Written evidence submitted by the UK Sustainable
This paper has been prepared by the UK Sustainable
Biodiesel Alliance (UKSBA) as a submission to the Environmental
Audit Select Committee's inquiry into the 2011 budget and environmental
taxes. The UKSBA is the representative body of the sustainable
biodiesel industry in the UK.
This submission has been put together to help the
Committee consider the impact of the Budget on the UK's sustainable
biodiesel industry and to ascertain whether it helps to further
the Government's green objectives and contribute to a "modal
shift" from high carbon transport to low carbon alternatives.
Our paper provides an overview of the sustainable biodiesel industry
and outlines UKSBA members' concerns about the announcement in
the budget that the fuel duty differential, currently available
to producers of sustainable biodiesel, is to be abolished in April
The current 20p duty differential for biodiesel produced
from Used Cooking Oil has been a tremendous success in providing
stability for the sector, promoting investment, training, employment
and technical innovation in a vital part of the renewable energy
industry. It has also had the added effect of helping to reduce
the UK's carbon emissions and increase effective waste management.
It provides value for money well beyond its modest £10 million
cost to the Exchequer, and serves as a case study of how well
targeted fiscal measures can drive behavioural change, private
sector innovation and job creation.
However, the announcement in the Budget that the
differential is to be abolished from April 2012 is likely to have
a severe negative impact on the sustainable biodiesel industry.
While the UKSBA welcomes the proposal to offer double certificates
for biodiesel from waste under the revised Renewable Transport
Fuels Obligation, the large fluctuations in certificate values
under the scheme mean that the mechanism is not adequate or stable
enough to replace the tax differential. For many producers future
revenue streams would become highly uncertain and many small producers
would go out of business under the RTFO alone, negating the investment
that has been made in rolling out the use of sustainable and renewable
The UKSBA is concerned that, as incentives for waste
derived biodiesel fall under the remit of four different departments
- the Treasury, Defra, the Department for Transport and the Department
for Energy and Climate Change - there is a lack of policy coordination
and joined up thinking on support for the sustainable biodiesel
sector. This has created an uncertain tax and regulatory landscape
which acts as a barrier to investment in green jobs and growth
and poses a threat to the future of the industry.
The UKSBA would like to see a wide ranging review
on the best way to incentivise sustainable biodiesel, which would
consider the right level of support. This could be Treasury led
with input from the DFT, DECC and Defra, and should consider the
effectiveness of the RTFO as well as the future of the duty differential,
with a view to ensuring that the industry can continue to play
its part in the UK's diverse renewable energy mix.
3. BIODIESEL FROM
OIL: A CLEAN
There are around 250 million litres of UCO produced
in the UK every year. The UK currently has no collection of UCO
from domestic premises provided by a national body or by a majority
of local authorities, and so a high proportion of this oil is
disposed of down the drain or sent to landfill. Defra estimates
that 150,000 blockages per year are caused by fat, oil and grease
being poured into the drains, at cost to utility companies of
£15 million per annum. Meanwhile, landfill sites produce
40% of the UK's methane emissions and 3% of the UK's greenhouse
Biodiesel manufactured from UCO is one of the most
sustainable fuels available for transport and heat and power systems.
Its use can reduce lifecycle carbon emissions by up to 90%. The
use of UCO in biodiesel is already making a valuable contribution
to meeting the UK's stringent renewable energy targets and is
helping to reduce the amount of waste disposed of illegally or
in an unsustainable manner. Some 34 million litres of biodiesel
were manufactured from UCO sourced in the UK and then used in
road transport in 2009-10, delivering a carbon saving of 82 million
Kg of C02. With the potential to access 250 million
litres of UCO in the UK, more can be done if the industry is given
4. THE 20P
Currently, biodiesel produced from UCO enjoys a 20p
per litre duty differential when compared to mineral diesel. In
2008, the Government announced that it intended to abolish this
differential from April 2010. This was done, not out of economic
considerations, but out of a fear that tax incentives for biofuels
were encouraging deforestation, land use change and rising food
prices in the third world. However, as a waste product, these
concerns do not apply to biodiesel produced from UCO. Following
an extensive campaign by the UKSBA, it was announced that the
differential would continue until April 2012 for biodiesel produced
The relatively modest cost of maintaining the tax
differential for biodiesel made from UCO, estimated at some £10
million in the March 2010 budget, has provided excellent value
for money and been successful in providing stability for the biodiesel
industry. It has had the effect of: increasing UCO collections
and driving the retrieval of other forms of waste; encouraging
vehicle fleet managers using high blends of biodiesel to increase
their use and so reduce transport emissions; and helping drive
employment, research and the creation of a "green collar"
skills base in a sector that is expected to be worth some £150
billion to the UK economy in the coming years.
5. THE RENEWABLE
The previous Government announced its intention to
replace the duty differential with the Renewable Transport Fuels
Obligation (RTFO), a scheme which obliges the larger fuel providers
to source 5% of the fuel they use from biofuel by 2014 or buy
out of the requirement by purchasing tradable certificates from
biofuel suppliers. However, owing to the requirements of the Renewable
Energy Directive, the RTFO is currently under consultation. Further
EU reviews of the RED will mean more revisions of the RTFO up
to 2014 and continuing uncertainty. A drafting error in the initial
RTFO meant that an incorrect obligation level was set in 2008,
causing certificates to trade at near zero value.
In its current consultation, the DFT has proposed
to award double certificates to biodiesel made from waste. This
is in order to meet the requirements of the RED that energy from
waste be counted twice towards the UK's renewable energy target.
However, certificates traded under the RTFO fluctuate in value,
revenue streams are highly volatile and can be as low as zero
- double nothing is still nothing. The market value of certificates
is affected by a myriad of global factors, for example when obligated
suppliers import biodiesel and bioethanol from countries where
the fuels are subsidised to meet their obligation, rather than
purchasing certificates in the UK.
In the last few years, certificates have been trading
at well below expected value, and several UKSBA members have been
unable to sell any certificates even through brokers and auctions.
One member had certificates relating to production of over three
million litres of biodiesel, but was unable to obtain any value
for them from the obligated suppliers. Another member, who produces
approximately 300,000 litres per month, was receiving £25,000
per month in 2008, but nothing at all in 2009, and went from profit
to a loss on the production of biodiesel.
An additional impact for producers will be the proposal
under the revised RTFO that certificates will only be able to
be traded once they have been independently verified. This adds
to producer cost, but also impacts cash flow as there will be
several month delay on cash received to fulfil that requirement.
The uncertainty surrounding the RTFO makes long-term
planning in the industry difficult and creates a lack of market
certainty that discourages the capital investment and skills training
necessary for renewable energy projects to get off the ground.
Without the stability offered by the differential or a minimum
certificate price, the investment climate and prospects for the
biodiesel sector will be extremely challenging.
Although the proposal for double certificates is
currently out to consultation, the consultation paper is very
limited in its scope, focusing more on how we can meet the requirements
of the RED rather than how the sustainable biodiesel industry
can be best supported. The DfT states that the duty differential
is a matter for the Treasury, and so is outside the scope of the
consultation, while the Treasury has said that any representations
on the RTFO are a matter for the DfT. This indicates that policymaking
is not being carried out in a holistic manner in cases where environmental
taxes cut across different departments.
6. THE DANGERS
If the 20p fuel duty differential is removed in early
2012 the impact on obligated suppliers using less than 5% bio-fuel
will be minimal. However, for high-blend users - captive fleets
such as McDonalds, 3663 and the Environment Agency - who use much
higher blends (up to B100), biodiesel will suddenly become 20%
more expensive, and so more expensive than mineral diesel. These
high-blend users, operating on a 2% margin, will not be able to
absorb this huge increase in fuel costs and will be left with
no choice but to abandon their green commitments and return to
fossil-based fuels. With this fall in demand, the RTFO far from
embedded, and with certificate prices fluctuating, many producers
will come under cost pressures or close, shedding jobs and reducing
the opportunities for practical skills and training in green skills,
as demand for fuel expires. As there are no vehicle adjustments
necessary for captive fleets, this could happen literally overnight.
This lack of certainty makes business planning impossible
and denies the sector vital investment opportunities. In August
2010, the CBI estimated that the UK is missing out on some £150
billon of investment owing to a lack of policy certainty, and
the Secretary of State for Energy and Climate Change, Chris Huhne,
has said that the global, low carbon economy will be worth some
£4 trillion by 2015 with one million people in the UK potentially
employed in the sector by the end of the decade.
7. THE BENEFITS
The production of and research into biofuels is a
new and rapidly changing area. UKSBA members have built up considerable
levels of green skills in the workplace, but with the removal
of the differential, some 3,000 direct and indirect jobs could
be lost over a five year period. The loss of these green collar
and low carbon skills from a developing industry with much higher
levels of research and development and training than most traditional
industry sectors would seriously impede the development of the
renewable energy sector in the UK.
7.1 CHEMISTRY SKILLS
The chemistry skills required to produce biofuels
and meet quality standards is a complicated and developing area
of expertise. Even chemists who have qualified in green and organic
chemistry need to be trained for up to six months to operate an
on-site laboratory. At present, all training is in-house within
the private sector, with only general courses publicly available.
7.2 RESEARCH AND
The methods of producing biodiesel and associated
products are continually developing. Several companies have research
and development arms which are looking to extend the associated
products manufactured and types of feedstock capable of being
processed into sustainable biofuels. This research is dependent
on the cooperation of different organisations and the funding
from profitable biodiesel companies to continue. If the duty differential
is removed, many companies will no longer be profitable and research
and potential advances in new technology will be lost.
7.3 BIODIESEL PRODUCTION
All production personnel in the biodiesel industry
are required to undergo extensive training to produce biodiesel
and understand the factors which affect the quality of production.
Almost all employees involved in production are trained in-house
as external courses are not available on the specific requirements
of the industry. This is unlikely to change any time soon as the
specific requirements required by producers can vary dramatically
from company to company. The full training of production staff
will usually take six to nine months.
8. THE BENEFITS
From an initial base of UCO collection, customers
will often demand more extensive waste collection as part of their
service - for example, glass, cardboard and food waste. In Cheshire,
Cheshire East and Cheshire West local authorities are now offering
waste oil collection vessels at their recycling centres for domestic
customers to dispose of their waste cooking oil - a scheme which
other local authorities are now expressing an interest in developing.
The stability offered by the tax differential has created a platform
for growth, which allows producers the certainty to invest in
new services and respond to market demand.
9. THE BENEFITS
The UK is currently ranked 25th of the 27 EU member
states in the production of renewable energy and the Public Accounts
Committee have commented that meeting EU targets is "unacceptably
The Secretary of State anticipates that sustainable
bioenergy, including UCO based biodiesel, could contribute up
to half of the UK's target of 15% renewable energy by 2020 - a
greenhouse gas saving of 20 million tonnes of C02 equivalent
by 2020. He also states that sustainable bioenergy is vital to
the UK's security of supply, as bioenergy is one of the few renewables
that can generate energy on demand.
The tax support offered to UCO based biodiesel is
already working to achieve that aim.
10. THE BENEFITS
While the Treasury estimated the cost of the 20p
fuel duty differential at £10 millon per annum in the March
2010 budget, industry estimates in 2009 suggest that, as a result
of enforced business closures, some £36 million in VAT, corporate
and personal tax revenues could be lost each year if the differential
was to be removed. Over the next five years, based on the planned
increase in production capacity, the expected tax revenues lost
to the Government could increase three-fold, meaning £100
million would be lost to the Treasury.
11. ABOUT THE
The UK Sustainable Biodiesel Alliance is the representative
body of the sustainable biodiesel industry, led by waste to energy
company Convert2Green Ltd. UKSBA members produce biodiesel from
Used Cooking Oil (UCO), widely recognised as one of the most sustainable
forms of renewable energy, and must meet the Renewable Fuels Agency's
Qualifying Standard for sustainability, either for the biofuel
they use or the biofuel they produce. Associate members must be
either producers who have achieved the Qualifying Standard or
better for a proportion of the biofuel they produce, and who are
committed to achieving the standard for all their fuel, or organisations
that actively support the use of sustainable biofuels.
The RFA Qualifying Standard is a carbon and sustainability
reporting system for biofuels based on a full lifecycle analysis
of emissions throughout the production chain. Fuels meeting the
environmental standard must be sourced with regard to protecting
biodiversity, carbon stocks, and soil, air and water quality.
To meet the social standard, employers' rights and land rights
must be protected.
12. ABOUT THE
UK BIODIESEL INDUSTRY
There are some 37 medium and large biodiesel producers
in the UK using waste products such as UCO to produce fully sustainable
biodiesel for use in transport and in heat and power generation.
Customers include larger petrol companies who use low blend biodiesel,
to large organisations such as the Environment Agency, McDonald's
and 3663, who run their captive vehicle fleets on high blends
of biodiesel with mineral diesel. Power customers include NHS
trusts, which use on-site micro generators, run on UCO based bio-fuels,
to power their buildings. These customers are also able to become
suppliers of renewable energy to the national grid.
Biodiesel producers create local employment opportunities
and are developing the green skills vital to the UK's low carbon
economy, including green chemistry, research and development and
specialist production skills. As customer demand for the retrieval
of other waste streams increases, these skills are being adapted
to drive future renewable energy development from waste, such
as anaerobic digestion from food waste. In addition, producers
are working with local authorities to set up waste oil collection
and recycling centres for domestic households - a new service.
The majority of biodiesel producers are based in
traditionally industrial areas of the UK. One example of a larger
producer would be Argent Energy Ltd, based in Motherwell, Scotland,
with a production capacity of 50 million litres per annum and
employment of 88 people, while an example of a medium sized producer
is Convert2Green Ltd, with a production capacity of 13.2 million
litres and employing 30 people in Middlewich, Cheshire.
13. CONCLUSIONS AND
The Government has expressed its desire to be the
"greenest government ever", increasing low carbon investment,
making progress towards a greener tax base and using fiscal measures
to drive behavioural changes that help to meet the UK's environmental
objectives and reduce carbon emissions. The sustainable biodiesel
industry, which has been driven by the market certainty and stability
of the duty differential, is currently playing a key part in meeting
When considering the remit of the Environmental Audit
Select Committee's inquiry, the following conclusions can be drawn
from the evidence submitted above:
2011 Budget does not further the Government's green objectives.
By adding an additional 20p per litre fuel duty onto the greenest
and most sustainable form of renewable transport fuel, it threatens
to cripple a nascent industry that is driving the way forward
in promoting low carbon transport, green skills and growth, and
a reduction in carbon emissions.
an additional 20p per litre fuel duty onto sustainable biodiesel
directly contradicts the Government's stated intention of shifting
the burden of taxation from "goods" to "bads".
removal of the differential not only fails to create a "modal
shift" from high carbon transport to low carbon alternatives,
but actually discourages such a behavioural change.
Going forward, the UKSBA believes the duty differential
is the most simple, effective and transparent incentive for sustainable
biodiesel producers in the UK. However, we are disappointed that
the division of interest in sustainable biodiesel policy between
the Treasury, Defra, the DfT and DECC continues to inhibit coordinated
policy development, and that decisions on the best tax regime
for the industry are not being taken due a lack of joined-up working
between the Treasury and the DfT.
With this in mind, the UKSBA would therefore suggest
that the Environmental Audit Committee make the following recommendations
to the Government:
Government should commission a Treasury-led, wide ranging review
of sustainable biodiesel incentives, which seeks to identify the
role that waste derived biofuels can play in the UK's renewable
energy policy and the right form and level of incentives for the
review would encompass stakeholders from the DfT, Defra and DECC
and consider the effectiveness of the RTFO alongside the future
of the duty differential.
provide stability following the implementation of the new RTFO
in December 2011, the Government should consider an extension
of the differential beyond April 2012 until the new RTFO has had
a chance to prove itself as a viable support mechanism for the
19 April 2011