DfT floats weak biofuels target - but looks ahead to an obligation

The Department for Transport has proposed a target for biofuels sales in 2005 which is little more than "business as usual" - and well below an indicative EU target.1 However, it is looking increasingly likely to set an obligation on fuel suppliers to increase sales of biofuels later in the decade.

A major driver of biofuels policy is an EU Directive which sets indicative targets for liquid biofuels to contribute 2% of road transport fuel in 2005, rising to 5.75% by 2010 (ENDS Report 340, p 57 ). However, Member States are free to set their own targets - and the Treasury has already signalled that it is prepared to aim lower than the EU "reference values" (ENDS Report 345, pp 38-39 ).

The DfT has now proposed that the UK's target for 2005 "should be based on our best projections of biofuels sales by the end of 2005, based on Government support announced in the recent Budget." The target therefore appears to be little more than "business as usual" - not least because the Budget offered few new concrete measures (ENDS Report 350, pp 28-30 ).

The DfT's current estimate is that monthly biodiesel sales could be "as much as" 12 million litres by 2005. The DfT emphasises this would require a "significant expansion" from present sales of around 2 million litres per month.

However, a target at this level would correspond to just 0.3% of total fuel sales - less than a sixth of the Directive's indicative target.

The biofuels industry will be disappointed that the Government is offering no extra help to meet a more ambitious 2005 target. Biodiesel - most of which is currently made from waste vegetable oils - has had a duty differential of 20p/litre over conventional diesel since 2002. The same incentive will apply to bioethanol from January 2005, but as yet none of this fuel is being produced.

The DfT expects biodiesel sales to increase steadily throughout 2004 and more rapidly throughout 2005, when Argent Energy's new plant near Motherwell will start producing 50 million litres per year. Last month, green fuels supplier Greenergy announced plans for a biodiesel plant with an annual capacity of 100 million litres (ENDS Report 351, p 17 ). The Biofuels Corporation also plans to produce biodiesel on Teesside (ENDS Report 343, p 11 ).

The DfT plans to consult "in due course" on setting a 2010 target, taking advantage of the Directive's July 2007 deadline for this. However, it says, meeting the level of biofuels sales envisaged in the energy White Paper for 2020 "would imply biofuels contributing at least 2% and possibly as much as 5% of road fuel sales by 2010" (ENDS Report 338, pp 26-32 ).

The industry is confident that it could deliver a 5% target for 2010 "given sufficient support". This would reduce carbon emissions by 1 million tonnes - some 3% of total road transport emissions.

The consultation does offer some hope for extra support beyond 2005 - and the Government is "particularly keen" to hear views on a renewable transport fuels obligation. Indeed, it has accepted the case for an amendment to the Energy Bill to allow this (see pp 35-36 ).

The paper is vague on the details. An obligation "might" be placed on refiners, blenders or importers. The DfT says an obligation could be "relatively straightforward" with penalties for non-compliance, or a tradable system along the lines of the renewables obligation.

With the existing 20p/litre duty differential, an obligation for a 5% biofuels blend would add just 0.04-0.05p/l to pump prices for all fuels. If the duty differential were scrapped, an obligation would increase prices by 1.22p/l.

The DfT moots a voluntary agreement as a less complex alternative to an obligation. However, early consultation with the fuel industry "has indicated that they do not favour a voluntary approach".

The consultation also asks for views on whether enhanced capital allowances or capital grants should play a part, although the latter would be limited to certain regions.

"Today's biofuels are expensive and are likely to remain so to at least 2010," the DfT says. With the exception of biodiesel produced from waste vegetable oil, saving a tonne of carbon from biofuels will cost £350-750 in 2010. In contrast, generating electricity from energy crops will cost £220-£480/tC, and offshore wind power will cost £240-380/tC.

Despite the high cost, long-term climate change objectives could require a shift to renewably produced fuels. "Investment in today's biofuels could be a stepping stone to the development of tomorrow's very low carbon biofuels industry," the DfT says.

The consultation also asks whether nascent technologies - such as the Fischer-Tropsch process for biodiesel and gasification for bioethanol - should receive research and development funding.

The consultation also addresses environmental concerns. Research indicates that increased biofuel production from a broad mix of arable crops "would have a broadly neutral effect on the farmed environment" in the UK, it says.

The DfT acknowledges worries about deforestation in countries producing palm oil for export to the UK (ENDS Reports 342, pp 24-27  and 343, p 11 ). Imported fuel such as palm oil is cheaper than UK fuel sources and is "likely to predominate in the shorter term".

"Clearly the UK would want to avoid an outcome whereby measures introduced to mitigate one environmental problem simultaneously resulted in significantly contributing to another," the DfT says. "However, given the international nature of the problem, it is not clear whether there are real practical measures that might achieve this - at least in the short term."

In principle, an obligation could favour more sustainable sources. However, "the added administrative cost and complexity, and the potential for conflict with trade rules could make this impractical in the shorter term."

For similar reasons, the Government is not minded to introduce a mandatory certification system to verify carbon savings from biofuels. Greenergy already operates a voluntary scheme.

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