Considered in Grand Committee
My Lords, this instrument makes several important changes to the Renewable Transport Fuel Obligations Order 2007, which established a certificate trading scheme known as the renewable transport fuel obligation, or RTFO. This draft instrument would improve the RTFO scheme, ensuring that renewable fuels continue to play a key role in reducing emissions from road transport and, in the longer term, from transport modes with more limited decarbonisation options, such as aviation and maritime.
While the instrument relies on powers contained within the Energy Act 2004, parts of the 2007 order were previously amended by instruments made under Section 2(2) of the European Communities Act 1972. Accordingly, Schedule 8 to the European Union (Withdrawal) Act 2018 applies. The Secondary Legislation Scrutiny Committee’s report of 25 November acknowledges that the committee has no specific comments on the instrument and notes that during the enhanced scrutiny process, and in response to industry comments, the instrument has been somewhat amended and improved. The instrument was also considered by the Joint Committee on Statutory Instruments on 17 November, and that committee identified no matters requiring report.
The RTFO scheme, changed by this instrument, promotes a market for renewable fuels used in transport. The scheme places obligations on larger suppliers of fossil fuel to ensure the supply of renewable fuels which reduce carbon emissions. These obligations are calculated as a percentage of the volume of fossil fuel supplied over a calendar year. They are met by acquiring certificates which are issued for the supply of sustainable renewable fuels. The trade of these certificates provides a revenue stream for suppliers of renewable fuels.
This instrument delivers several commitments made in our transport decarbonisation plan to upgrade the RTFO. It increases the main RTFO obligation level from 9.6% to 14.6% by 2032, continuing at that level in subsequent years, with 1.5% of this RTFO target increase being made in 2022, to maximise the carbon savings from the introduction of greener E10 petrol this September. The instrument also improves RTFO support for suppliers of renewable hydrogen by extending certificate eligibility to renewable hydrogen used in maritime vessels, and in fuel cell-powered rail and non-road vehicles. As targets for the supply of renewable vehicles increase and new end uses are included in the RTFO, the instrument strengthens the sustainability and greenhouse gas emissions savings criteria that renewable fuels must meet.
In addition, the instrument replaces references to various EU enactments with equivalent criteria. It replaces these references through changes made to the 2007 order itself, and by using technical guidance issued by the administrator. Technical guidance on sustainability reporting covers the values, formulas, and methodologies used to calculate carbon savings. To reflect changing international standards and evolving fuel production processes, and to ensure no obstacles to trade, the RTFO administrator proactively updates its technical guidance, a draft of which was published alongside this instrument.
Renewable fuels supplied under the RTFO scheme currently deliver about a third of all domestic transport carbon savings under current carbon budgets. They will also make an important contribution to future UK carbon budgets. I commend this instrument to the Committee.
I thank the Minister for her introduction. This is a complex but very important order. The sixth carbon budget requires reductions in emissions of 78% by 2035, and low-carbon fuels supported via the RTFO have been an important part of that process for the last decade. This SI extends the renewable transport fuel incentive to suppliers of renewable hydrogen used in fuel cell rail and non-road transport, and to renewable non-biological fuels for the maritime industries. It also increases the RTFO obligation by 5% until 2032, and updates emissions criteria.
This is an affirmative instrument which comes into force on 1 January 2022 which, as the Explanatory Memorandum points out, is less than 21 days. Clearly, that is less than the traditional amount of time. Some error has occurred somewhere down the line because while this is important, it is not a piece of emergency legislation. Therefore, it is regrettable that there is not the usual time limit.
Something to welcome strongly is that Articles 13 and 14 of this order strengthen the sustainability criteria. That thread runs through all of this. Are biofuels really sustainable? Are they really being produced in a fully sustainable manner? When you get down to the fundamentals, any land that you are using to produce biofuels is land that you could use to grow crops for food and so on. I therefore strongly welcome, for example, the criteria that would prevent biodiverse woodland being degraded for biofuel production.
As I said, it is a very complex area, because renewable fuels and feedstock originate from across the world. It is possible—indeed probable—that producers would be eligible for multiple incentives, which the UK provides, but are incentives where the fuel and crops originate from. What steps are being taken and what steps will the Government take to ensure that this is not exploited such that there are multiple payouts on one batch of fuel, if I can put it that way?
These detailed plans and arrangements were clearly devised prior to COP 26. How have they been affected, if at all, by the results of those discussions? Where do we go next, Minister?
Paragraph 7.12 of the Explanatory Memorandum refers to the increase in 2020 in the buy-out price from 30p to 50p. Can the Minister tell us whether this has been effective in stimulating the market?
The part of this we will all have noticed was the increase from E5 to E10 in September for bioethanol in petrol. I recall that, when we discussed the regulations on that, there were some areas where there were exceptions, such as the coast of Scotland, I believe. Were those exceptions envisaged to be temporary, perhaps to let the more distant parts of the UK improve their access to the most modern fuels, or is it envisaged that they will be permanent for those areas?
It is important to note that, despite government targets to phase out the sale of new internal combustion engine vehicles, raise the main RTFO target and so on, there remains a fatal flaw in government policy. Emissions from transport are not declining. Cars and vehicles are becoming more efficient, but the emissions are not declining because of the increase in road traffic. That has been made worse because many people have rejected public transport as a result of their fear of Covid. The Government have a major task to get us back on to public transport. I notice that the bus strategy, which has excellent aims, has a huge funding gap; four local authorities have made bids which are equal to the total amount of money available, and there are over 70 local authorities which could bid for it. Clearly there is a funding gap there.
I do not want to dwell on private grief for the Government, but last week was not an easy week for them in the north of England because of the rail announcement. Even with electric vehicles, the Government have a mountain to climb to gain public confidence. I am pleased to see these improvements, but there is still a vast amount of work for the Government to do, and unfortunately some of it involves additional funding.
My Lords, the order, as has been said, amends the Renewable Transport (Fuel Obligations) Order 2007 to increase targets for fuel suppliers, thus driving the supply of renewable fuel in transport and delivering further greenhouse gas reductions. It amends Article 4 of the RTFO order so that the main obligation on renewable fuel targets increases by five percentage points, from 9.6% to 14.6%, between 2022 and 2032.
Those suppliers that meet or exceed the obligations already acquire renewable transport fuel certificates, the training of which provides a financial incentive. The order extends that financial incentive to suppliers of renewable hydrogen, used in fuel cell rail and non-road transport, and of renewable fuels of nonbiological origin used in maritime transport.
The Government have said that the RTFO delivers about a third of the savings required for the UK’s current transport budget, and that last year the RTFO scheme saved carbon emissions equivalent to taking 2.5 million combustion engine-powered cars off the road. They have also said that the changes made by this order are estimated to deliver the equivalent of an additional 1.5 million cars by 2032. As we know, in 2019, road transport accounted for 24% of all greenhouse gas emissions and greenhouse gas emissions from transport have remained largely unchanged since 1990, as the noble Baroness, Lady Randerson, just reminded us.
How did the Government finally come to the conclusion that a five percentage point increase in the renewable fuel target between 2022 and 2032 would be sufficient in the transport sector to meet our greenhouse gas emission and climate change goals? What, if anything, happens after 2032?
The Government consulted on only three options: increasing the main obligation by 1.5, 2.5 or 5 percentage points, with the Department for Transport backing a 2.5 percentage point increase in the renewable fuel target. Paragraph 10.3 of the Explanatory Memorandum states:
“Of the 77 respondents that expressed a preference on the amount by which this target should increase, 61 supported an increase to the RTFO main obligation of 5 percentage points or more. These respondents included suppliers of renewable fuel who benefit from support under the certificate trading scheme, and suppliers of fossil fuel who must meet the targets. Those in support of an increase of 5 percentage points or more suggested this could provide long term certainty to industry and would provide a further contribution to the government’s commitment to net zero greenhouse gas emissions by 2050. Accordingly, the government has decided to increase the RTFO main obligation by a further 5 percentage points between 2022 and 2032.”
There appears to have been a greater commitment to the Government’s net-zero greenhouse gas emissions target by 2050 from the respondents to the consultation than there was from the Government themselves, which begs the question: does the order go far enough? Why did the order reject going beyond 5 percentage points, as some respondents clearly proposed, despite that not even being one of the three options the Government had offered?
The Government have announced a date for a ban on the sale of new petrol and diesel vehicles. For how many years will a new petrol or diesel vehicle purchased the day before the ban comes into effect be allowed to be driven on our roads? What is the position on a ban on the sale of second-hand petrol and diesel cars?
Aviation and shipping are important parts of the transport sector. How are these two domestic and international sectors to be decarbonised, and from when?
While this instrument is welcome, does it go far enough and fast enough towards decarbonising the transport sector by reducing emissions? Bear in mind that the Government have said, at paragraph 7.1 of the Explanatory Memorandum, that
“Renewable fuels can deliver emissions reductions quickly.”
What has led the Government to believe that what is or is not covered within the provisions of this order represents the fastest that renewable fuels can deliver a reduction in emissions? I hope the Minister will address this point in her response.
I hope the Minister will also comment on the issue raised by the noble Baroness, Lady Randerson, about the 21 days between the making of the instrument and it coming into force. Why, on this occasion, does this accepted period appear to have not been achieved?
I just want to raise a question with my noble friend, and it has been outlined. While I generally support the push for bio and alternative fuels, I cannot do so at any price given the whole food for fuel argument, particularly when food is needed to sustain populations. While it is quite easy for us in the United Kingdom, and probably those in some other countries, to look at how the programme is working and what we are doing, the same cannot be said for some third countries. For example, in Brazil and some other countries in the great continents of the world, we see great destruction of wildlife, fauna and flora. Can my noble friend explain the measures that our Government are taking to police this?
My Lords, I thank all noble Lords for their interventions and contributions to this debate.
I start by addressing the concern of the noble Baroness, Lady Randerson, about the 21-day rule. There is an explanation in the Explanatory Memorandum —which I probably will not read out now, because it is written there—for why we felt it was right to not abide by this rule, but I will say that I am less than happy about it. I think I will make a new year’s resolution to have an SI debate in your Lordships’ House or Grand Committee without somebody pointing to a mistake in a document or the fact that we have not been able to comply with a rule when, quite frankly, we really should have been able to do so.
Noble Lords have gone a little beyond the SI into the Government’s broader policy on transport decarbonisation. I will write with a fuller answer on that, because there is a lot happening at the moment and it goes far beyond what is in front of your Lordships today.
The noble Lord, Lord Rosser, as ever, raised a very important point about the consultation and the responses from various people. As is always the case with a consultation, certain people will respond. We had 120 responses and the majority of those agreed with our proposals, including trade associations and fuel suppliers, which was great. But the Government have another responsibility: to make sure that it is fair on the general public—the people who have to buy the fuels. There was always going to be a balance between the cost that will potentially be added to the fuel at the pump versus how ambitious we would like to be. If the public had the deepest of pockets, we could be far more ambitious, but we always have to think about the cost.
I note the noble Lord’s suggestions, such as banning the sale of a second-hand internal combustion engine vehicle, but I think that would be really harsh on somebody for whom it may be the biggest asset they own in the world. I would find it very difficult to do that without an enormous amount of fair warning. We do accept that there is never a good time to add cost to fuel consumers’ bills, and this policy is expected to marginally increase fuel costs—but we believe that those costs are, on balance, manageable. We are looking at something like 0.5p per litre in 2022, rising to 1.6p per litre in 2032, which is a little over 1% of current petrol and diesel prices. But it is not nothing—it is not insignificant—so we do always have to think about the balance with these things.
The noble Baroness, Lady Randerson, asked about the exceptions in the rollout of E10. Those were the days—those heady days when we were upstairs in the committee room talking about E10 implementation. I cannot remember whether those exceptions are permanent or temporary; I will certainly write on that, as I will on whether the increase of the buyout price to 50p has been successful. We will be able to look at that.
If I may, I will talk very briefly about sustainability, because it is absolutely critical that we do not ride a coach and horses through very good-quality agricultural land to produce these fuels. All biofuels supported under the RTFO need to comply with strict sustainability criteria. My noble friend has pointed out some of the challenges with certain countries in the world. There are protections for biodiversity and against land use changes such as deforestation. These regulations have improved the sustainability criteria, and I am very happy to write to the noble Baroness, and, indeed, to other noble Lords who contributed, to set out exactly where the changes have been made and the benefits that we expect to get from them.
I appreciate that there are a few unanswered questions, but I will be writing. I think we have reached the right balance by increasing by 5%; it will make a difference to our carbon emissions. We accept that there is more to be done in transport, but we are on that case and are doing as much as we can as quickly as we can.