Considered in Grand Committee
That the Grand Committee do consider the Motor Fuel (Composition and Content) and the Biofuel (Labelling) (Amendment) (No. 2) Regulations 2021. Special attention drawn to the instrument by the Secondary Legislation Scrutiny Committee, 8th Report.
My Lords, the purpose of these regulations is to introduce E10 as standard petrol across Great Britain while ensuring that the current E5 grade remains available to those who need it. E10 petrol contains up to 10% renewable ethanol, double the amount that can be blended into today’s E5 grade. Increasing the renewable ethanol content can reduce annual carbon dioxide emissions by 750,000 tonnes, helping us to meet our ambitious climate targets.
The regulations also update labelling requirements that must accompany the sale of E10 to ensure that fuel consumers have the right information. Finally, the SI makes some necessary amendments to the Motor Fuel (Composition and Content) Regulations 1999 to correct for deficiencies and replace references to EU directives following the UK’s exit from the European Union.
Introducing E10 allows us to cut carbon emissions from cars, motorbikes and other petrol-powered equipment in use today. This is done by simply increasing the limit to which renewable fuel can be blended into standard petrol. It is one of the very few measures available to us today with an immediate impact.
E10 is a proven fuel that is already in use across the world, including in France, Belgium, the Netherlands and the US, to name but a few. We also have a valuable bioethanol industry in the UK that will benefit from increased demand; indeed, following our policy announcement, one large facility operator has already announced that it is recommencing production. These facilities play important roles in their local economy, employing hundreds of skilled workers directly and supporting thousands of jobs in the wider community.
That community includes the agricultural sector, with locally grown feed wheat used to produce ethanol. By-products, such as high-protein animal feed, are used by livestock farmers in place of soya products. It is vital to support these industries as we endeavour to build back greener, with low-carbon industrial hubs crucial to our path towards net zero by 2050.
Introducing E10 is part of a wider set of measures to encourage renewable fuels. Overall renewable fuel blending is incentivised through the renewable transport fuel obligation, or RTFO, obligating larger fuel suppliers to supply renewable fuels. However, because the RTFO allows for different ways to meet targets, it has proven insufficient to remove market barriers for the introduction of specific fuel blends such as E10.
As RTFO targets have increased over the past three years, fuel suppliers are now blending very close to the 7% biodiesel limit for standard diesel and 5% bioethanol limit for standard petrol. If we want to increase renewable blending further, we need to take additional measures now. While most diesel vehicles are approved to use only a maximum of 7% biodiesel, known as B7, the vast majority of petrol vehicles—over 95%—are cleared to use E10 petrol. Our immediate focus is therefore on E10.
Fuel suppliers and retailers have made it clear to us that, for technical reasons related to vapour pressure, the best time to introduce E10 is at the same time as the change from summer to winter fuel specification. This happens every September. To ensure we reap the full greenhouse gas benefits of E10 introduction, we have consulted separately on increases to the RTFO from January 2022, allowing for a short transition period. We will announce the next steps on the target increases soon.
While 95% of all petrol vehicles can use E10, some older vehicles cannot. That is why this instrument includes provisions to keep the current E5 petrol available in the higher octane super grade. The super grade is available nationwide but in areas with less coverage, such as in parts of Scotland, exemptions are available to ensure that everyone can access the fuel they need. We have also launched a comprehensive communications campaign involving local radio, roadside posters, social media and information on the forecourts. This informs motorists of the changes to petrol that will happen this summer and directs vehicle owners to the online compatibility checker, ensuring everyone can be clear on the right fuel for their vehicle or equipment.
The SI also makes amendments that are required following our departure from the European Union. We have replaced references to EU legislation with references to domestic legislation to ensure the ongoing operability of the fuel standards. It is also important to note that, as a result of this amendment, all petrol supplied in the UK will still meet the same standards as apply across Europe.
In proposing this statutory instrument, the Government have carefully considered a balance of interests. It recognises the need to maximise our efforts to decarbonise vehicles on the road today and support our domestic renewable fuel industry, while maintaining access to a suitable petrol grade for all. I believe introducing E10 petrol this September strikes that balance. I beg to move.
My Lords, I am grateful to my noble friend for that exposition of the regulations. I hope that her colleagues in the Department for Transport will take the opportunity, over the next few months, to listen to their colleagues in Defra because at the same time as considering this measure we are taking the Environment Bill through the House, which faces in a very different direction from that which underlies this measure.
Biofuels, as in taking human food and burning it in vehicles, are a scam. They cause much more environmental damage than alternatives and are absolutely not the way we should be going. Biodiesel, for instance, seems to contain quite high proportions of palm oil, sourced from the expansion of palm oil plantations at the expense of forests—putting “a tiger in your tank” in a way that Esso never intended. Bioethanol involves taking food that could perfectly well be used by humans and burning it. It puts pressure on landscapes which could well be used for rewilding and to bring nature back into this country, in a way that the Environment Bill majors on. I would welcome an integrated approach to where we get our transport fuel from.
The basic direction in favour of electric must be right; getting electricity from sources other than the destruction of the environment must also be right. I very much hope that this is the high-water mark of a failed European policy and that we will see no more of it.
My Lords, these regulations involve the transition from E5 to E10 for premium petrol. I thank the Minister and her officials for their previous assistance and help in explaining the purpose of these regulations. However, I share the concerns just expressed by the noble Lord, Lord Lucas.
The Secondary Legislation Scrutiny Committee has some harsh things to say about the way the regulations have been presented. It says that
“issues are raised in the Impact Assessment … that are glossed over in the Explanatory Memorandum”.
Specifically, the committee cites
“the role of E10 in propping up the UK’s struggling ethanol production sector”.
The impact assessment mentions the reason for this problem being lower than expected demand for ethanol across Europe. What are regarded as the reasons for this lower than expected demand? It may be that there is a sound reason for that, which could be increasing awareness of the disadvantages of ethanol as a solution to the problem of how to make our petrol less polluting by reducing emissions from it, or it could involve other European countries finding an alternative solution.
The second thing the committee cites is
“comparative CO2 savings from ethanol and other biofuels.”
It believes that there needs to be more clarity here.
Thirdly, the committee talks about
“the long term costs to motorists as E10 delivers lower miles per gallon.”
Taking this last point, although a gallon of E10 petrol might emit less CO2 than E5 petrol, if it burns faster and allows you to do fewer miles per gallon, surely the CO2 savings are all but, if not entirely, cancelled out? The picture is further complicated by the fact that E10 can actually be anything between E5.5 and E10, so changes or improvements are likely to be gradual. Is the Minister convinced that this is really the right way to go to reduce CO2 emissions? Are the Government convinced and confident that this is not their version of Gordon Brown’s ill-conceived push to encourage us all to buy diesel cars?
The Minister says that the industry supports this measure. It would, would it not? The ethanol industry is said to be struggling, so it would be bound to support this measure. The Government also say that the industry will not introduce E10 unless mandated by the Government. I am concerned that the Government are being led by the industry rather than by the environmental needs of the country and the needs of drivers.
Clearly, I support efforts to reduce greenhouse gas emissions from transport, which are now the largest single source of those emissions in the UK, but the noble Lord, Lord Lucas, rightly criticised the fundamentals of this. Ethanol production is mainly from crop feedstocks: wheat, sugar beet or corn. This is controversial as it takes up farmland that could be used for growing food. We are increasingly aware of the importance of growing more of our own food in the UK and relying less on imports because their environmental footprint is larger. Biodiesel is made from waste cooking oil, but the noble Lord, Lord Lucas, pointed to problems with that too.
The impact assessment warns that ethanol could at least temporarily replace other biofuels such as biodiesel, which has a higher greenhouse gas saving. Even if this does not happen, it will enable the Government to achieve only 7% of their additional transport savings required under their fifth carbon budget. That leaves 93% to be tackled by other means.
My question to the Minister is: why are the Government not being bolder? We no longer have to wait and work at the pace of the EU. EU targets are more than a decade old and have certainly led to significant improvements, but we now face real urgency to do something in this country. There is still another 14 years of sales of petrol and diesel vehicles before the Government’s 2035 target comes into view. The Government must devise new ways to counter the increase in average emissions from new cars as drivers opt for larger vehicles. Despite the technology being there, the emissions are going up on average—not down, as they should be.
Far-distant targets are not effective. We now need annual targets so that there is a constant process of improvement. We need a system of tax rewards and penalties to encourage faster take-up of the less polluting models, with the greatest rewards for those buying ZEVs.
I once again thank the Minister for her explanation of the purpose and content of these regulations. As she said, to reduce greenhouse gas emissions, premium petrol in the UK is currently blended with up to 5% ethanol, known as E5 grade. These regulations require the ethanol content to be increased to up to 10%, E10 grade, with effect from 1 September this year, to meet future emissions targets. E10 petrol has been approved for sale in the UK since 2011 but no supplier has chosen to move above 5%.
The E10 petrol requirement will apply only to filling stations with an annual fuel throughput of over 1 million litres per annum. What percentage of petrol sales by litres is through filling stations with an annual fuel throughput of 1 million litres or less per annum?
The E10 requirement is that premium 95 grade petrol contains at least 5.5% ethanol all year round, but how does that help us reach blending of up to 10% in a meaningful way? What is the Government’s objective with these regulations as far as the E10 level of blending with ethanol is concerned, because 5.5% seems an inadequate increase from the current requirement?
As the Minister said, biofuel blending levels are generally driven by a separate government scheme, the renewable transport fuel obligation, with the next RTFO increases planned for 1 January next year. The Explanatory Memorandum indicates that during the period between these regulations taking effect on 1 September 2021 and the RTFO amendments in January 2022, the policy will cost the motorist around £87 million per year and decrease CO2 savings. The Secondary Legislation Scrutiny Committee queried why the start of these regulations could not be aligned with the complementary increase in the RTFO targets from 1 January next year, or alternatively why the date of the RTFO target increase could not be changed.
The committee accepted that the Department for Transport’s response on these two points was persuasive but said it would have been even more convincing if the relative costs of the extra disruption to the industry
“were estimated for comparison with the impact on the consumer and on CO2 savings.”
Can the Government now provide that estimate of the relative costs of the extra disruption to the industry if the existing schemes were synchronised for this changeover?
The SLSC commented that while the Explanatory Memorandum indicates a negative impact on consumers during the changeover period, the impact assessment indicates that, due to lead times, the effects of implementing the two regulations separately may not be as great as they first appear. The committee said that the reply on this point from the Department for Transport made the consequences of transition to E10 less clear, and suggested that this House might wish to ask the Minister for a clearer view of the effects of introducing the two sets of regulations three months apart. I am now asking the Minister for that clearer view.
The SLSC said that issues raised in the impact assessment, as the noble Baroness, Lady Randerson, has said, had been glossed over in the Explanatory Memorandum on the instrument—issues such as the role of E10 in propping up the UK’s struggling ethanol production sector, the comparative CO2 savings from ethanol and other biofuels, and the long-term costs to motorists as E10 delivers lower miles per gallon.
On the UK’s ethanol production sector, capacity has regularly been seriously underutilised. Significant amounts of bioethanol supplied under the RTFO come from outside the UK. UK producers have said that if the UK does not introduce E10, it is likely that the domestic industry may not remain viable. Could the Government spell out in their response, with some specific facts and figures, the impact of E10 on the UK’s ethanol production sector?
The SLSC commented that the Explanatory Memorandum was based on the assumption that increased ethanol content by changing to E10 was the only way forward. However, the impact assessment indicates that the greenhouse gas savings from the additional ethanol are lower than the savings from other biofuels such as waste-derived biodiesel, but concludes that, provided that the RTFO target is suitably adjusted, E10 will result in longer-term reductions in greenhouse gas emissions. Could the Government explain why blending petrol with ethanol is perceived as the most effective way to reduce greenhouse gases, taking account of all the environmental considerations to which reference has been made?
The Explanatory Memorandum appears to suggest that the additional costs to motorists of the switch from E5 to E10 will be transitional, since those costs and the decrease in CO2 savings will be only until the RTFO targets can be increased, yet the impact assessment indicates there will be significant long-term costs to consumers because E10 fuel is less efficient. The impact assessment concludes that fuel costs for petrol cars are estimated to increase by 2.3% as a result of moving from 5% to 10% ethanol content, meaning additional fuel-supply costs to consumers of E10 petrol of £701 million over 10 years because of the reduced miles per gallon. Further costs of £169 million over 10 years are estimated for consumers whose vehicles will accept only E5 petrol. Could the Government clarify what the position is? Are the additional costs to motorists transitional until RTFO targets can be increased, as per the Explanatory Memorandum, or are they long-term, as per the impact assessment?
Lastly, the SLSC concludes that the Explanatory Memorandum presents a rather sketchy view of the rationale for, and the consequences of, the proposed change to E10 petrol, and recommends that whenever the policy requires an impact assessment it should be made available alongside the published draft, which did not happen in respect of these regulations. What consideration have the Government given to this recommendation from the Secondary Legislation Scrutiny Committee?
I thank all noble Lords for their contributions to today’s debate. I also thank the Secondary Legislation Scrutiny Committee for raising various matters, a number of which have been echoed by noble Lords today. Most recently the noble Lord, Lord Rosser, mentioned that the impact assessment was not published alongside the draft SI. That impact assessment was already a public document, but we will certainly take that away and I hope that will not happen again. Perhaps we should make sure that we signpost noble Lords to previously published documents where we possibly can.
A number of issues have been raised, and I will of course write with further details if I am unable to cover them in my remarks. This is very much a question of balance; there is an awful lot of balance to be had here. Anybody working in the field of transport knows that there is no silver bullet to solve carbon emissions in transport. The solution will be in a large number of interventions, some of which will have to happen over a large period of time. We will be publishing the transport decarbonisation plan fairly soon, and that will set out the firm foundation on which our thinking is based.
I shall start by addressing the wider focus on E10, which is the last low-hanging-fruit option for renewable fuel blending. Again, it is about balance: it works alongside the RTFO. There are literally no other short-term options for reducing emissions from road transport immediately, so we have to consider not only the balance of what the intervention is but how quickly it can achieve the goals that we need to achieve. We know that using waste biodiesel blended from fossil diesel saves more carbon dioxide per litre than bioethanol. That is true but we are up to the limit on biodiesel—up to 7%. Our only option now is therefore to increase petrol to E10. We also know that the vast majority of cars can use E10 successfully.
The interaction with the RTFO is really important. I noted that there are many reasons why the gap has arisen between the E10 implementation and the changes to the RTFO, including the technical reasons relating to the vapour pressure and the switchover of the type of petrol that is sold on the forecourt. However, we also know that the RTFO target can be changed only at the start of each calendar year because it is a market-based scheme; participants will of course plan their compliance through the whole of the year, so if we changed it mid-year it would be the same as a retrospective change and therefore deeply unwelcome. So the introduction of E10 in September, followed by increasing the targets in January, allows for a transition phase. We expect that during this phase blending will be ramped up, and that existing fuel stocks will be used up.
It is worth noting, as did the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, that the fuel for E10 can be from ethanol of 5.5% upwards. This flexibility is intentional to ensure that the overall RTFO targets can be delivered cost-effectively, based on market prices for different biofuel options, and to allow for seasonal and geographic variations. There would be no point in mandating immediately a much higher percentage for blended petrol.
Furthermore, the changes were made under two different pieces of legislation and different powers, so that has had an impact on how we can introduce this measure. There is of course a need for a comprehensive communications campaign, so there was always a need too for a date, at some stage in future, in order that consumers are well aware of what they will be buying when they go to the pumps in September.
I turn to the carbon savings in the four-month transition period between the introduction of E10 and the increase of the RTFO targets at the beginning of next year. The impact assessment did not specifically model the impact of the four-month period between these two interventions. A snapshot of the annual modelling suggests costs of around £29 million, with an emissions-saving reduction of around 0.07 megatonnes of carbon dioxide, but that shortfall in emissions savings —if it happens, because again these are assumptions—would be recouped by the end of January next year following the RTFO target rise. As I say, there will be a net overall carbon dioxide benefit of around 0.73 megatonnes by the end of 2022.
Exactly how the suppliers meet their RTFO obligations at the end of 2021, and the speed with which they ramp up the ethanol blending, is unknown due to commercial sensitivities. However, we can say with certainty that by introducing E10 we are maximising the available capacity for biofuel blending in the coming years and providing the space to increase the RTFO targets as a step change in 2022.
Noble Lords have noted that biofuels produce different emissions reductions from their fossil fuel comparator. The noble Lord, Lord Lucas, mentioned the impact of blending biodiesel. It is often made from used, or waste, cooking oil and saves more carbon dioxide per unit of energy delivered than for ethanol, although the difference is relatively small. As a result, where ethanol displaces waste biodiesel in the fuel mix delivered under the RTFO, the actual emission saved can be reduced. That is why this has to happen along with the changes to RTFO targets from the start of next year; again, it is all about balance.
Turning to the costs and the impact on the motorist, although we believe blending the petrol at E10 is unlikely to alter the pump price of standard 95 octane petrol, as the noble Baroness, Lady Randerson, pointed out, drivers might experience a small reduction in miles per gallon. This will vary quite significantly by vehicle and the specific fuel blend used by that supplier, as well as the driving style. The overall reduction in miles per gallon is similar to driving with the aircon on, or with underinflated tyres.
Based on simplified assumptions and a potential worst-case scenario, the impact assessment estimated that each litre of E10 could contain around 1.7% less energy, which could result in increased fuel costs of around £70 million per annum. However, the industry has also suggested that there could be a change to the energy content, because different blends have different energy content according to the constituent parts of the petrol. This assumption could therefore be very much the worst-case scenario.
On incompatible vehicles, we again feel that there will be a very limited impact. Of the 5% of vehicles that are currently incompatible, the vast majority are classic or cherished vehicles, so fewer than 1% of the cars that are everyday run-arounds cannot use E10. As I have mentioned, we will make sure that E5 petrol will be available to owners of incompatible vehicles. It should also be remembered that those who own classic or cherished cars often use the higher super grade anyway, so they will see no difference in price. Again, the estimate of £70 million that might be added to fuel costs is very much a worst-case scenario. It assumes that all incompatible vehicles currently do not use the super grade, and we know that is not the case.
I turn to the bioethanol sector. The noble Baroness, Lady Randerson, suggested we were being led by the nose by industry. There are two different industries here and they both want it, while being on slightly different sides of the coin. We have the bioethanol industry and the traditional fossil fuel suppliers, and those suppliers want us to give them a kick because in Germany they did not give the industry a kick and have not had a very successful rollout of E10.
I have already mentioned that the bioethanol sector is a valued sector in this country and that, for the time being, it is essential that we look at all different ways of reducing our carbon emissions. Bioethanol is one of those and will provide highly skilled jobs and support the agricultural community, but I accept my noble friend Lord Lucas’s point that environmental concerns are also critical. Biofuels, supported under the RTFO, comply with strict sustainability and minimum greenhouse gas savings criteria. There are protections for biodiversity and land use change, such as deforestation. I will probably write more in a letter because I am aware that I am running out of time.
These regulations are about balance. We need to balance the need to maximise our efforts to decarbonise vehicles on the road today and support our domestic renewable fuel industry, while maintaining access to a suitable petrol grade for all. I believe that we have achieved that balance and that by introducing them now, with changes to the RTFO in January, we will achieve our ambitions.
That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 5.44 pm.