DfT inches towards obligation on renewable transport fuels

"Biofuels could tick so many of the boxes when it comes to replacing fossil transport fuels," Transport Minister Stephen Ladyman told a conference in July.

In the 2003 energy White Paper, proposals for supporting non-fossil transport fuels were restricted to lower duty rates. The White Paper estimated that with such support "biodiesel and bioethanol could account for up to 5% of total fuel use by 2020".

So far, however, fuel duty incentives have increased biofuels penetration to just 0.03% (around 12 million litres per month).

This is not fast enough to satisfy the fledgling biofuels industry, or to fulfil the requirements of the EU biofuels Directive which sets indicative targets for Member States to supply 2% of the petrol and diesel markets from renewable sources by 2005.

The European Commission has already begun legal action against the UK, on the grounds that the 0.3% target for 2005 is too low.

However, the Department for Transport has been making slow but steady progress towards a biofuels obligation. This idea was introduced in an amendment to the Energy Act 2004, promoted by the British Association for Biofuels and Oils.

It would require companies to prove, by presenting electronic certificates to a regulator, that a set proportion of the fuel they sold had come from renewable sources, or else pay a "buyout" fine. Certificates would be tradable, so companies would have a financial incentive to beat their target.

However, the DfT's Adrian Berry told the conference that a biofuels obligation would be "very complex, and we can't just rush in".

A consultation last year has been followed by a feasibility study, which Mr Ladyman said would be published after the summer recess. He said he hoped to make a firm commitment after the study is published - and that any obligation would have to "build into" the review of the Government's climate change programme, now delayed to the end of the year.

Several fundamental aspects of an obligation remain to be settled - including who it should be place on. Respondents to the 2004 consultation favoured fuel suppliers and distributors - but the DfT says that "it wasn't always clear precisely who 'suppliers' were considered to be."

The easiest option, suggested Michael Lyttle of HM Revenue and Excise, would be the "duty point" where fuel enters the market from a refinery or import terminal. But in July Stephen Ladyman was still asking which markets an obligation might encompass: "logistics, fleet, public...?"

As to the target, Philip Wolfe of the Renewable Energy Association said: "It needs to be ambitious to act as a driver. But keep it simple - for the renewables obligation [on electricity suppliers] we have spent three years looking through a sea of red tape."

British Sugar's Karl Carter said the Government "seems set" on a 5% target. Shell outgoing chairman Lord Roxburgh said this was "absurd", pointing out that his company sold 2 billion litres of biofuel last year.

However, Mr Ladyman argued that "we have to incentivise the right kind of biofuels" - citing examples where forest has been sacrificed to energy crops. In 2004 the Low Carbon Vehicle Partnership assessed the "well to wheel" impacts of producing bioethanol - and found that potential CO₂ savings were as low as 10% if fossil sources were used for transport, processing and fertilising the crop (ENDS Report 358, pp 54-55 ).

The likely answer to such concerns is an accreditation scheme for suppliers. However, the RPA's Philip Wolfe said "accreditation is very important but should not become a major part of the red tape of an obligation. Hard-wiring it into the legislation could cause problems."

The Treasury is already investigating a qualifying standard, based on a life cycle assessment, to accompany a scheme for enhanced capital allowances for biofuel manufacturing installations that achieve an "environmentally beneficial" performance in terms of greenhouse gas savings. The measure was promised in the 2005 Budget.

Meanwhile, the Treasury has invited tenders for a five-year pilot scheme to support new technologies that incorporate biomass during the refining process. Fuel from such processes is indistinguishable from normal low-sulphur diesel for customs purposes, so does not qualify for the reduced fuel duty on biofuels.