on every
batch of fuel may be considered a trade constraint.
Monthly reports (as illustrated) will contain
commercially sensitive information and will not therefore be publically
available, however the RFA will publish quarterly interim and
annual reports based upon this information and will compare individual
supplier performance to targets proposed by the Secretary of State
(below). All suppliers claiming RTFCs[19]
will also be required to produce an annual, publicly available,
independently verified report of their performance. Annual Reports
will contain aggregate monthly information with the exception
of fuel volumes (which may be subject to commercial confidentiality).
Annual reports will also provide details of:
— Actions to increase sourcing of sustainable
biofuels and lower carbon intensity including actions to promote
production on idle land.
— Environmental management system certificates.
— Existing verified environmental /
corporate responsibility reporting.
The proposed targets will not be mandatory (which
could be considered a constraint on trade) but illustrate the
level of performance that the Government expects from fuel suppliers.
Suppliers will be encouraged to strive to meet these targets but
no penalties will be issued for failing to meet them.
|
| Proposed annual supplier targets |
2008-09 | 2009-10
| 2010-11 |
|
| | |
|
| Percentage of feedstock meeting a Qualifying Standard
| - | 50%
| 80% |
| Annual GHG saving of fuel supplied | 40%
| 50% | 60%
|
| Data reported on sustainability characteristics
| 35% | 65%
| 80% |
|
There is no consensus on the appropriateness of proposed
targets. Oil and most biofuel producers consider some of the targets
to be challenging or unachievable; whilst NGOs support their rigour
(but would prefer mandatory criteria).
The reporting process will make information available in
a way that is accessible to consumers and which could inform their
purchasing decisions. It will also enable environmental NGOs to
identify company performance. The intention is to drive good practice
using the principle of corporate social responsibility.
A limitation of the proposed approach is that not all obligated
suppliers have a significant retail market presence. LowCVP estimate
about 91% of RTFC certificates will be earned by 8 companies (largely
refiners) but that these only represent about 40% of the retail
market. This is largely because BP no longer has refining capacity
(following the sale of Coryton) but has the Uk's largest retail
presence. Supermarkets are also not obligated and therefore will
not be required to provide C&S reports (although their suppliers
will).
RTFO Monthly reporting format
|
Batch
number | Fuel type
| Quantity of
fuel (litres
or kg)
| Biofuel
Feedstock
| Feedstock
Origin
| Sustainability Information
| | Carbon Information
|
| | |
| | Env.
Standard
| Social
Standard
| Land use in
Nov 2005
| Carbon
intensity
| Impact
of LUC |
Accuracy
level |
| | |
| | | |
| g CO2e / MJ
| |
|
| 33001 | Bioethanol
| 250,000 | Wheat
| UK | LEAF
| Mechanised
+ LEAF |
Cropland | 72
| 0 | 2
|
| 33002 | Bioethanol
| 100,000 | Wheat
| France | -
| Mechanised | Cropland
| 76 | 0
| 2 |
| 33003 | Bioethanol
| 250,000 | Sugar beet
| UK | ACCS
| Mechanised | Cropland
| 45 | 0
| 4 |
| 33004 | Bioethanol
| 1,000,000 | Sugar cane
| Brazil | -
| - | Cropland
| 19 | 0
| 2 |
| 33005 | Bioethanol
| 500,000 | Unknown
| Unknown | -
| - | Unknown
| 72 | Unknown
| 0 |
| 33006 | Biodiesel
| 1,000,000 | Oilseed rape
| UK | ACCS
| Mechanised
+ RTFO |
Cropland | 79
| 0 | 2
|
| 33007 | Biodiesel
| 250,000 | Oilseed rape
| Unknown | -
| Mechanised | Unknown
| 79 | 0
| 2 |
| 33008 | Biodiesel
| 500,000 | Palm oil
| Malaysia | RSPO +
RTFO
| RSPO +
RTFO | Cropland
| 49 | Unknown
| 2 |
| 33009 | Biomethane
| 150,000 | Dry manure
| UK | By-product
| By-product | By-product
| 36 | 0
| 2 |
| 33010 | Bio-ETBE
| 500,000 | Wheat
| UK | LEAF
| Mechanised
+ LEAF |
Cropland | 12
| 0 | 2
|
|
2.3 Proposed Voluntary Kitemark Scheme
To overcome the limitation that many fuel suppliers will
not be required to report through the RTFO, the Government has
invited the LowCVP to evaluate the feasibility and need for a
voluntary "kitemark scheme" to assure the sustainability
of biofuels sourced in the UK. This work is intended to provide
an input to Government activities in developing the second phase
of the RTFO. Specifically, the project will provide the basis
for a decision on whether, and if so how, to implement a voluntary
biofuels sustainability assurance scheme in parallel with both
carbon and sustainability reporting (from 2008); and the possibility
of mandatory environmental standards (from 2011).
Use of the kitemark would demonstrate to consumers that the
company sourced sustainable fuels and would enable companies to
effectively differentiate their product. It would enable the company
to assure customers that the biofuel they supplied delivered real
and measurable environmental benefits with good GHG savings and
no wider social concerns. It should assist companies to educate
and manage their supply chains. This feasibility study examines
whether and if so how to take forward the development of the scheme.
There are a number of important practical issues that would
need to be resolved for the scheme to operate successfully. Most
notably exchange agreements operating between different fuel suppliers
to reduce the need to transport fuel around the UK. The study
has just commenced and will be completed in Spring 2008.
3. GHG-SAVINGS
The majority of studies show that most biofuels produce considerably
fewer GHGs than fossil fuels when measured on a life-cycle basis.
The level of GHG-savings varies widely (for example the wheat
to ethanol process can save between 7 and 77% GHG of fossil fuels)
depending upon the feedstock, process and use of by-products[20].
The figure (overleaf) illustrates the performance of different
feedstock and fuels and demonstrates that most biofuels are less
carbon intensive than fossil fuels. The highest GHG savings are
achieved by sugarcane ethanol and "advanced" biofuel
processes; but wheat ethanol can achieve high GHG-savings (>75%)
if produced appropriately. Higher GHG-savings are achieved by:
1. Using crops grown in areas of high productivity (eg
tropics).
2. Employing combined heat and power (CHP) and similar
systems—and optimising export of renewable electricity and
use of heat as part of the production process.
3. Optimising the application of fertiliser to balance
good yields with managing soil N2O emissions; and using lower
carbon intensity fertilisers that are becoming available.
4. Using biomass or by-products to produce the process heat and
electricity generation or to co-fire with gas CHP systems.
Derived from Concawe 2006
Transport emissions within some (eg European) supply chains
are a small percentage of the overall GHG emissions and therefore
local production and consumption does not necessarily achieve
significant additional credits.
3.1 Costs of GHG-saving
Producing biofuels with higher GHG-savings is generally more
expensive (although some very inefficient practices are not commercially
viable). There is relatively little data in the public domain
on the relative cost of delivering GHG savings for different biofuel
pathways but a LowCVP study examined the process of converting
wheat to ethanol.[21]
The GHG-savings and costs of producing ethanol by a range of production
processes are illustrated below (assuming DDGS is used for animal
feed).
|
| Production process | % GHG
saving
| Relative
cost
| Cost of GHG
saving
|
|
| | |
|
| Natural gas boiler + grid electricity | 7
| 1.03 | 2.87
|
| Natural gas boiler + steam turbine | 21
| 1 | 1
|
| Natural gas, gas turbine + steam generation + steam turbine
| 40 | 0.91
| 0.47 |
| Natural gas, gas turbine + co-fired steam generation + steam turbine
| 35 | 1
| 0.58 |
| Straw boiler + steam turbine | 44
| 1.32 | 0.61
|
| Straw boiler + steam turbine + condensing turbine
| 48 | 1.36
| 0.58 |
|
The cost-effectiveness of the biofuel, in terms of £
per tonne of carbon equivalent avoided, is five times higher for
a low carbon intensity bioethanol compared to a high carbon intensity
equivalent. Using DDGS as a renewable energy source in place of
gas would raise GHG savings by about anther 30%, but without incentives
there are currently more commercially viable uses for the product.
The highest GHG savings are likely to require higher capital cost
plants—that could be supported through Enhanced Capital
Allowances—but progress in developing the Government proposed
scheme had previously stalled as a result of European Commission
concerns regarding State Aid.
3.2 Rewarding biofuels based upon their GHG-saving
To encourage production of biofuels with lower carbon intensity
and lower costs per tonne of carbon saved requires incentives
to be based upon their GHG-saving. The optimum scheme design (that
avoids risks of breaching WTO rules and introducing other market
distortions—see Section 8) rewards biofuels in a linear
manner based on their carbon saving above a threshold of 0% (in
order that there is no incentive to supply biofuels with a negative
GHG-saving). For example; the RTFO could be designed such that
1 RTFC was earned for 1 litre of fuel with a 50% GHG-saving. A
75% GHG-saving would earn 1.5 certificates, etc. The RTFO C&S
Feasibility Study[22]
that was undertaken by LowCVP concluded that differentiating and
rewarding biofuels on the basis of their carbon intensity in this
manner is probably acceptable under trade rules.
The alternative approach would be to set a minimum threshold
GHG-saving. This does not provide an incentive to produce biofuels
with better GHG-savings (above the threshold) and would not adequately
compensate or encourage production of "advanced" biofuels.
The overall level of GHG-savings achieved through such an approach
would be lower, but it would be administratively cheaper and easier
to operate. Setting an arbitrary limit (say 30%) is also more
liable to challenge under WTO rules.
Most stakeholders support the development of the RTFO to
a scheme that rewards fuels on the basis of carbon intensity (although
views differ on the timing and need for policies to ease the transition
for established biofuel suppliers). An incentive based upon carbon
intensity should provide an efficient market based mechanism to
facilitate the delivery of increased GHG savings at lower costs.
It may also stimulate the development and implementation of "advanced"
biofuels and research and development of low carbon agricultural
practices and conversion technologies. It would also reward co-firing
with renewable feedstock, including by-products, to achieve lower
biofuel carbon intensity.
There is broad consensus that the long-term policy framework
should be technology neutral based upon the environmental performance
of the fuel and not based on a feedstock type or conversion process.
The long-term subsidies for fuels or technologies is undesirable,
but is considered necessary in the short-term to facilitate market
introduction of low carbon alternative fuels that without specific
incentives are unlikely to displace petroleum based fuels. Alternative
support to address specific obstacles such as high capital cost
plant, for example, should be made available—such as through
Enhanced Capital Allowances.
3.3 RTFO GHG-saving calculation
The methodology used to calculate the carbon intensity of
biofuels for reporting under the RTFO is a well-to-wheel calculation
that includes all significant sources of GHG emissions. This enables
direct comparison of fuel chain GHG saving on a like-for-like
basis. Detailed calculations have been made for the principal
feedstocks expected to supply biofuel to the UK at the start of
the RTFO scheme:
— Ethanol from: sugar cane, sugar beet, wheat and
corn.
— Ethanol converted to ETBE.
— FAME biodiesel from: tallow, used cooking oil,
palm oil, soy and rapeseed.
— Biomethane from anaerobic digestion of MSW and
manure.
It is expected that the RFA will extend this list as significant
new production pathways are introduced into the UK market. The
Technical Guidance provides instructions for fuel chains not currently
defined.
The calculation methodology uses default values that provide
estimates of the carbon intensity of different fuel chains. It
enables suppliers with specific information about their supply
chain to supply additional qualitative or quantitative data to
improve the accuracy of the calculation. The scheme is designed
to encourage better reporting of data by applying more conservative
GHG savings to high level default values (where little is known
about the origin of the supply chain), but typical default factors
where the calculation includes more detailed information. This
flexible calculation method provides a practical, cost-effective
and credible reporting system. Suppliers will also be required
to report on the amount of detailed information used in their
GHG calculations.
Hierarchy of default values used
Where information on previous land use has been supplied,
the calculation includes the effect on overall GHG savings. Default
values for specific land-use changes are based on Intergovernmental
Panel on Climate Change (IPCC) guidelines. Where information is
not provided, the calculation does not include any land-use change
carbon impacts. It is proposed that the RFA will conduct an ex-post
analysis of the potential emissions associated with "unknown"
land-use changes as part of its annual report to the Secretary
of State.
3.4 GHG calculation methodological issues
There is broad agreement on the boundaries and methodology
to perform lifecycle biofuel carbon intensity calculations amongst
most experts. LowCVP, as part of its work, has previously helped
to achieve this consensus and is now working internationally to
agree common approaches. The boundary for the calculation employed
in the RTFO is illustrated below. It includes all major direct
sources but excludes manufacture of machinery and equipment and
other very minor sources.
The principal area of difference in the lifecycle calculations
performed by a variety of groups arises in the treatment of co-products
and how GHG emissions should be attributed to them (such as Dark
Distilled Grains and Solids—DDGS, in production of ethanol
from wheat). LowCVP is seeking to achieve greater international
consensus on this issue through a series of workshops, but there
is presently little incentive for experts to agree. The approach
used in the RTFO employs a substitution methodology (considered
best practice) wherever possible; and market value allocation
where substitution is not considered possible.
The key uncertainty for these calculations is N2O emissions
from soil. An internationally agreed, (IPCC) methodology is available
and used as part of the RTFO, but it is recognised emissions vary
widely depending upon soil and crop types and timing and application
of fertiliser. Recent, well publicised new research, has cast
doubt on previous estimates.[23]
However, these estimates are not based upon field measurements
but a global calculation of the balance of N2O emissions and the
study is therefore itself subject to considerable uncertainty
and scientific debate.
3.5 GHG emissions arising from land-use change
GHG emissions from conversion of forest or permanent pasture
to perennial or annual crops generally eliminate any GHG-benefits
from subsequent cultivation of biofuels on converted land (for
the foreseeable future). This also applies to use of soils with
a high organic content such as peat. For reasons of both GHG-saving
and conservation of biodiversity it is therefore important to
strongly discourage or prevent these practices—for example
by accounting for emissions from land-use change in the calculation
of GHG-savings.
The RTFO has proposed a fixed reference date for land-use
change of November 2005 which is consistent with the Round Table
on Sustainable Palm Oil (RSPO) criteria. The appropriate date
is debateable but is intended to make use of idle (or degraded)
land not currently in productive use that would discourage further
conversion of forest land or displacement of existing agricultural
land (indirect effects—see below). Idle (degraded) land
has been identified in south-east Asia for example but an internationally
agreed definition of idle land is not available and therefore
cannot yet be applied universally. A fixed reference date means
biofuels cultivated on any land deforested since 2005 would not
receive favourable treatment under the RTFO.
4. INDIRECT LAND-USE
CHANGES
A key area of concern is managing indirect land-use change.
For example, where a rubber plantation is replaced with one for
palm oil and a new rubber plantation is subsequently developed
in an area of former natural forest. Such indirect effects cannot
easily be managed through a supply chain assurance scheme and
require complementary policies to protect remaining high conservation
value habitats. The limited effectiveness of policies to discourage
deforestation is an important factor in the opposition of some
environmental groups to biofuel use and any extension of targets
for its use. Stronger incentives are needed to encourage countries
conserve these areas of high conservation value.
It is important to recognise that increased biofuel production
is not the only or necessarily even the most important factor
driving indirect land use changes. For example; biofuels currently
represent less than 5% global palm oil production with increased
use also for food, cosmetics and other applications. Some environmental
groups and academics have proposed accounting for indirect land-use
changes within the GHG-calculation for biofuels. However, there
is no robust and recognised approach through which to allocate
impacts of indirect land-use change to biofuel production.
There is a need to initiate research internationally in partnership
with those countries in the areas of key concern (eg Brazil, Indonesia,
Malaysia) to understand the complex relationship between increased
demand for biofuels and land conversion. In addition, greater
participation by the FCO and DFID working with DEFRA and DfT should
assist these countries to identify and develop monitoring and
management practices to avoid the adverse effects of indirect
land use changes. Key to this will be developing effective mechanisms
to encourage biofuel production on idle (degraded) land and supporting
effective governance and management of areas of high conservation
value. The Taskforce comprising the UK, South Africa, Mozambique
and Brazil provides a good initiative through which this can be
taken forward.
5. OTHER ENVIRONMENTAL
CONCERNS
There are a range of wider environmental concerns regarding
biofuel production, principally associated with cultivation. The
RTFO defines five environmental principles to be met by a sustainable
biofuel. These are that biomass production will not:
— Destroy or damage large above or below ground
carbon stocks.
— Lead to destruction or damage to high biodiversity
areas.
— Lead to soil degradation.
— Create contamination or depletion of water sources.
These concerns can be managed through encouraging good land
and agricultural practices through appropriate agricultural assurance
schemes.
5.1 Environmental reporting within the RTFO
Environmental reporting within the RTFO focuses on the key
risks arising from cultivation. A future evolution of the scheme
may encompass the wider supply chain including processing and
transportation of feedstock. The environmental reporting scheme
makes use of existing voluntary agri-environment schemes to minimise
the cost and administrative burden of compliance. These existing
standards have been benchmarked against an RTFO Sustainable Biofuel
Meta-Standard comprising five environmental principles (listed
above) and two social principles (discussed in Section 6). The
meta-standard includes a number of criteria and indicators to
assess the extent to which the feedstock produced in accordance
with each scheme can be considered sustainable. A comprehensive
range of existing standards has been benchmarked and it is intended
that further standards will be benchmarked by the RFA as they
become available. Benchmarked standards that meet the required
level of sustainability and audit quality are called Qualifying
Standards and are listed below:
— Assured Combinable Crops Scheme[24].
— Linking Environment and Farming Marque.
— Roundtable on Sustainable Palm Oil.
— Sustainable Agriculture Network/ Rainforest Alliance.
— Forest Stewardship Council.
Companies may report against any standard that has been benchmarked
against the RTFO meta-standard and all such feedstock volumes
count towards the data capture target set by the Secretary of
State. Only feedstock produced in accordance with Qualifying Standards
can be considered "sustainable" and count towards this
target.
The key limitation of the approach is the absence of standards
for all feedstock: notably sugar cane. Under the proposed model,
suppliers will also be able to organise additional supplementary
checks to demonstrate that feedstock complies fully with the Meta-Standard
criteria, but only a limited number of suppliers are expected
to make this effort. The mechanism through which companies may
report "Not known" will enable suppliers to receive
certificates for fuel of unknown provenance but weakens the scheme.
6. SOCIAL ISSUES
6.1 Managing social issues through RTFO reporting
The RTFO C&S scheme also defines two social principles
that biomass production does not adversely affect:
— Workers rights and working relationships—such
as labour rights including use of child and bonded labour, employment
conditions and health and safety.
— Existing land rights and community relations.
These can be effectively managed through supply chain management
and ensuring that feedstock is purchased from plantations and
suppliers operating appropriate controls (such as through the
RSPO). Demand for biofuel has undoubtedly led to immoral and illegal
practices in some areas. The challenge is for the major corporations
sourcing and deploying biofuels to manage its supply chain and
reduce demand for, and the value of, feedstock produced unsustainably.
The RTFO achieves this through encouraging reporting against social
principles as excluding feedstock that fails to meet social criteria
is not possible under WTO rules. Reporting against social standards
is analogous to those for environmental standards. Defined social
Qualifying Standards are:
— Roundtable on Sustainable Palm Oil.
— Sustainable Agriculture Network/Rainforest Alliance.
Exceptions for reports on labour standards exist for highly
mechanised production where the risks are low compared to non-mechanised
production. This is intended to balance the risks against administrative
costs.
6.2 Food v Fuel
A wider social debate, beyond the direct influence of suppliers
is the impact of increased biofuel production on food prices.
The issues are significantly more complex than usually presented,
with markets still significantly distorted by agricultural subsidies
and surpluses. For example the "tortilla riots" in Mexico
blamed on US imports of corn for biofuels arose following price
increases that are reported to have resulted from US subsidised
grain exports that significantly reduced the commercial viability
and production of Mexican corn. Reduced Mexican supply led to
increased prices with accusations of corporations (unproven) artificially
restricting supply to inflate prices. This year demand for corn
ethanol production has led to increased planting in Mexico for
the new growing season creating new markets for producers.
Increased commodity prices can also benefit the rural poor
by improving income through higher prices. A longstanding complaint
of development NGOs has been the dumping of excess subsidised
production by developed countries onto the world market depressing
prices for agricultural commodities to historically low levels.
Biofuel production also creates new employment and opportunities
for wealth creation. For the urban poor higher food prices do
mean higher costs; however biofuels are not the only or necessarily
most important factor driving higher food prices. Major droughts
(such as in Australia) and flooding (on the Indian subcontinent)
have also devastated production this year. Population growth and
changing diet in India and China are also creating new demand
for animal feed.
Global agricultural production is balanced, to some degree,
with supply. With new markets for agricultural commodities created
through biofuel policy production will increase. For example;
set-aside land within the EU is likely to be significantly reduced
in the coming year bringing land back into agricultural production,
partly in response to increased demand from biofuel markets. Biofuel
production on idle (degraded) land can also provide a range of
benefits. The idea of rich car drivers in the north taking food
from the mouths of starving populations in the south to feed our
insatiable appetite for energy is a highly emotive and powerful
image—the reality is far more complex. It will however be
essential that the EU monitors the impacts of increased demand
for biofuels on supply of agricultural production for food and
ensures biofuel demand and targets do not create indirect consequences
for the most vulnerable groups in society.
7. VERIFICATION
To establish the accuracy and to validate C&S reports
a chain of custody must be established from the feedstock producer
to the fuel supplier. Where the existing assurance scheme does
not operate its own chain of custody the RTFO C&S reporting
model operates a mass balance approach. This requires suppliers
in the supply chain to account for their product on a units in—units
out basis but does not require physical separation of certified
feedstock or fuel from uncertified. This ensures that for every
unit of sustainable biofuel sold the corresponding feedstock entered
the market.
The model requires suppliers throughout the chain to keep
input and output records of the feedstock characteristics entering
and leaving the plant or process stage. The feedstock or fuel
sold will describe, on an invoice or related document, the carbon
and sustainability characteristics of the product sold.
It is proposed that the reliability of claims made in annual
C&S reports should be demonstrated through an independent
verification (or assurance engagement) that must be completed
by the 30th September. Initially it is considered that assurance
engagements should aim to provide at least "moderate"
assurance (from a limited assurance engagement). It is proposed
that suppliers engage auditors who are qualified to carry out
audits against the International Standard on Assurance Engagements
(ISAE 3000), which defines requirements for limited-scope engagements.
It is likely that the verifier's statement, with the annual report,
will be made available on the Administrator's website.
8. TRADE RULES
In designing schemes to exclude unsustainable biofuels from
obligation schemes or provide preferential tax treatment for better
biofuels (such as those with a higher GHG-saving or from sustainable
supplies) it is essential to account for WTO rules. Distinguishing
between products on environmental grounds is permissible under
trade rules—subject to certain conditions being met. However,
rules are complex, case-law very limited and outcomes highly uncertain.
The UK, in proposing its reporting requirements as part of
the RTFO, adopted a conservative view of the trade rule issues
to ensure it would be able to launch its Obligation on time and
without being encumbered by the need to make representation to
WTO, inform affected countries and manage responses. Accordingly
the UK mandatory reporting scheme issues renewable transport fuel
certificates so long as the fuel is of renewable origin and allows
"not known" reporting.
A key issue in trade terms is whether biofuels are like products.
Trade rules can allow distinctions between products based upon
how they are produced. It may therefore be possible to distinguish
between biofuels based upon their life-cycle GHG emissions—particularly
since this is a global issue that biofuels are designed to address
and international standards operate for life-cycle assessment.
Excluding a fuel on the basis it has been grown on land that since,
to say 1990, was virgin forest is more uncertain. Why 1990? Why
do deforestation requirements only apply in developing countries
and not the EU where land was historically deforested? Such exclusions
may be possible but are more liable to successful challenge.
How biofuels are defined will affect the way the rules are
applied. As an agricultural product treatment is less onerous
than industrial products. If biofuels were classed as environmental
products there would be still fewer issues. This is still under
consideration at the WTO. The objectives and design of any measure
will also influence its appropriateness. For example, since the
policy is designed to achieve GHG-savings it is probably acceptable
to reward fuels with a higher GHG-saving. However, excluding fuels
that fail to meet a minimum level of GHG-saving (say 30%) is less
likely to be acceptable due to the arbitrary nature of the threshold.
An approach that rewards fuels in a linear manner depending upon
its GHG-savings, with a cut-off at 0% saving is less liable to
challenge. It may also be possible to take account of carbon emissions
associated with direct land-use change since established international
methodologies are available from IPCC. Accounting for indirect
land use changes is more uncertain in the absence of robust, internationally
agreed methodologies.
Scheme design characteristics that are more likely to be
acceptable include:
— Being based upon robust science.
— Being based upon internationally agreed standards.
— Rules are applied consistently to all feedstocks.
— There is flexibility in the manner in which countries
may comply.
Negotiation with affected parties, allowing time for exporters
to adapt to new requirements and operating appropriate due practice
are positive attributes that reduce the risk of successful challenge.
The UK Government, through the EU, should urgently embark on discussing
its proposals with affected countries to reduce the risk of successful
challenge. This will be particularly important in seeking to exclude
fuels that do not meet wider environmental standards, for example
causing impacts on biodiversity or soil degradation (since reducing
GHG-saving is the purpose of the RTFO and maintaining biodiversity
is not an explicit objective).
The ability to provide incentives for a fuel on the basis
it is so-called "second-generation" or "advanced"
would be questionable since there is no accepted definition of
a second-generation fuel. In addition some first generation Brazilian
sugar-cane ethanol achieves equivalent GHG-savings and land productivity.
The absence of case law makes it impossible to reach firm
conclusions on what WTO rules permit under such schemes. General
principles do however indicate design characteristics that are
more or less liable to successful challenge. Ultimately, the Government
will need to balance the risk of successful challenge against
the benefits of the proposed measure.
8. HIGH BLEND
BIOFUELS
Some stakeholders support the development of an increased
market for high blend biofuels[25],
in appropriately designed or adapted vehicles, in addition to
their use in low blends for all vehicles. Whilst all stakeholders
anticipate the RTFO will be an effective mechanism to stimulate
supply of biofuels for road transport, most believe that the current
implementation of the RTFO is unlikely to provide a stimulus to
develop the market for high blend biofuels that offer the potential
to deliver further reductions in GHG emissions. This is because:
— The target level has been set at the level of
the current Fuel Quality Directive and European Fuels Standards
(5%)—obligations can be met largely through supply of low
blends.
— At current duty rates low blends are more attractive
economically than high blends. In addition, the Treasury has indicated
it intends, over time, to increase the buy-out price and reduce
the duty differential for biofuels, further reducing the stimulus
for high blends.
Many LowCVP members believe an increase in RTFO targets beyond
the level of the current fuel quality standard for low blends;
and raising the buy-out price—to encourage fuel suppliers
to invest in refuelling infrastructure for high blends—is
desirable. Some members also support mechanisms outside the RTFO
to stimulate high blends.[26]
All LowCVP members recognise that vehicles operating on high
blends represent just one element of a much wider portfolio of
technology solutions aimed at reducing CO2 from road transport.
Robust carbon and sustainability assurance is a key element of
this market going forward along with specific measures and support
to facilitate market introduction for low carbon fuels and vehicles
going forward. It will also be essential to ensure the market
for biofuels does not cause significant indirect effects on land-use
or food production. A niche market for high blend vehicles is
nevertheless feasible without causing wider sustainable issues.
Within the passenger car or commercial sector of the market,
depot-based fleets and those operating in a limited area are seen
as the key early adopters, initially avoiding the need for extensive
refuelling infrastructure. Current Fuel Quality Standards and
most vehicle manufacturer warranties limit the biofuel component
within the fuel to 5% in the case of FAME biodiesel.
A number of heavy duty vehicle manufacturers now provide
warranties for high level blends up to B100. HGVs such as trucks
and buses are also often depot based, or travel on restricted
routes suited to use of niche fuels with limited refuelling infrastructure.
About 440,000 goods vehicles over 3.5 tonnes and 100,000 buses
represent less that 2% of the vehicle population yet produce approximately
24% of the CO2 from road transport. The use of high blends in
the HGV sector could make significant contributions to GHG reductions
eg the use of B30 within the existing HGV and LDV fleet offers
potential GHG-savings of up to 1.5 million tonnes[27],
greater than the one million tonnes currently forecast for delivery
within the RTFO.
In order to achieve these savings an appropriate, long-term
fiscal framework would be needed that ensured a small cost saving
for operators of commercial vehicles. One approach would be to
use the Alternative Fuel Framework and restructure the current
fiscal incentive (20ppl) to apply to the fuel, rather than to
the blend component.
Fuel quality standards are key to the high and low blend
market. Out of specification fuel risks disruption for consumers
and therefore most LowCVP members also believe that RTFO certificates
should be linked to fuels that meet quality standards. Support
for the high blend market must therefore recognise and balance
the potential benefits, costs and risks.
Development of a market for any vehicles operating with high
blends is only supported so long as the fuels are sustainable,
achieve good levels of GHG-savings and do not significantly worsen
air quality[28]. Members
also only support the use of high blend fuels for appropriately
adapted or warranted vehicles.
9. CONCLUSION
The evidence indicates that modest amounts of biofuels used
in road transport can be sustainable and make a worthwhile contribution
to reducing road transport greenhouse gas emissions. However,
targets for biofuel introduction need to recognise the wider consequences
of increased global consumption (particularly indirect land-use
changes and impacts on food prices). The UK Government has shown
leadership in the development of a robust assurance scheme but
has not to date engaged in developing an approach to address these
wider issues such as indirect land use change. Monitoring of the
impacts of increased demand for biofuels and an appropriate policy
response to any serious consequences identified are essential.
The sustainability and GHG-savings of biofuels currently
marketed are highly variable depending upon the location and manner
in which they have been produced. Some biofuels undoubtedly cause
more harm than good. UK industry has recognised the environmental,
social, political and reputational risks arising from supplying
unsustainable feedstock and that these must be managed. It supports
the introduction of robust assurance schemes operated by suppliers
and sees the C&S reporting within the RTFO as an important
first step.
The proposed C&S reporting within the RTFO has undergone
extensive stakeholder consultation and been successfully piloted.
It has limitations but is recognised as the most advanced national
scheme for managing biofuels sustainability and is a model for
other schemes. Key design constraints arise from WTO considerations
and the challenge of passing data through the supply chain. To
strengthen the C&S scheme further development of assurance
schemes for key biofuel feedstocks (such as sugarcane) are needed,
similar to that developed for palm oil by the RSPO. Obligated
companies only represent about 40% of retail market; but LowCVP
is investigating the feasibility of voluntary kitemark scheme
that all fuel suppliers can use to demonstrate the sustainability
of product.
The C&S guidance will be finalised imminently and should
be issued by the RFA in November providing four months for companies
to establish their systems. A longer period of preparation was
not possible given the rapid introduction of the RTFO but extensive
consultation with all stakeholders throughout the development
process has ensured there are unlikely to be major surprises for
businesses that have kept abreast of developments.
The C&S reporting is an important first step but most
stakeholders recognise the need to move to the provision of incentives
for biofuels linked to GHG-savings (although there are a range
of views how quickly this should happen). Robust methodologies
are available to calculate GHG-savings although there are uncertainties
regarding emissions of nitrous oxides from soils and a range of
view how to allocate benefits from co-products. A key challenge
will be for supplying companies to obtain data from the supply
chain and establish robust verification practices to demonstrate
claims.
Excluding unsustainable fuels is also supported by most stakeholders,
although there are issues to resolve to ensure this can be done
in a manner that will not be subject to successful challenge through
WTO. Further work is needed in this area, including discussions
with countries that are most likely to be affected by Government
proposals, to reduce the risk of successful challenge under WTO
rules.
18
An "administrative batch" is one with homogenous sustainability
characteristics. For example: one hundred tanker movements of
fuel with the same characteristics (eg palm oil from Malaysia
meeting the requirements of the Round Table on Sustainable Palm
Oil (RSPO) could be reported as a single batch. A separate tanker
movement of palm oil from Malaysia without any form of assurance
would be reported as a different batch. Back
19
Suppliers claiming less than 450,000 certificates in an obligation
period do not need to submit an annual report. Back
20
http://www.lowcvp.org.uk/assets/viewpoints/Biofuels%20WTW%20final%20report.pdf Back
21
http://www.lowcvp.org.uk/assets/viewpoints/Biofuels%20WTW%20final%20report.pdf Back
22
http://www.lowcvp.org.uk/assets/viewpoints/Biofuels%20WTW%20final%20report.pdf Back
23
Crutzen et al (2007) Atmospheric Chemistry and Physics
Discussions, 7, 11191-11205 [available from http://www.atmos-chem-phys-discuss.net/7/11191/2007/acpd-7-11191-2007.pdf] Back
24
Subject to amendments being agreed that are presently being considered Back
25
Major oil companies remain concerned about the value and cost
of such an approach Back
26
Such as continued support to address infrastructure costs and
further fiscal incentives for vehicles able to operate on these
fuels. Back
27
Assuming a GHG saving of 40% and no significant land use change.
Figures based on DfT Statistics (2003) refer to total Carbon eq
emissions from total road transport sector: 32.5 million tonnes.
Passenger cars account for 19.8 million tonnes, HGVs incl buses
8.2 million tonnes, LDVs 4.4 million and other 0.1mt. Back
28
The use of high blend biodiesel in HGVs can lead to a considerable
increase in NOx emissions, however the use of bio-ethanol in
vehicles can offer improved emissions with respect to air quality
compared to petrol. Back
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