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Renewable Transport Fuel Obligations (Amendment) Order 2013

Volume 743: debated on Wednesday 27 February 2013

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Renewable Transport Fuel Obligations (Amendment) Order 2013.

Relevant document: 15th Report from the Joint Committee on Statutory Instruments.

My Lords, the Renewable Transport Fuel Obligations (Amendment) Order 2013 will amend the legislation governing the existing renewable transport fuel obligation scheme. The small group of amendments is significant in our efforts to tackle climate change, and complete our transposition of the EU Fuel Quality Directive.

Article 7a of the FQD requires suppliers to reduce the greenhouse gas intensity of the fuel they supply by 6% by the end of 2020, against a 2010 baseline. This order would extend the RTFO to cover suppliers of liquid fossil fuel for additional end uses required by the FQD. These end uses are: non-road mobile machinery, including inland waterway vessels that do not normally operate at sea; agricultural and forestry tractors; and recreational craft that do not normally operate at sea.

Suppliers of fuel for end uses covered by the RTFO need to demonstrate that, for a certain proportion of the fossil fuel they supply, greenhouse gas savings are delivered through the supply of sustainable renewable fuels. In addition, the amending order would make express provision for an unpaid civil penalty issued under the RTFO to be recoverable as a civil debt, together with interest at a specified rate. This would enhance the effective enforcement of the RTFO.

It may be useful if I provide a brief overview of the regulatory framework so that the proposed changes can better be understood. We have recently introduced the Motor Fuel (Road Vehicle and Mobile Machinery) Greenhouse Gas Emissions Reporting Regulations 2012, to which these amendments closely relate. The GHG regulations require suppliers to report on the greenhouse gas intensity of the fossil fuels that they supply. The Government must obtain this information to meet our obligations under the FQD but are not able to require it under the RTFO scheme.

Both the RTFO and GHG schemes are administered by the same team at the Department for Transport. The reporting requirements of each align as closely as possible to minimise potential burdens on suppliers. The RTFO obligation is met by redeeming renewable transport fuel certificates. The order would enable suppliers of renewable fuel for additional end uses covered by the FQD to be awarded certificates. These could be sold to obligated suppliers.

As the legislation stands, the obligation would be 5% for 2013-14 and thereafter. The order would adjust this figure to 4.74% from 2013-14 to ensure that the proposed expansion of the RTFO scheme does not at this point result in an increase in the absolute volume of biofuel supplied in the UK. This is necessary because of concerns about the sustainability of some biofuels when emissions from indirect land use change are taken into account. The Commission proposed a directive in October to address ILUC. Until such time as ILUC is resolved, we are not in a position to increase the obligation level on suppliers under the RTFO. We will, however, keep this under review.

In 2011 the Government consulted on the expansion of the RTFO provided by this draft order. Further to that consultation, time was provided for suppliers and end users of gas oil to prepare. The RTFO administrator has also provided advice to suppliers and has consulted on amended RTFO guidance relating to the proposed changes. I commend the order to the Committee.

My Lords, this is a very interesting order and quite complicated for some people to understand. I have a few questions for the Minister.

The first question refers to this issue of non-road mobile machinery. The Minister will be aware that a lot of work and debate took place on this issue, which has been around for some time. The Commission, after much persuasion, produced a directive which was published in October or November 2011 and allowed non-road mobile machinery to continue not to comply with stage III B or the equivalent for a period of three years. That would allow the railway industry—I declare an interest as chairman of the Rail Freight Group—to purchase locomotives which did not comply with the new directive. There is a good reason for that: nobody had designed a locomotive that would comply, so it was either no locomotives or ones which did not comply. The industry persuaded the Commission of this and since then, surprisingly maybe, one or two designs have popped up. However, there is still a demand for this. It is now one year and three months since the directive was agreed in Brussels but it has not yet been converted into British law. So, technically, although anybody who buys a locomotive—I think that it also applies to tractors and other things off-road—is compliant with EU legislation, they can be taken to court and fined in this country because the Government have not got round to producing these regulations.

Perhaps the Minister can therefore answer two questions. First, when are we going to see these regulations? I hope the answer will not be “soon”, because in many Governments’ terms “soon” probably means a year’s time, and by that time they will have run out of space.

Secondly, what effect will the new regulation converting the directive into UK law have on this order? It seems to me—I may have got it wrong; I stand to be corrected—that we are implementing what is not a very sensible scheme from the Commission to add biofuel to existing fuel, especially when there is a shortage of crop area and crops around the world, which puts up the cost of fuel. Turning some of those crops into bio seems a bit perverse to me. Certainly the Renewable Energy Association believes that this will be a seriously perverse incentive to investment in renewable fuels and renewable generating capacity. It is talking about the market size being reduced to 30% or 40%, jeopardising investment of £1 billion and putting 3,500 jobs at risk. One can dispute those figures, but what consultation has taken place with the Renewable Energy Association? It is a very respectable organisation.

On Monday I attended a sort of round table with the noble Lord, Lord Deighton, our new Treasury Minister, who was extremely good. It was a Chatham House event so I am not going to say who said what. It was to do with investment and infrastructure, and investment in other things that the Government are so keen on at the moment. We were told, and there was general agreement, that there was not much trouble with finding the funds for investment. The two problems were: first, planning—which is going on in the Chamber at the moment; and secondly, some kind of comfort for the investors that the Government are not going to change their mind and change the ground rules or the buy-in price or whatever during the time when investors are trying to get a return on their capital.

I hope that the Government are going to follow-up this particular regulation with a new debate with the Commission as to what is right and what is wrong for biofuels and whether they should be there at all. Current thinking across many parts of the world has probably overtaken the original idea behind this.

The question that I wish to address to the Minister is slightly different from that of the noble Lord, Lord Berkeley. Making renewable fuels is a very complex and difficult thing, and we know that there is a lot of tension between the use of land for agriculture for producing food, and turning that crop into fuel. The noble Earl will recall that we have had discussions before on the question of recycling used cooking oil. This used to enjoy a margin of 20 pence over the ordinary cost of fossil fuels. The Government, in their wisdom, decided to put an end to this and “generously”—in inverted commas—decided that when this cooking oil is converted into fuel, it should enjoy a premium of two renewable fuel certificates.

I would like to know, since this has been in place, how much we are actually paying in the way of money for transport renewable certificates compared with the 20p which was a very definite sum and caused investors to really work hard at this particular subject. I am of the opinion that two renewable fuel certificates do not equal 20 pence, and I would like to know whether they have ever reached that. The important point is that as well as producing renewable fuels, the producers of renewable energy from cooking oil are doing a very important job in removing it from landfill, or stopping it from being tipped into rivers or drains or whatever they do with it. Unless it is worth while for people to collect and refine it, it will end up not being used and being dumped in some form or another on the landscape.

My Lords, I declare an interest as somebody who uses red diesel for heating oil, for tractors and also, at times, for generating electricity. In the amendment of Article 3(6) it talks about fuels that do not include a whole lot of additives to improve the fuel in terms of lubricity and various other things. If the renewable fuel is added, I wonder if that actually takes the place of some of these additives, and whether it will lower the freezing point. One of the problems with red diesel is that when it gets down below zero degrees centigrade to about minus eight or 10 degrees, it starts to wax up. I wonder whether the renewable fuel additive will actually help to prevent the freezing or the waxing.

My Lords, I am pleased to be here to talk to this order. I have to say, though, that it is rather a miserly order. I happen to be a great supporter of renewable energy of all forms, and we as the UK have got challenging, legally binding targets to significantly increase the amount of renewable energy we use in our energy systems. These are energy targets, not just electricity targets, which means that the 15% we have to reach applies to transport, heat and electricity. Currently we have one policy that supports renewable fuels in transport and that is the RTFO.

Currently the RTFO is asking for 5% of the fuel supply to be made up of renewable sources and the Government have frozen that level. We know that we are going to need more than 5% in order to hit our targets, yet we have a policy that is frozen in time, with no longevity or future certainty, stuck at 5%. Now we have an order in front of us that is reducing this market further—not increasing it, not providing growth for that industry, not supporting new jobs, not providing UK farmers with new opportunities for selling products—no, freezing it and reducing it.

What is going on? It is almost as if those legal obligations did not exist. Yet they do, so what are we going to do? We will have to scurry at the end to try to build an industry which is there at the moment but is at severe risk of being undermined, of jobs being lost and investors fleeing, because of this continual undermining through these miserly orders that reduce the size of the market for this industry. I am very disappointed to see this coming forward.

It has been said before that you have to think of this in terms of volumes of litres of fuel sold, not just in percentages. Overall, fuel sales in this country are going down, so the percentage is also going down. So when the Government say, “We have to reduce this to 4.7% so that there are not more biofuels being sold”, that is nonsense. Actually that 5% is less and less every time the total fuel sold in this country goes down. Can the Government please explain their logic? They are talking about reducing the size of this market, and I find it particularly objectionable that they would use so-called green credentials to do this.

Apparently, the Government are very concerned about the sustainability of these sources. Yes, that is a very valid concern, which we share. But the UK has the best standards for biofuels of any country; they are world class, yet we are providing only 12% of this market. Why is that? Because there is no certainty, there is no confidence and there is no backing from the Government. This is yet another nail in the coffin of this industry. It is truly regrettable.

The renewable heat incentive also prevents the use of liquid biofuels for the gaining of credits in that market. Are the Government seriously saying that they support this industry? Absolutely not, they are doing everything they can to shrink it and to prevent it from growing. Presumably this is because they are protecting vested interests, because I do not believe that the arguments put forward on sustainability criteria really hold water.

We have had other commentators here. My noble friend Lord Berkeley has raised issues, as has the noble Duke, the Duke of Montrose, and the noble Lord, Lord Bradshaw, has talked about the need to recycle cooking oil. I hope the Minister will come back with answers and, above all, I hope he will explain to us why the Government see fit to keep capping this industry, reducing its market share, and how they expect to generate investment, growth and jobs in the country if they carry on in this way.

My Lords, I thank all noble Lords who have contributed to this short debate. The noble Lord, Lord Berkeley, talked about non-road mobile machinery, particularly the railway industry and locomotives, and the emissions regulations. I would like to point out that this order deals with the carbon intensity of the fuel. His point is not actually directly relevant, although I had a very interesting discussion with the officials at the Department for Transport who are directly responsible for this issue. It is quite close but not exactly on the subject. I will write in detail to the noble Lord about where we are on the emissions regulations for railway locomotives.

The noble Earl is right to say that the NRMM is an emissions regulation rather than a fuel regulation, but is there no link between the two?

My Lords, I should imagine that technically they are inextricably linked, but the order deals with the RTFO and carbon intensity. The noble Lord is more worried about the emissions regulations on oxides of nitrogen and particulate emissions from railway locomotives. I have to say that some railway locomotives can best be described as filthy.

The noble Lord also questioned whether the ILUC proposals will harm renewable energy investment, and the noble Baroness touched on the same point. We are keeping levels of biofuels the same due to the ongoing ILUC concerns. We are actively negotiating this issue in Europe, and when the ILUC problem is resolved, we will be able—

I have heard this response before. Perhaps I can talk it through in simple terms. If the total volume of fuel sales is declining, the percentage in volume terms will also decline. Does the Minister accept that the market share in terms of the number of litres of renewable fuel that can be sold declines as fuel sales decline?

My Lords, I know that the noble Baroness is passionate about this issue and I hope that she will allow me to get on to that very point.

When the ILUC problem is resolved, we will be able to increase the total amount of biofuel we create and process. In response to the point made by the noble Baroness, we are not reducing the total requirement for biofuel. I accept her point about the percentage of the market, which is going down slightly at the moment due to the economic conditions. Clearly, the total amount of biofuel produced will also go down; I accept the point. However, I do not expect the noble Baroness would be happy if, when the market starts to go up, we were to cap the amount of biofuel. If the market goes up, she would like to see more biofuel being produced—and the market will start to recover at some point.

That is a fairly rash statement, is it not? The latest figures I have seen show that road traffic movements have gone down over the past four years whereas railway passenger numbers have shot up. Is this a change in government policy? Do they expect road traffic volumes to rise again? Is this all down to economic circumstances? If that is the case, why have rail passenger numbers gone up? Of course, rail passengers are not so directly affected by this. Obviously the Minister can say, “If road traffic goes up”, but it may not.

Noble Lords opposite know perfectly well that a range of factors affect the demand for transport. Demand for the fuels which propel that transport will fall during a recession, but when we get back to a period of growth, demand for all forms of transport will rise, as will the demand for fuel. That is inevitable. This is not a change in government policy.

Except that we have increasingly tight standards on vehicle efficiency, which is another contributing factor to the fall in overall fuel sales. Our fleet is becoming more efficient as vehicles become cleaner. The Minister says that volumes have to be kept steady because the Government are worried about the environmental impact, but what I am saying is that we want greater volume. The Minister’s logic suggests that the volume should be kept steady, but it is not remaining steady, it is declining, and as a result the environmental impacts are declining.

I accept the point about the improving fuel efficiency of all transport equipment, and that is desirable. I also accept that we want to increase the amount of biofuel in order to reduce CO2 emissions. We have the same objectives. However, we also have to be careful not to do something that looks really good but gets us in a position where we are using very large amounts of biofuel while indirectly creating land use change in other parts of the world. I will come back to that in a moment.

The noble Lord, Lord Bradshaw, raised the point about used cooking oils, which now get two RTFCs. As he said, that does not equate to the 20 pence duty differential. The department recognises the importance of biodiesel made from UCO. We have committed to review the RTFO this year, but we cannot do so until we have had a full year of data on what is going on in the market. Because of the way that the market works, RTFCs can be issued quite late in the cycle. We must get the correct data.

At Question Time the noble Lord, Lord Kennedy of Southwark, raised with me a point regarding the dual obligation. A problem can arise whereby we might take a large import of ethanol and that adversely affects the used cooking oil market. I undertook to raise this issue with my right honourable friend the Secretary of State and I have done so. However, we cannot expect any changes until we have properly analysed the year’s trading.

Perhaps the noble Earl can stop there. It is generally small businesses that deal with used cooking oil, and cutting their income for a year can put a number of them out of business. This is not a game that is played in lofty heights; it is a cash-in-hand business. If it is not worth collecting the cooking oil, it will not get collected. There is some sense of urgency in communicating to the industry the Government’s real intention to make sure that such businesses do not lose out through these changes. When they were made—the withdrawal of the 20 pence differential and its replacement with renewable certificates—it was trumpeted that the industry would be better off or protected, but what has actually happened? I would like an answer, please.

I should point out that the duty differential was extremely expensive. I go back to my point that we must wait until the end of the trading period to see how the market is working. The other point is that, because of world and EU trade rules, as the noble Lord knows perfectly well, we cannot put in place regulations designed to protect our own used cooking oil industry.

However, you could take into account the fact that those people are giving a service to the community by collecting this wretched stuff, instead of it going to waste. It would not be stretching credulity too far to say that there should be a supplement to whatever is paid because they are carrying out a job that would otherwise fall to the Government. You have got to collect the stuff. Collecting it through the sewers, rivers or landfill is expensive.

My Lords, as the noble Lord knows perfectly well, if someone poured used cooking oil into a river they would be committing a serious criminal offence.

I can answer the point from my noble friend the Duke of Montrose, who talked about the freezing point—the wax point—of gas oil. There are, as he will know, technical regulations regarding where gas oil or diesel oil will freeze, but I have not briefed myself on that. In Bosnia, however, in the winter of 1993-94, I experienced gas oil freezing and it was not very funny. If I have anything more to add on that or if there is a problem I will write to my noble friend. I suspect that there is no specific freezing problem. However, I have to be honest and say that there are issues with biodiesel regarding how long you can store it. Advice is being issued to the people responsible—especially those with large generating plant or construction equipment—so that they know the limitations and that they will have to adapt their procedures slightly. It is a well understood problem.

My Lords, I am grateful to the noble Earl. He is quite right: there is a problem with biofuels. I believe that people in the boating industry are expressing serious concern about it because people do not always use their boats very often, this stuff sits in the tank for a very long time, goes all funny and does not come out when they are trying to avoid hitting the rocks. That is probably a different version of the story told by the noble Duke, the Duke of Montrose, but there are some serious problems with this issue which I do not think have yet been resolved.

My Lords, I have spent a lot of time discussing this very issue with my officials. I will be honest: it will be necessary to make sure that the fuel is circulated in the tanks. If fuel has been in your tanks for several years, you will experience problems. However, I would expect boating magazines to write up what needs to be done. Technical advice will be available. I have to be honest and admit that this is an issue, but it is manageable.

The noble Baroness seems to be reluctant to accept my ILUC point. If we just want to look pretty and massively increase the amount of biodiesel that is produced just to look good—that is, increase the obligation level—and get our percentages right so that the graph goes straight to the desired end-state, we could change the rules on tallow and say, “Okay, all grades of tallow are waste and therefore will get double certification”. That would look great, but the only snag is that the better grades of tallow are also used for making soap. Therefore, there would be less high-grade tallow available for making soap, the people making soap would have to find something else with which to make it, and they would go for palm oil. An increased demand for palm oil would result in indirect land use change impacts. We would look wonderful—

With all due respect, if there is a problem with the environmental impact of soap manufacturing, surely you should address that through regulations which directly affect soap manufacture. You cannot second-guess everything that will happen in a globally traded market in commodities.

My Lords, the noble Baroness has her views but the European Union takes this issue very seriously. We are trying to work out what the correct course of action is to avoid indirect land use changes. It is simply no good us increasing the demand for biofuels without having any regard to indirect land use changes in other parts of the world. I am surprised that the noble Baroness appears to be willing to ignore what is going on in the rest of the world just so that we can have good figures.

I am not ignoring what goes on in the rest of the world. Clearly, criteria around the sustainability of biofuels are of the utmost importance. What I am concerned about is that the industry needs to reach its targets for 2020, which are legally binding, and the Government seem to have such disregard for that that they are not listening to its complaints. The Government do not seem to understand that the industry has had an increase in its market share up to April 2013, which is mere weeks away, but from that point on there is no future trajectory, no sign of when there will be a future trajectory, no clarity from the Government and no words of support, just order upon order that whittles away at the market. Of course the industry lacks confidence, and of course its investors are seriously concerned. What are the Government doing to address this? Are they consulting the industry? What can the Government do to reassure it?

My Lords, we remain very concerned that studies and impact assessments have demonstrated that some biofuels actually produce greater carbon emissions than fossil fuels when indirect land use change is factored in. The UK must in law comply with the EU renewable energy directive—RED—which contains a target for the UK to source 15% of its overall energy, and 10% of energy used in transport, from renewable sources by 2020. However, we are not prepared to move so fast that we create indirect land use change problems in the mean time. I am sorry that I have not been able to satisfy the noble Baroness. I am very disappointed; I will have to try harder in future.

Motion agreed.