47th REPORT: THE EU STRATEGY ON BIOFUELS:
FROM FIELD TO FUEL
Department for Transport's Response
The Government welcomes this report from the
House of Lords European Union Committee, which makes a valuable
contribution to the debate on the European strategy on biofuels.
The Government is fully committed to the promotion of sustainable
biofuels which have a key role to play in helping to meet the
UK's climate change targets, as well as delivering other benefits,
including adding to the UK's fuel diversity and generating employment,
particularly in rural areas.
The Government broadly agrees with the great
majority of the conclusions and recommendations of this report.
Indeed, many of the points made in the report have also been made
by the Government to the European Commission in our response to
the consultation on the future of the Biofuels Directive.
Within the UK biofuel sales, production and
availability have grown substantially during 2005 and 2006, and
biofuel sales are currently running at 0.5% of total fuel sales,
a ten-fold increase since 2004. The Government agrees with the
findings of the Committee that additional measures will be necessary
to ensure a mainstream biofuel market. This is why, in November
2005, the Government announced it would introduce a Renewable
Transport Fuel Obligation (RTFO) that will require transport fuel
suppliers to ensure that a proportion of their sales are from
renewable sources. The RTFO will be introduced in 2008-09 with
the obligation level rising to 5% by 2010-11. We estimate that
this policy alone will save one million tonnes of carbon in 2010,
the equivalent to taking one million cars from our nation's roads.
The Government is exploring the possibility
that the level of the Obligation could rise above 5% after 2010-11,
but this will depend on three critical factors being met:
the development of robust sustainability
and carbon standards for biofuels to ensure that they are delivering
high levels of carbon savings without leading to biodiversity
loss or endangering sensitive habitats;
the development of new fuel quality
standards at EU level to ensure existing and new vehicles can
run on biofuel blends higher than 5%; and
the costs to consumers being acceptable.
The Government believes. that requiring a 5%
share of biofuels, the highest inclusion rate allowable under
EU fuel quality standards, will move the UK biofuel market from
a minor niche market to the mainstream in the shortest practical
The Government notes the conclusion of the Committee
that the RTFO has "great merit". The UK is also committed
to developing reliable ways of ensuring that the carbon and wider
environmental aspects of biofuel production are properly addressed.
To this end, the RTFO will include from day one a requirement
to report on the carbon saving and wider sustainability of the
biofuels supplied. The Government has commissioned the UK's Low
Carbon Vehicle Partnership to develop a robust and user-friendly
carbon saving calculation methodology for different biofuel production
chains, and a reporting framework and guidance to encourage fuel
suppliers to source their biofuels from sustainable feedstocks.
These issues will also be considered as part of the Government's
Biomass Strategy which will be published later in 2007.
The combination of measures announced by the
UK Government should ensure a strong and sustainable UK biofuel
market by 2010-11.
It is within this context that the following
responses to specific points made by the EU Committee are framed.
8: SUMMARY OF
Chapter 2: Stimulating Demand for Biofuels
141. We welcome the initiative shown by
the EU in adopting reference value targets under the Biofuels
Directive. It is undoubtedly helpful for common targets to have
been established to which Member States have agreed to aspire,
even though without binding commitment. The Directive provides
the Commission with a useful policy instrument through which pressure
may be brought to bear on Member States to increase biofuels production.
142. We consider that in some measure
the targets set within the Biofuels Directives are responsible
for the increased use of biofuels in the EU in recent years. But
the current Directive has failed to enable the EU to reach the
2005 target of a two% market share for biofuels and additional
measures will need to be established if the higher target of 5.75%
market share is to be reached by 2010. (Paragraph 24)
The Government agrees, and has made similar
points to the European Commission in its response to the consultation
on the future of the Biofuels Directive.
Chapter 3: Economic Factors in the Success
of France, Germany and Sweden
143. The governments of Germany and Sweden
are to be commended for the initiative and originality they have
demonstrated in the incentives and exemptions introduced to encourage
the use of biofuels. Implementing a strategy flexible enough to
accommodate both high and low level biofuel blends has produced
significant biofuels market growth in these Member States. (Paragraph
The Government agrees on the need for a flexible
strategy which will allow the market to decide how best to supply
the requisite amount of biofuel. Under the RTFO, obligated companies
will be free to decide whether to meet their obligations through
the use of high or low level biofuel blends. The Government has
also provided support for the use of high blend biofuel applications
through, for example, infrastructure grants to assist with the
installation of new refuelling points, and fiscal incentives to
encourage the purchase of vehicles manufactured to run on high
blends of bioethanol.
144. We welcome the Government's plan
to introduce Enhanced Capital Allowances to enable those biofuel
plants which can demonstrate significant carbon dioxide emission
savings to claim 100% first-year capital allowances on their spending
on qualifying plant and machinery. This is an innovative and important
step towards boosting the growth of the biofuels industry within
the United Kingdom. (Paragraph 37)
The Government has applied for State Aid approval
for an Enhanced Capital Allowance scheme to support the most carbon-efficient
biofuels plants. Following discussions with the European Commission
in summer 2006, the Government launched a further stakeholder
discussion process with interested parties in October 2006 to
update them on progress and gather views on the best way forward.
The consultation process is now almost complete and the Government
will update stakeholders on the position very shortly.
145. Long-term tax concessions are an
effective method of supporting the entry of new biofuels producers.
Legal guarantees on the duration of duty exemptions give certainty
and predictability to investors in the energy market, thus providing
for significant investment and growth. We recommend that the Government
should take note of this and consider what further incentives
can be given within the United Kingdom. (Paragraph 40)
The Government introduced an Alternative Fuels
Framework in the Chancellor's 2003 Pre Budget Report. The purpose
of the framework is to ensure that policy continues to reflect
the environmental benefits that alternative fuels can deliver,
and establish a clear rationale for decisions on Government support.
The principal application of this framework is to policy on duty
differentials for alternative fuels. In line with the principles
set out in the framework the Government has given a commitment
to providing future market stability for alternative fuels, with
the Government committing to a rolling three-year certainty on
the differentials in duty rates on alternative fuels.
146. We note the success of effective
partnerships between government, producers and industries in France,
Germany and Sweden. These relationships provide security to the
biofuels producer that there is a demand for the product and surety
to industry investors that the volumes required can be delivered.
This mutual cooperation is essential to the growth of any industry
and we recommend that the Member States and the Commission consider
what steps can be taken to encourage such partnerships throughout
the European Union. (Paragraph 46)
The Government agrees that effective partnerships
are an essential component of a successful biofuels strategy.
This has long been recognised by the UK Government who have for
several years been developing cleaner transport policies through
established stakeholder groups including the Low Carbon Vehicle
Partnership. The RTFO has, from the outset, been developed in
full partnership with stakeholders and we are confident that it
will encourage collaboration between biofuel producers and their
raw material suppliers.
Chapter 4: The Three Justifications for Biofuels
147. Those Member States which have established
a viable and expanding biofuels industry have done so with energy
security as their prime objective. As energy security becomes
an ever greater political concern, demand for biofuels will grow,
but this is likely to concentrate on biodiesel. This will place
increased pressure on national governments to ensure demand is
met through domestic production or imports. (Paragraph 52)
148. The Government place CO2 saving at
the top of their agenda in relation to the case for biofuels.
If CO2 saving is the primary goal, it is clearly illogical to
use biofuels which have caused the emission of more greenhouse
gases by their production than are saved by their consumption.
We therefore consider some form of carbon certification to be
desirable and we would wish to see the European Commission establish
a European-wide system of certification for both imported and
domestically produced biofuels and feedstocks. (Paragraph 60)
149. On the condition that any new environmental
regulations do not constitute a barrier to free trade or unfairly
restrict the importation of foreign produced biofuel or feedstock,
certification will greatly strengthen the policy case for biofuels.
However, we believe that in relation to the verification process,
the onus should be on fuel companies to account for traceability
rather than the exporting countries. A system of certification
is a viable means of supporting sustainable development and environmental
protection. The EU should draw on best practice and establish
a monitoring and assessment programme that encourages the environmental
lifecycle performance of biofuels to meet minimum standards. (Paragraph
The Government agrees that effective and reliable
assessments of the carbon and wider environmental aspects of biofuel
production need to be developed and have commissioned the UK Low
Carbon Vehicle Partnership to develop appropriate calculation
methodologies for biofuel production chains, as well as a reporting
framework to encourage transport fuel suppliers to source their
biofuels from sustainable feedstocks. Given the global nature
of the biofuels market, we agree that there is an urgent need
for the development of European-wide environmental standards for
biofuels. These points have also been communicated by the Government
to the European Commission in the response to the consultation
on the future of the Biofuels Directive.
150. We believe that governments, farmers,
fuel producers, car companies and oil companies must work together
to create a stable biofuels market supported by long-term agreements.
This in turn will strengthen consumer confidence and lead to greater
awareness and acceptance of biofuels. Whether these coalitions
are led by farmers, as in France, or large multinationals, such
as Abengoa in Spain, the outcome is the same: a strong national
commitment to agricultural economic development through biofuels.
The Government agrees, as noted in our comments
on paragraph 146 above.
Chapter 5: Importing Biofuels
151. If energy security is a nation's
main concern, those countries wanting to replace fossil fuels
with biofuels may understandably seek imports from countries such
as Brazil. A strong international market in biofuels is extremely
valuable. Equally, a strong and competitive European biofuels
industry is strategically and economically important. We thus
support the European Commission's twin objectives of maintaining
fair market access for imported biofuels whilst fostering a successful
domestic biofuels industry. We do not believe that these objectives
are incompatible. (Paragraph 73)
152. While imports to the EU are likely
to constitute a significant proportion of both biofuels and feedstock
for the foreseeable future, further steps will need to be taken
to ensure that the overall environmental benefits of imported
alternative fuels are properly realised. Although biofuel use
produces less carbon dioxide emissions. than use of fossil fuels,
this may be partly, if not wholly, negated by environmental costs
in their country of origin and by transportation to the point
of use. (Paragraph 82)
153. Even though Member States can seek
guarantees from developing countries about the sustainability
of the crops they are importing, accurate monitoring and evaluation
is notoriously hard to enforce. A system of certification is therefore
a viable means of ensuring sustainable development and environmental
protection. Both the biofuels and oil industries clearly view
this development as both necessary and workable. We wish to see
the European Commission begin work on developing a European wide
system of evaluation and certification of the lifecycle environmental
performance of both imported and domestically produced biofuels.
The Government agrees with the Committee's recommendations
on environmental certification, as noted in our response to paragraphs
147-149 above, and we recognise the benefits of having a domestic
industry as well as imports. In the context of the potential cost,
carbon saving and development benefits of increasing international
trade in biofuels, the Government would encourage the European
Commission to consider improving market access for bioethanol
imports over time.
Chapter 6: Building Domestic Industries
154. There is an urgent need for biofuels
production capacity to increase in order to meet future demand
for biofuels. This will require the European Union to develop
an appropriate policy framework and Member States to provide appropriate
incentives to encourage further investment in production facilities.
The Government agrees. Growing demand for biofuels
will require significant expansion in production facilities throughout
the EU. In the UK the Government has been pleased to note industry's
positive response with plans to invest in significant new capacity
following the Government's announcement that it will introduce
an Renewable Transport Fuel Obligation from 2008. We will continue
to work at national and EU level to ensure that the policy framework
is appropriate to support investment.
155. We strongly believe there is a genuine
prospect of bringing into use more EU land, including set-aside,
to grow energy crops, while respecting biodiversity policies.
However, the EU must always remain secure in its food supply.
The Government agrees that there is further
capacity in the EU to grow energy crops, although the effects
of expanded production on food markets will need to be monitored
carefully. Farmers are allowed to grow oilseeds and other energy
crops on set aside land and 76,000 hectares of set-aside land
was used for this purpose in England in 2005. However, the Government
has signalled its view that constraints on production, such as
set-aside, should be eliminated as part of the 2008 CAP reform
"health check". If achieved, this will provide a more
sustainable base for the development of an EU biofuels industry.
156. Our evidence indicates that blending
limits impede progress towards the 5.75% target. The European
Commission should work together with the European Committee on
Standardisation and the oil and vehicle industries to review current
fuel quality standards, with the aim of increasing blending limits.
We urge the European Commission to support changes to the EU Directive
on the Quality of Petrol and Diesel and to set new, higher blending
limits for bioethanol. (Paragraph 101)
The Government agrees, and has made the same
points to the European Commission. The decision to make the level
of the RTFO 5% in 2010-11 recognises the limitation placed by
the blending limit.
157. Car manufacturers have a vital role
to play in supporting the growth of biofuels and any changes to
blending limits must be carried forward in partnership with the
industry. Biofuels are not the only solution to carbon dioxide
reduction in the road transport sector and should not be seen
as a challenge to alternative "clean technologies".
The Government agrees, and is participating
actively in discussions with the European Commission on the review
of the voluntary agreements on CO2 emissions from new cars.
158. With new plants being regularly announced,
and with major oil companies becoming more convinced of the need
to be active in the biofuel market, the issue of integrating biofuels
with conventional fuels is already prominent, and will become
more so. We note with particular interest the development of biobutanol
and hope that industry is able to take this technology forward.
The Government has also noted this development
Chapter 7: Looking Forward
159. Although we do not advocate the use
of subsidies to prop up markets, we acknowledge that, in order
to stimulate initial growth of the biofuels market, Government
intervention and regulation will continue to be necessary in order
to provide long-term assurance to investors that biofuels production
will be financially viable. (Paragraph 113)
The Government agrees and recognises the benefit
the 20 pence per litre duty incentive has had in increasing biofuel
sales in the UK. From 2008, in the UK the RTFO will be the primary
mechanism to deliver a mainstream biofuel market. The RTFO will
provide a long term stable mechanism to establish and safeguard
a healthy UK biofuels market without breaching State Aid rules
which preclude overcompensation.
160. We believe that the RTFO model developed
by the United Kingdom Government is one that has great merit and
we are encouraged that the European Commission is considering
a similar option. We consider that the European Commission should
amend the Biofuels Directive to require Member States to use biofuel
obligations as a tool to achieve national targets. The Commission
must however ensure that distortions in the Single Market do not
arise as a result. If such a situation were to develop, the position
would need to be reviewed and the case for Community-wide compulsory
fuel obligations examined. (Paragraph 123)
161. In present circumstances, however,
we do not consider that biofuel obligations should be imposed
at Community level on each fuel. Rather, by allowing Member States
to select the percentage of the biofuel obligation on a country-by-country
basis while retaining a policy framework of indicative targets
for market share, it strikes a sensible balance between national
rights and responsibilities. Obligations also provide an essential
counterweight to the support received by the biofuels industries
in Brazil and the United States of America, which currently enjoy
a greater degree of Government support than in the EU. (Paragraph
The Government believes that the RTFO is the
best way to ensure that the UK market for biofuels will be amongst
the strongest in Europe by 2010-11, However there is a need to
recognise that similar obligations may not necessarily work for
all Member States who may wish to exercise different options to
meet their obligations.
162. We believe there is scope for second
generation biofuels to become increasingly important and to bring
greater environmental advantages than currently provided by biodiesel
and bioethanol. Further advances in engineering, chemical and
agricultural crop technologies will sustain the progress of biofuels
and it is here that the EU can add real value. By co-ordinating,
financing and organising European research and development as
well as facilitation of good practice, the European Commission
should act as the catalyst to encourage the market to find and
develop new technologies, including the use of by-products and
potential feedstocks now classified as waste. We believe, furthermore,
that Commission efforts in this area of research should extend
to second generation biofuels for aviation, such as synthetic
kerosene. (Paragraph 134)
The Government agrees that the European Commission
has an important role to play in European Research and Development
into cleaner and more efficient biofuels and production processes.
163. It is appropriate that Member States
should have the flexibility to develop bioenergy solutions that
best suit their climatic conditions and agricultural sector. We
recommend that the current system of voluntary targets coupled
with monitoring and assessment by the European Commission be retained.
The present process of setting biofuel market share targets at
five year intervals should also continue, with new targets being
set for 2015 and 2020. (Paragraph 138)
164. However, it is unlikely that the
European Commission will be able to set ambitious yet achievable
targets for these dates until Member States" progress toward
the 2010 target has been assessed. As there is a petrol surplus
and diesel deficit in the EU, consideration should also be given
to separate targets for the two relevant biofuels to ensure balanced
development. (Paragraph 139)
The Government agrees that, for the reasons
set out by the Committee, Member States should have the flexibility
to decide on the most appropriate mix of biofuels to suit their
needs. The Government does not therefore see the need for separate
EU-wide targets for different biofuels.
165. With regard to obligations, we consider
that the European Commission should amend the Biofuels Directive
to require Member States to use biofuel obligations, such as RTFOs,
as a tool to achieve the national consumption targets they have
identified. (Paragraph 140).
The Government believes that the RTFO is the
best way to guarantee a strong and sustainable UK market for biofuels.
The Government recognises, however, that similar obligations may
not necessarily work for all Member States who may wish to exercise
different options to meet their objectives.