Written evidence submitted by Agri Energy|
Agri Energy is one of the UK's largest distributors
of fresh cooking oil to the catering industry and is the largest
collector of waste cooking oil, collecting from over 60,000 catering
establishments in the UK. Agri Energy collects Used Cooking Oil
(UCO) from food manufacturers and the retail and catering sectors,
preventing it from being dumped illegally, and turns it into biodiesel
for use as a renewable transport fuel. It has ten depots across
the UK, three bio-refineries capable of processing UCO into renewable
bioliquid or industrial oil, and employs 350 people across the
This paper sets out Agri's submission to the Environmental
Audit Select Committee's inquiry into the 2011 Budget and environmental
taxes. It is comprised of two parts, the first looking at the
20p fuel duty differential for biodiesel made from UCO, which
the Budget announced is to be abolished from April 2012, and the
second section considering the current fuel duty derogation for
producers of biodiesel who manufacture less than 2,500 litres
Our submission concludes that the 2011 Budget represents
a missed opportunity to ensure that the Government's green objectives
are being met through the tax system, and makes the following
Government should adopt a more integrated approach to developing
biodiesel policy. Currently, responsibility is spread across four
different departments, and this is creating an uncertain regulatory
environment for biodiesel producers.
part of this integrated process, the Government needs to look
again at the tax incentives and support mechanisms for the sustainable
biodiesel industry. It needs to look further than the current
consultation on the RTFO and consider the future of the differential
alongside a longer-term strategy to support the industry, such
as including biodiesel within the scope of the Feed-in-Tariff
or tying the Treasury more closely to the certificate trading
the shorter term, the impact of fluctuating certificate prices
in the RTFO should be resolved by the creation of a stability
mechanism either through a minimum price for certificates or an
extension of some form of duty differential.
fuel duty derogation for producers who refine less than 2,500
litres per year should be abolished. The derogation does nothing
to incentivise the use of high-quality, sustainable biodiesel,
but poses a health and safety risk and has facilitated the rise
of a black market industry and a spate of oil thefts.
3. THE 20P
3.1 The environmental benefits of biodiesel
made from UCO
UCO is a recycled waste product which has, in the
past, been disposed of down the drain. The UK has traditionally
had a big problem with the illegal disposal of waste cooking oil.
It costs utility companies £15 million to clear the estimated
150,000 blockages per year caused by oil and grease that has been
poured down the drain.
Biodiesel made from UCO is acknowledged to be one
of the most sustainable forms of transport fuel. Figures from
the Renewable Fuels Agency suggest it can deliver emission reductions
savings of 84% when compared to fossil fuels, and this is considered
to be a conservative estimate. Our own measurements using ISO
14064 show savings of 95% for our own biofuel products.
As UCO is a waste product it avoids a host of contentious
and negative effects traditionally associated with biofuels, such
as Indirect Land Use Change and the displacement of agricultural
land for the growth of food crops. Its benefits should therefore
be considered independently of any analysis of the environmental
impacts of biofuels, which have tended to focus exclusively on
first generation fuels made from virgin crops.
3.2 The 20p fuel duty differential for biodiesel
made from UCO
Biodiesel produced from UCO currently enjoys a 20p
per litre fuel duty differential compared to regular diesel.
This has been largely successful in promoting the use of waste
derived bioliquids in transport fuel and ensuring that waste oil
is not illegally poured down the drain. By creating stability
and market certainty it has given investors the confidence to
plan new projects, and the clear cost benefit has encouraged many
large companies to switch their captive fleets to biodiesel.
It has also helped drive waste collection and renewable energy
creation, allowing businesses to research new conversion techniques
and train employees in the green skills that will be required
for future innovation.
3.3 The Renewable Transport Fuels Obligation
This good work is in danger because of the impending
abolition of the 20p differential. This is a retrograde step that
will have a severe impact on the biodiesel industry and potentially
negate much of the investment that has been made in renewable
The previous Government said it hoped that the Renewable
Transport Fuels Obligation (RTFO) would provide the main support
mechanism for the sustainable biodiesel industry after the differential
is abolished. However, there are a number of flaws with the RTFO.
The system treats biodiesel in the same way as bioethanol, when
in fact the supply chain and markets for their feedstock are completely
different and so not suited to be transposed onto the same scheme.
Certificate prices have been fluctuating considerably in recent
years, with some suppliers being unable to redeem their obligation
or secure any value for the biodiesel they have produced. The
fluctuations in certificate values make it difficult for investors
to plan new projects and assess the incomes streams they are likely
to derive from the scheme. This is acting as a barrier to investment
and a disincentive to take advantages of the opportunities offered
by the renewables sector.
The DfT is currently consulting on whether to offer
biodiesel made from waste, such as UCO, double certificates under
the RTFO. While we welcome this proposal and believe that it
will, at current levels, partly negate the loss of the duty differential,
the problem is that the fluctuations in certificate prices detailed
above make revenue streams highly uncertain. Based on past trading
data, double certificates could see biodiesel made from UCO incentivised
by anything from 0p per litre to 60p per litre. This will lead
to big changes in trade flow and make it more difficult for producers
to plan investment in renewable energy projects over the medium
and long term.
The RTFO is a complicated and expensive system to
run, requiring frequent monitoring and reporting by the Renewable
Fuels Agency. It is complex to understand and requires significant
time on the part of business to calculate estimated cash flows.
The duty differential requires no such time and effort on the
part of business and is simple for the Government to administer.
It does not require an expensive quango to run it, and at a minor
cost of £10 million per annual it is equivalent to the amount
spent on empty office space in Whitehall.
When differential is abolished in April 2012, biodiesel
from UCO will suddenly become 20p per litre more expensive. This
is a huge increase and means that biodiesel produced from waste
will become more expensive than regular fossil fuels. As no vehicle
modifications are necessary to switch from biodiesel to regular
diesel, demand is highly price sensitive and so there could be
a huge impact on the sector within a very short space of time.
Even with the offer of double certificates, the RTFO as is currently
set up is not a suitable incentive scheme due to the wildly fluctuating
levels of support that it entails. This clearly demonstrates that
the decision to abolish the differential is in stark contrast
to the Government's stated green objectives.
3.4 The lack of a joined up strategy on biodiesel
The Government's Gallagher Review into the impact
of Indirect Land Use Change recommended that biofuels production
must target the use of waste and residues as fuel, while the Renewable
Energy Directive says that biofuels produced from wastes are especially
desirable. The Treasury's Tax Policy Making Handbook notes that
the tax system needs "simpler, greener and fairer".
The differential meets every one of these requirements, and yet
it is notable that there is still some policy uncertainty about
Although the RTFO is currently under consultation,
the paper does not consider the future of the differential or
any other tax measures as they fall outside the remit of the DfT,
while the flaws in the RTFO remain outside the Treasury's sphere
of interest. This approach to biodiesel incentives makes joined-up
policymaking difficult and is preventing the industry from reaching
its full potential.
3.4 Our recommendations
Agri Energy believes that the sustainable biodiesel
industry has the potential to contribute greatly to the UK's diverse
energy mix and promote a growth in green jobs and scientific development
that can help make our country a world leader in low carbon technology.
However, in order to do this the industry requires stability
and market certainty. This could best be achieved by:
the longer-tem, launching a review into the future of the RTFO,
which would be wide ranging and include consideration of the various
biodiesel tax incentives, with a view to ascertaining the best
mechanism for supporting the industry.
the shorter-term, committing to some sort of stability mechanism
for the RTFO which will negate the negative impact of certificate
price fluctuations. This could be in the form of an extended
differential, a minimum price for RTFO certificates, or double
certificates plus the 20p differential, with a requirement to
provide one of the certificates to the Treasury.
4. THE FUEL
In the 2007 Budget, it was announced that motorists
who refine or used less than 2,500 litres of biodiesel per year
to run their cars would be exempt from paying fuel duty. This
was in response to unflattering news reports of police officers
and tax inspectors staking out supermarkets and sniffing exhaust
fumes to identify drivers that were buying cheap cooking oil and
pouring it straight into their tanks.
However, while the benefits for amateur producers
of biodiesel were widely promoted, small scale biodiesel has in
recent years grown into a lucrative, underground industry, with
many small scale producers selling their product illegally and
ignoring the 2,500 litre limit, costing the Treasury tens of millions
of pounds in lost revenue.
Rather than provide a tax break for those who run
their family cars on domestically refined biodiesel, the derogation
has had the effect of removing many biodiesel producers from regulatory
oversight and the tax system entirely. These small scale producers
who "drop out" of the system frequently refine far more
than the allowed 2,500 litres, creating unfair competition for
larger producers that do pay tax and who must adhere to strict
health, safety and environmental standards. This is putting further
pressure on legitimate producers in addition to the uncertainty
More urgently, the proliferation of domestically
refined biodiesel, which contains dangerous combustible elements
and by-products, poses a serious health and safety threat to those
involved as well as to the environment, unless it is produced
as part of a strictly controlled and monitored process. Amateur
production of biodiesel is strongly discouraged by the health
and safety executive, and so its promotion through a tax benefit
is again evidence that the Budget has not benefitted from joined-up
thinking in its approach to green taxes.
4.1 The dangers of home produced biodiesel
(i) The threat to producers
It is possible to buy a small processor for as little
as £995, or lease one for £7 per week, which can produce
as much as forty litres of biodiesel a day. However, making biodiesel
is an extremely hazardous process as it involves the use of dangerous
chemicals and the risk of fire and explosion. The Health and
Safety Executive recommends that it only be carried out in controlled
conditions by people with suitable qualifications and experience.
Biodiesel production involves the use of sodium hydroxide and
methanol. Sodium hydroxide is extremely corrosive and can cause
burning to unprotected skin and potential blindness if used incorrectly.
When stirred it produces a fine mist which if inhaled or swallowed
can cause major damage to the throat lining and digestive system.
Methanol is a toxic chemical and cumulative poison which, if its
vapour is breathed, can lead to blindness and damage to the central
(ii) Risk of fire and explosion
There is a serious risk of fire and explosion when
refining biodiesel because methanol is highly flammable at just
17ºC and there are many potential sources of ignition in
most homes, such as plugs and appliances, open flames and smoking
materials. Violent chemical reactions, leading to explosions,
have occurred owing to amateur producers making a mistake in the
recipe, pouring the chemicals in the wrong order, poor mixing,
or making too much at once.
(iii) The danger to the environment
Black market biodiesel often fails to meet stringent
criteria for environmental sustainability and greenhouse gas emissions
set out in UK and European law. Biodiesel sold in the UK must
meet European standard EN14214but it is simply not possible
to meet this standard using small processors. There is no guarantee
that the feedstock used for the biodiesel has been sustainably
sourced. The chemicals listed above can cause significant harm
to humans and wildlife if they are breathed or touched.
(iv) Theft of cooking oil
The increase in small scale biodiesel production
has seen a corresponding increase in the theft of cooking oil.
Agri Energy estimates that theft from its customers and suppliers
is equal to the loss of duty on 12.5 million litres of biodiesel
per annum. Extrapolating this to the total UK volume of waste
cooking oil, thought to be around 120 million litres per annum,
means a loss of duty on 30 million litres of biodiesel.
4.3 Our recommendations
As detailed above, Agri Energy believes that sustainably
sourced biodiesel has a crucial role to play in helping the UK
meet its targets for emission reductions and an increase in the
amount of fuel generated from renewable sources. However, biodiesel
production is a complex process that should only be carried out
by suitably trained professionals. Far from helping amateur producers
of biodiesel who wish to run their family cars on vegetable oil,
the duty exemption for those who refine less than 2,500 litres
of biodiesel has facilitated an underground market in which much
larger quantities are sold, avoiding all tax and regulation.
This not only creates unfair competition for responsible, larger
producers like Agri Energy, but deprives the Treasury of millions
in lost revenue, and increases the likelihood of serious accidents
that may lead to severe contamination of the environment or health
and safety risks to "garden shed" producers.
Agri Energy would like to see a level playing field,
where all biodiesel producers are required to pay duty and take
their health and safety and environmental responsibilities seriously.
We therefore recommend that:
fuel duty exemption for those who produce less than 2,500 litres
per year is removed. If it were replaced with an extension of
the duty differential mentioned above, then sustainable and reputable
producers would still be incentivised for the fuel they produce,
but the Exchequer would no longer subsidise poor quality fuel
produced from unregistered or stolen oils.
issue should be examined as part of the review of biodiesel incentives
detailed above, which would have a remit to examine where tax
policy was contradicting the policy approaches taken by other
Whitehall departments and agencies.
18 April 2011