House of Commons - Environmental Audit

Select Committee on Environmental Audit Written Evidence

Memorandum submitted by BP

INTRODUCTION

BP is one of the world's largest energy groups and a leading biofuels supplier. In 2006 BP held approximately 10% of global biofuels business. Biofuels are a key part of BP's strategy to meet current and future customer needs for cost-effective and sustainable transport fuels.

We are making significant investments in a new generation of biofuels, responding to increasing energy demand and the need to reduce overall greenhouse gas emissions for transportation fuels. We have recently announced investment in a world scale ethanol plant and high technology demonstration centre in Hull to advance development work on the next generation of biofuels. Working with DuPont to explore new approaches to Biofuels development, we are developing an advanced biofuel called bio-butanol. We also plan to invest US$500 million over the next 10 years to establish a dedicated biosciences energy research laboratory, the Energy Bioscience Institute, which will be the first facility of its kind in the world. BP has also entered into a joint venture with D1 Oils to develop biodiesel from jatropha.

BP'S DETAILED RESPONSE TO QUESTIONS

I. What are the possible positive and negative social, environmental and economic consequences of biofuels?

— Negative environmental effects might include biodiversity loss, soil erosion, unsustainable water use, nutrient leaching and increased GHG emissions. Negative social effects might include infringement of community rights, or inappropriate labour practices. These effects might arise from inappropriate land use or clearance or unsustainable plantation management practices. In some cases the negative effects may be indirect, arising from the displacement of an existing land use to another (inappropriate) area). There are also likely to be complex interactions between biofuels and food crops and prices.

— Positive effects include GHG savings, increased fuel diversity, opening of new markets, new energy sources for developing countries and a stimulation of rural economies through export of commodities with higher values than can be commanded in local markets. Add the potential of energy crops to restore degraded land and bring marginal land into productive use.

How might trade-offs between climate benefits and environmental and social impacts be made?

— We do not think that any trade-off is required or would be necessary.

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?

We fully support the aims of RTFO and we have responded in detail to the recent consultation as well as contributing in the working groups to continue its development. The key points from our submission were:

— BP is content with the key design features of the Statutory Instrument.

— In constructing the RTFO, active consideration must be given to the development of future biofuels not just existing ones.

— Continued investment in the Biofuel industry is important and should be supported by stretching targets.

— BP is wholly committed to sourcing sustainable biofuels and support the development of mandatory greenhouse gas and sustainability standards for the second phase of the RTFO.

— The policy on revocations should be amended to protect the purchaser of certificates.

At EU level there needs to be harmonisation of the various policy mechanisms and just as importantly harmonisation of the numerous carbon and environmental sustainability standards which are under development.

II. Should biofuels be regulated to minimise the negative environmental and social impacts, and in what way?

— Biofuels should be produced sustainably, and be seen to be produced sustainably. This means that biofuels must have positive GHG balances and acceptable environmental and social impact.

— Sustainability standards are needed to clearly set out conditions that encourage responsible producers and suppliers and avoid undesirable impacts.

— We believe a period of compulsory reporting should precede mandated standards, to enable the supply chain to gear up to provide relevant information and modify practices where necessary.

— In the initial phase we value and support the many certification schemes and regulatory initiatives that are ongoing. We are members of the Roundtable on Sustainable Palm Oil (and sponsor of the Carbon Workshop), members of the Roundtable on Sustainable Biofuels (on the Implementation Working Group), Round Table on Responsible Soy and Low Carbon Vehicle Partnership(LowCvp). We also support the Joint Research Council, EUCAR (European Union Car Industry), CONCAWE (Conservation of Clean Air and Water in Europe), European Well to Wheels Study and UK Carbon and Sustainability Reporting Scheme.

— Ultimately there should be an over-arching global sustainability assurance scheme that includes crop-specific and regional schemes, and we are prepared to play a significant role in contributing to its development.

How might regulation fit in with international trade agreements and rules?

— We believe that, if the environmental objective behind biofuels is in the long term to deliver significant reductions in GHG emissions, then this will require open, unrestricted and flexible biofuel markets. WTO rules need to be challenged in this area and should not be used as an excuse for inaction on environmental sustainability.

Should there be regulation of the entire carbon cycle of biofuels?

— Yes. Biofuels should result in lower GHG emissions compared to fossil fuels, when taking into account both direct and indirect emissions (including land use and soil management changes).

— We believe that policy should recognise and reward biofuels delivering improved GHG emission benefits. This approach will not only support the introduction of advanced technologies but reward the continuous improvement of existing technologies.

— GHG emission calculations should be analysed on a life/cycle or well to wheels basis. However this analysis should exclude consideration of the engine efficiency and thus report emissions on a g CO2 equivalent / MJ fuel basis. The engine /drive-train efficiency is independent of the supply source of the biofuel.

— It may be beneficial to set a minimum GHG saving, but this should be viewed as a minimum qualifying threshold and set at an appropriately low level. In addition legislation should reward biofuels based on their life-cycle GHG emission performance, hence providing the economic incentive for the supply of biofuels with progressively enhanced levels of GHG emission performance.

— BP is opposed to prescriptive per litre mandates (regulations requiring a set percentage of biofuel in every litre of fuel sold). Instead we believe that flexible market mechanisms, such as biofuel obligations requiring a set percentage of biofuel to be added to the fuel pool as a whole, but without mandating specific blend recipes, provide a better basis in terms of supporting the longer-term development of biofuels. In particular, such obligations allow fuel suppliers to respond flexibly to the target. This, in turn, minimises costs, reduces the market's exposure to supply disruptions in biofuels, and better facilitates the introduction of future biofuel technologies.

III. 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?

— We fully support certification schemes, such as the RSPO, and believe that they are evolving at a rate that supports producers, suppliers and consumers and evolve towards mandated systems. However, there remain important and new commodities, like sugar, for which assurance structures are only just evolving. In addition, most existing standards are currently in the process of adding GHG measurement criteria.

— We believe that industry should be encouraged to use Biofuels feedstocks such as jatropha that clearly do not have an impact—even indirectly—on fragile rainforest ecosystems.

— We support the trial period for the sustainability criteria and auditing and are confident that full certification will be introduced as soon as is practically possible.

To what extent is it currently possible to identify the provenance and production standards of imported biofuels?

— In order to ensure that our own biofuels are sourced sustainably, BP has developed a set of sustainability principles that we apply to sourcing all feedstocks.

— At present it can be difficult to follow the entire chain of custody for all feedstocks, but progress is being made quickly to ensure provenance information will be available.

— For some important feedstocks, production standards can be checked by auditing against RSPO or other existing standards using independent verification. For one or two other feedstocks, such standards are still being developed.

IV. At what stage is biofuel technology?

Biofuel technology and indeed the sector overall is still very much at its developmental stage, with incumbent technologies based on the conversion of starch, sugar, or vegetable oils to biofuels. These processes are therefore characterised by the use of food crops that are energy intensive to cultivate (eg high fertiliser use) and by the partial conversion of the total biomass crop to the biofuel. Therefore, they suffer from a number of disadvantages or limitations namely:

— GHG emission reduction benefits versus conventional fossil fuels (typically 20-60% with the exception of sugar cane bioethanol).

— Made from food—therefore high price, variable GHG savings.

— Limited yields / hectare and the requirement for the crop/feedstock to be grown on high grade agricultural land.

— Biofuel components that represent compromises in terms of the fuel performance and their compatibility with vehicles.

These restrictions limit the potential to support material penetrations (>10%) into road transport fuels both in terms of overall availability and technical compatibility issues with vehicles. The environmental benefit in terms of GHG emission reduction is likewise constrained. We acknowledge that crops used for biofuels compete with other crops for land. BP believes there is enough land for both food and fuel.

Is there enough support for the development of biofuel technology?

— BP is investing $500 million over a decade on developing advance biofuels technology. Technological advancement will play a key role in biofuel production and alleviating the pressure on food supply.

In order for biofuels to deliver a material contribution in terms of tackling road transport GHG emissions and indeed to play a significant role in contributing to energy security through supply diversification and rural development, the longer term goal must be towards a target of around 30% in the 2030 timeframe of high performing / low GHG emission biofuels.

This will require the development of advanced biofuel technologies, and a move away from the current technologies. In particular technological advances are required in three areas:

— The development of dedicated / specialised high yielding energy crops, that can be grown less intensively and on low grade, agriculturally marginal land.

— The development of conversion technologies (ie lignocellulosic technologies) that enable the conversion of such biomass and bio-organic waste sources to biofuels.

— The development and improvement of the fuel characteristics of biofuels themselves. This includes improvements that enable their use at higher percentages in standard vehicles, and that are likewise compatible for use in existing vehicles. Additionally, these biofuels need to be compatible with the existing infra-structure, and offer improved performance characteristics.

Biofuel policy should be focused on enabling and accelerating the development of such technologies through a rounded policy framework for biofuels. In particular BP sees the need for transitional regulatory support for biofuels,—in addition to an economy wide price of carbon—to stimulate the development and deployment of such advanced biofuel technologies. Such support needs to be transparent, technology neutral, based on well-to-wheels/life-cycle GHG emission performance and be output based or goal orientated, thereby rewarding delivery of policy goals.

A UN report found that the climate change benefits of solid biomass fuels outweigh those of liquid biofuels. Are current policies promoting the development and deployment of a range of biofuel technologies?

Currently the use of biomass in stationary power applications does indeed generate greater GHG emissions savings of up to five times higher than its application in liquid transport fuels. Moreover, currently such use generates in most cases, more cost effective GHG emission reductions.

However, it needs to be recognised that the stationary sector has a significantly greater range of renewable/ low carbon energy sources, many of which generate significantly more cost effective GHG emission reductions than biomass. In contrast options in the transport fuel sector are more constrained, and in the short to medium-term effectively limited to biofuels.

Moreover, policy support of biofuels should not be solely based on their current potential, but also on the basis of accelerating the development of advanced biofuel technologies that can deliver not only significant and more cost effective GHG emission reductions but also material penetrations into the road transport fuel pool. There remains the prospect that in the medium term that advanced biofuels production costs will be equivalent to or even competitive with conventional fossil fuels—this is already the case with ethanol from Brazilian sugar cane.

BP sees the need for transitional regulatory support for biofuels,—in addition to an economy wide price of carbon—to stimulate the development and deployment of advanced / 2nd generation biofuel technology. Such support needs to be transparent, technology neutral, based on well-to-wheels/life-cycle GHG emission performance and be output based or goal orientated, thereby rewarding delivery of policy goals.

How successful have EU strategies and Directives been in stimulating biofuel usage?

European biofuels policy development has been partially successful in stimulating the use of biofuels, however going forward improvements need to be made in the following areas.

— Greater harmonisation of biofuel regulations / policy across the EU. To date there is a lack of coherent regulatory support for biofuels across the EU in terms of levels of regulatory support, different regulatory mechanisms, and with the legislation in some markets skewed in favour of indigenous production. In order for the EU to establish a technological leadership position this needs to be done on a pan European basis. Different markets adopting different regulatory mechanisms with differing support levels, will only serve to continue to compartmentalise the European biofuel sector and hinder its development.

— A greater regulatory focus on the GHG emission performance of biofuels in addition to biofuel market share targets. EU biofuel policy to date has been partially successful in establishing a biofuel base around existing technologies, which is an important platform for the development of future biofuel technologies. However, in order to stimulate biofuel development regulations, there is the need to reward biofuels based on their life-cycle GHG emission performance.

— Greater Research & Development Support. If Europe wishes to establish a technological leadership position in specific biofuel technology areas then consideration needs to be given to the appropriate level of R&D funding. By way of contrast the US is channelling considerable funds into biofuels research primarily focusing on cellulosic bioethanol. For example, 179 mill-$ in 2008 for the Biofuels Initiative aimed at accelerating development of cellulosic ethanol development, combined with 1.6 bill-$ over 10 years for energy innovation including bio-energy research, and 2 bill-$ in loans for cellulosic ethanol plants.

— Robust Biofuel Sustainability Requirements. A necessary condition for developing a viable European biofuels sector in the long-term is robust and equitable biofuel sustainability standards/certification systems.

— The removal of the mismatch between biofuel targets and the biofuel limits in fuel specifications. The current limit for ethanol and biodiesel in standard European gasoline and diesel specifications is 5%vol—significantly lower than the 2010 5.75% energy content target. It appears to be technically possible to increase these limits to 10%vol and 7%vol respectively in the near future, and there is progress both on a regulatory level from a revision of the EU Fuels Quality Directive and on a technical level with CEN, the European Standards Body to achieve this objective. However, Europe's recently adopted 2020 biofuel target of 10% energy content requires blends above 10% volume. Therefore an "integrated approach" is required involving the automotive, petroleum and biofuel industries to adapt vehicles and fuel specifications to ensure that by 2020 the biofuel limits in the standard grades of gasoline and diesel are at least consistent with the 10% energy content target. The alternative option of allowing the proliferation of additional high biofuel fuel grades that can be used by only by a small number of specially adapted vehicles will only serve to constrain the development and growth of the biofuels market.

Will the 2010 biofuel target be reached?

— The 5% UK target is likely to be met and could be exceeded if an increase level of biofuels allowed in vehicles. This would take us closer to the EU target.

Most stakeholders predict that the EU 2010 biofuel target will not be achieved, the primary reason being the lack of coherent regulatory support for biofuels across the EU. It is no accident that the two countries (Germany and Sweden) that met or exceeded their 2005 Biofuels target, both provided significant regulatory support to kick-start the development of a fledgling biofuels sector.

The experience from both the German and Swedish markets indicates that the provisions of appropriately sized tax incentives/ petroleum duty exemptions for biofuels are a good way of stimulating / kick starting the biofuel market. In both case the size of the tax incentives is significantly larger than the current duty exemption of 20ppl in the UK.

However, the experience in these markets also highlights key limitations with duty exemptions/tax incentives as a regulatory mechanism to support biofuels, namely their cost to governments and their inherent linkage to fiscal/budgetary policy. Both these aspects make if difficult for government to offer such tax incentives over a sufficiently long-term timeframe necessary for investment in significant levels of capacity, in particular in advanced technology, to occur.

BP's view is that well constructed biofuel obligations based around a target with a non-compliance penalty and linked to the GHG emission performance of a biofuel, with sustainability safeguards provide both the necessary long-term target structure required for investment decisions, and coupled with the appropriate driver for advanced, low GHG emission biofuels.

Again, such mechanisms need to be harmonised across Europe, with common levels of regulatory support and equal access.

How effective are the Government's fiscal arrangements for biofuels?

— The tax incentive in the UK has stimulated the biofuels market although it is still in an early stage of development.

V. 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?

— Currently the UK exports three million tons per year of wheat (surplus to the requirements of the domestic market). The Hull plant will produce 420 million litres (110 million US gallons) per year from one million tonnes of locally grown feedstock. This output equates to approximately 1.5% of UK gasoline supply. If all export wheat was converted into bioethanol that would amount to 4.5% of UK gasoline.

Is it possible for biofuels to entirely replace oil for transport purposes?

— Many have investigated the maximum contribution biofuels could make to the transport fuel pool. The highest reported number is around 30% based on the maximum available biomass. It also assumes the technology will be available to convert wood, straw and agricultural residues into liquid fuels. However, if transport fuel consumption were halved, the proportional contribution from biofuels would double.

Is there a role for public procurement or public transport?

— When the RTFO comes into force there will be no requirement to for public procurement or public transport to encourage biofuels into the market. Creating market distortions to accelerate the market for biofuels would be better aimed at advanced biofuel or low carbon transport technologies.

Will biofuels improve fuel security?

— Biofuels do have a role to play in improving fuel/energy security by increasing the diversification of the supply sources for road transport fuels. For this to be truly effective biofuel supply sources must come from a balanced combination of indigenous production and imports, and indeed from a mix of technologies and feedstock/crop types. Likewise, flexibility and the ability to switch between supply sources, both between biofuels themselves and between biofuels and conventional fuels, are required for enhanced energy security.

How secure are biofuel crops from unexpected events such as drought or disease?

— Global commodity markets exist for cereals, and for oil seed crops along with well developed future markets, and this does serve to provide a considerable degree of supply security not only for biofuels, but also obviously for food requirements. As mentioned previously this security can be further enhanced by diversifying the biofuel supply sources, both in terms of supplying region and feedstock/crop type.

VI. What impact would an expansion of UK production of biofuels have on the ability of the UK to produce its own food?

— The UK is a net exporter of wheat (typically three million tons per year).

— The re-cultivation of set-aside land in the UK could produce substantial surplus wheat. Around 3% of the land in the UK or 0.5 million hectares has been set aside each year under an official payments scheme. At an average of eight tonnes of wheat per hectare, this land alone could potentially produce four million tonnes of wheat biofuel feedstock per year. We acknowledge that in some cases bringing unused arable land into production may have adverse effects on wildlife, but the conservation benefits currently provided by set-aside land should and could be provided by alternative policy mechanisms.

— Improved agronomy and selective breeding are also likely have a positive impact on crop yields.

— In the future research into genetic modification is expected to focus heavily on improving yields, since this is likely to be one of the most effective ways of reducing competition over land between food and fuel, as success in this area would allow more biomass to be grown on smaller areas of land.

How might this impact on greenhouse gas emissions from international trade patterns?

— We believe that only biofuels with a total GHG saving (including international transport) should be used. However, it should be recognised that bulk transport by sea is an extremely energy efficient form of transport, and so for example the portion of the overall GHG emissions involved in the transportation of biofuels from Asia or South America to Europe is extremely small.

What impact might the expansion of biofuels have on international food security and prices?

— In the short term, the rapid growth of the biofuels industry has created new demand faster than suppliers could respond, raising the prices of some commodities such as corn, rapeseed, and palm oil (only 3% of palm oil is used for Biofuels). The effect of US support for ethanol has put upward pressure on corn prices in particular. With the new crop cycle, we see farmers adjusting their acreage and crop mix to respond, which will mitigate this effect. The marketplace is responding to new demand.

— We believe that higher crop prices, which are set by a number of factors, play a greater role in setting final food prices in developing economies. This is because food in developing economies tends to be less processed and it also takes up a larger proportion of the overall disposable income than in developed nations. This means that any crop price impact that biofuels may have is likely to have a proportionately higher effect on food prices in developing countries. However, increased economic activity thanks to biofuels could also improve or create market mechanisms the absence of which is often at the core of food shortages and high prices in developing countries. Nevertheless, for some commodities, like corn, the risk that demand and price support for biofuels might disproportionately affect food prices for the general population in developing countries must be monitored and addressed if it occurs.

— In the medium term, the increasing use of dedicated, non-edible energy crops, such as jatropha in the short term or energy grasses in time, rather than edible crops like corn, will help to reduce the demand for food crops for biofuel production. Dedicated energy crops are often able to grow on soils and in conditions that could not support food crops, which could increase the cultivated land area without affecting the food supply.

— Technological advancement will play a key role in alleviating the pressure on food supply. In fact, BP is exploring processes to convert waste resources such as agricultural or forestry residues into fuels. Going forward, technological advancement will allow the use of non-edible plant components, such as leftover fibre from sugarcane and corn in the production of biofuels.

VII. How might farm viability in both developed and developing countries change with an expansion of biofuels?

— For rural communities in particular, in both developed and developing nations, biofuels have the potential to bring welcome economic activity. Rural communities have generally been in economic decline relative to urban communities as technological advances in agriculture have outpaced demand leading to long-term price deflation and lower employment in the agricultural sector. New demands for biofuels feedstocks could create renewed economic activity in rural communities, raising the economic fortunes of farmers for the first time in decades.

8 October 2007

23 Based on currently available land and 1% yield growth per annum. Back



© Parliamentary copyright 2008	Prepared 21 January 2008