Transport fuels

11-06-08

This came into force in the UK in April 2008 under the 2004 Energy Act, with details subsequently set by the RTFO Order 2007 .

The RTFO requires transport fuel suppliers to ensure that a proportion of their total fuel sales are from renewable sources. Suppliers are only obligated if they supply at least 450,000 litres of transport fuel a year, however.

When the government started work on the RTFO scheme, in 2005, biofuel made up just a quarter of a percent of overall road fuel sales, with half of this imported.

The target for the first year of the RTFO - 2008/09 - has been set at 2.5% by volume and 3.75% the following year. By 2010/11 the Obligation will require 5% of all fuel sold on UK forecourts to be produced from renewable sources.

Representing 2.5 billion litres of fuel a year, this renewable fuel will most likely come from biofuels - mainly either biodiesel or bioethanol - with government estimates that it would save around 1 million tonnes of carbon emissions a year.

But, achieving this 5% biofuels requirement alone would not guarantee the UK complying with the European Biofuels Directive (2003) target for a 5.75% proportion of biofuels within transport fuel by 2010. Commenting on the discrepancy, the UK Department for Transport said it is "not yet confident that higher levels of biofuels can be delivered in a sustainable way".

It also notes that 5% is the maximum level of biofuels allowed in standard petrol and diesel sold on forecourts under current European fuel standards.

If any obligated supplier has not supplied enough renewable fuel at the end of an obligation period to cover their whole obligation, they have to pay a "buy-out" price to cover the remainder. This buy-out price has been set at 15 pence per litre in the first and second years of the obligation.

In future, the government intends this RTFO buy-out price mechanism to entirely replace lower fuel duty for biofuels (currently 20p per litre less than standard fuel) as a support measure.

Renewable Fuels Agency

The 2004 Energy Act established the Renewable Fuels Agency to regulate the RTFO system. It is a non-departmental body based in Hastings, funded by the Department for Transport and led by an independent board.

With questions as to the sustainability of certain biofuel production processes, the Renewable Fuels Agency requires suppliers to submit reports each month on the net greenhouse gas savings of their supplied biofuels.

Voluntary targets have been set for biofuels to achieve a net saving of 40% in 2008/09 rising to 50% from 2010/11.

When they submit their sustainability reports, suppliers then receive Renewable Transport Fuel Certificates to use towards their obligation. Although these certificates are only the basis of a reporting system at present, they are seen by the Agency as a "stepping stone" towards a mandatory assurance scheme for the biofuels they supply.

The government has already pledged to reward biofuel use depending on their carbon savings from April 2010, and the RTF Certificates could be the basis for this.

And, the requirement for biofuels to meet appropriate sustainability standards looks set to be in place from April 2011. This would for example, seek to make sure the biofuels have been ethically produced and have not been cultivated on land with an important biodiversity.

Next steps

The government is now making changes to the RTFO system through the Climate Change Bill, expected to receive Royal Assent this summer.

However, these changes "are not critical to its immediate delivery" according to Department of Transport officials.

The three main changes within the Climate Change Bill are:

• New powers for the Renewable Fuels Agency to encourage fuel suppliers to improve the environmental performance of the biofuels they supply.
• New powers for the Secretary of State to require the Renewable Fuels Agency to change the way it regulates the RTFO in future, for example to reward biofuel use on the basis of carbon savings and sustainability standards.
• The creation of a data system to allow HM Revenue and Customs to reveal sales figures for fuel in the UK, in order to help enforce the RTFO system.

In future, however, wider changes are anticipated as the UK implements the European Renewable Energy Directive, which includes a legally-binding target to include 10% biofuels within transport fuel.

Europe's 10% target for biofuels content in transport fuel by 2020 is measured by energy content, rather than by volume as UK targets are measured. The Department for Transport states that the European target equates to "some 13% or so by volume".

As targets rise, the issue of developing standards will be important, since the existing 2010 target of 5% biofuels also represents the maximum biofuel content currently allowed by European Specifications to be sold on the forecourts as standard petrol or diesel.