Renewable Transport Fuel Obligations (Amendment) Order 2024

Tuesday 26th March 2024 Grand Committee

Considered in Grand Committee

16:46

Moved by

[Lord Davies of Gower]

That the Grand Committee do consider the Renewable Transport Fuel Obligations (Amendment) Order 2024.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Transport (Lord Davies of Gower) (Con)]

My Lords, this order would amend the Renewable Transport Fuel Obligations Order 2007 so that recycled carbon fuels, known as RCFs, are eligible for support under the renewable transport fuel obligation—RTFO—scheme.

The RTFO scheme establishes targets to drive the supply of renewable fuels. It does this by placing obligations on suppliers of transport fuel to ensure that renewable fuels make up a proportion of their overall supply. The amount of renewable fuel that should be supplied is calculated as a percentage of the volume of relevant fossil fuel supplied in a calendar year.

This obligation is met by acquiring certificates which are issued for the supply of sustainable renewable fuels. These certificates can be redeemed at the end of an obligation period, as well as traded between parties. The value of these certificates therefore provides a revenue stream for producers of renewable fuels and demand for their products in the fuel market. While the RTFO has operated successfully since 2008, it is important that it continues to evolve as new technologies and opportunities for emissions-reducing fuels are developed.

We committed to supporting RCFs in the Government’s transport decarbonisation plan and this statutory instrument delivers on that goal. It is the product of two consultations with industry and in-depth working with industry experts and across government departments. The instrument will help to maximise the greenhouse gas savings that can be achieved under the RTFO by broadening the available feedstocks for eligible fuels and encouraging the development of a new industry.

So what are these new fuels? RCFs are fuels produced from fossil wastes that cannot be avoided, reused or recycled, and have the potential to reduce greenhouse gas emissions relative to petrol, diesel or kerosene. To date, the RTFO scheme has supported only fuels produced from renewable feedstocks, such as biomass and renewable energy. However, emerging technologies and production methods mean it is possible for fuels produced from fossil wastes to contribute to emissions reductions to a similar degree to renewable fuels.

For example, wastes such as municipal solid waste—black binbag waste to most of us—can be processed using advanced techniques to form alternatives to fossil diesel and jet fuel. These fuels can provide significant greenhouse gas emissions savings compared with their alternative end-of-life fate, such as incineration in energy- from-waste plants.

Recent amendments to the Energy Act via last year’s Energy Bill permit RCFs to be included in the RTFO as well as other renewable transport support schemes, such as the forthcoming mandate for sustainable aviation fuels, provided they cause or contribute to a reduction in carbon emissions. The amendment to the Energy Act recognised that RCFs can play an important role in decarbonising different transport modes, including harder to electrify vehicles such as heavy goods vehicles and airliners.

Turning to the specific content of this SI, it amends the RTFO order to add wastes of fossil origin as an eligible feedstock for fuel production. Importantly, it also designates RCFs as a “development fuel”. These development fuels can be used to fill a sub-target in the RTFO designed to encourage the supply of novel and strategically important emerging technologies for fuel production. As a development fuel, qualifying RCFs also need to meet additional eligibility criteria in the order ensuring that only fuels that comply with existing fuel standards can qualify. This mitigates any air quality or compatibility concerns, as the fuels will in essence be chemically comparable with transport fuels already in use today.

This order will also allow RCFs to claim one development fuel certificate per litre of fuel supplied, which is half that of similar eligible renewable fuels. This is in recognition that truly renewable fuels remain more valuable, while still rewarding emissions savings from RCFs. To ensure that we mitigate any unintended consequences, the order also introduces detailed sustainability criteria. These ensure that support is provided only to fuels that are produced from genuine non-recyclable wastes and that they provide a saving on carbon emissions of at least 50% compared to traditional fossil fuels such as petrol and diesel. These criteria ensure that the policy complements the waste hierarchy and avoids incentivising the creation of wastes while still delivering emissions savings compared to the alternative likely end-of-life fate for different waste streams.

Why we are supporting RCFs? We expect that RCFs will have an important part to play in meeting our future emission reductions targets. Renewable fuels already contribute one-third of transport emissions reductions from the current carbon budget. Widening eligibility to include RCFs will ensure that such fuels can continue to make that important contribution as part of the transition to the electrification of road vehicles. Advanced fuels such as RCFs can generate significantly lower emissions compared to traditional fossil fuels.

The UK is leading the way in developing many of these technologies, supported by grant funding from the Department for Transport via the Future Fuels for Flight and Freight competition and, more recently, the Advanced Fuels Fund. Introducing RCFs into the RTFO now sets a helpful precedent for the forthcoming mandate for sustainable aviation fuel, which the Government have committed to introduce on 1 January 2025 and which will operate in a similar way, but for the aviation sector. Including RCFs in both schemes is important, as production processes mean that many facilities will produce both road fuel and SAF at the same time. Supporting RCFs under the RTFO will also increase the range of feedstocks eligible for support and encourage the innovation needed to increase the deployment of low-carbon fuels in harder to decarbonise vehicles such as heavy goods vehicles and airliners.

A further benefit of supporting RCFs is to provide a productive alternative for difficult to manage wastes. Examples of RCF feedstocks include unrecyclable, often contaminated plastics such as black bin bag waste. These wastes are currently mostly incinerated or sent to landfill. Processing them into fuels offers a more sustainable method of waste management. RCF production also utilises many of the same processes and technologies needed to be developed in order to increase the efficiency and capability of chemical recycling. Providing extra investment into these processes will therefore lead to wider waste management benefits in future.

In conclusion, as I have said, fuels supplied under the RTFO scheme currently deliver about one-third of all domestic transport carbon savings under current carbon budgets. However, it is vital that we expand the range of feedstocks we use if we are to continue to grow their contribution and meet our net-zero goal. RCFs have the potential to deliver emissions savings across the transport sector, while also supporting the efficient handling of wastes, and provide an opportunity for a valuable emerging UK industry, something I think we should all support. I beg to move.

[Lord Ravensdale (CB)]

My Lords, I declare my interests as set out in the register, particularly as a chief engineer working for AtkinsRéalis, an engineering consultancy, and as a co-chair of Legislators for Nuclear.

I very much welcome this statutory instrument, not least because I put forward and agreed with the Government the amendment to the Energy Act 2023 which gave them the primary powers to undertake this change. As the Minister said, recycled carbon fuels can provide significant carbon savings compared with traditional fossil fuels such as petrol, diesel and kerosene, and will save large quantities of carbon for hard-to-abate sectors. They will also enable RCFs as key near-term components of sustainable aviation fuels in the SAF mandate. Clearly, how these carbon savings are to be determined will be a key point in the implementation of these regulations, so can the Minister perhaps expand to the Committee on the detail of how this carbon savings process will be undertaken?

Secondly, the other part to my amendments to the Energy Act 2023 related to nuclear-derived fuels and enabling these to obtain support under the RTFO. These powers will be important in the near term for plans for hydrogen-powered construction vehicles and for hydrogen-powered buses at Sizewell, and in the medium term for the SAF mandate, given the unique characteristics of nuclear plants and their ability to produce hydrogen and synthetic fuels economically and at large volumes, leveraging the heat that they generate as well as electricity to generate large volumes of sustainable aviation fuel. Can the Minister perhaps update the Committee on when we will see a similar statutory instrument for nuclear-derived fuels, and indeed on the timescales of those associated consultations?

Finally, I highlight the need for cross-departmental working in this area, particularly on sustainable aviation fuels, which I know is already happening. There is a need for ministerial sponsorship of a senior-level, cross-Whitehall discussion, including the relevant departments, including the DESNZ, the DfT and the Treasury, to initiate those activities and dialogue on policy, funding and collaborations needed to unlock this SAF opportunity from recycled carbon fuels and from nuclear-derived fuels. This would really help break down those silos and move this area forward. Can the Minister also please state what plans there are for such cross-departmental work in the future?

[Baroness Randerson (LD)]

My Lords, I thank the Minister for his introduction. The noble Lord has just referred to the significance of this instrument. It is a very modest little piece of secondary legislation, but it could well usher in a whole new era in relation to fuels. This is about recycled carbon fuels, which are potentially a useful extension to the RTFO order. It increases the range of fuels, as the Minister has said, which can be rewarded under the order, and will therefore increase potential total carbon savings.

At the heart of this is the fact that this is not zero carbon but lower carbon: up to 50% lower than traditional fossil fuels. Of course, we are with various techniques moving away from our traditional fossil fuels: therefore, one would say that perhaps 50% lower might be more modest as a percentage later on, as the move away from fossil fuels is generated. That is very important, because it is based on waste of fossil fuel origin, such as municipal solid waste. So, in terms of providing a new fuel, this is also solving an old problem, and is therefore very welcome.

17:00

The Explanatory Memorandum gives the example of using rejected plastics from a recycling plant. I imagine that there is a great deal of that. The EM also refers to wastes that “cannot be avoided”. There is an obvious possibility that, if you have an alternative home for your plastics, you might not bother with the more complex business of recycling your plastic to create new plastics, because recycling plastic is a very complex issue and there are all sorts of hurdles to be overcome. So what safeguards do the Government envisage to ensure that recycling plants deal rigorously with plastic, so that as much as possible is recycled and reused, rather than burned in a once and for all process, by creating, for example, sustainable aviation fuel?

That is the big win with this because, although SAF is imperfect, we cannot allow the situation on aviation to continue. We have to ensure that the perfect does not become the enemy of the good, and SAF means that we can start to deal with the 7% of UK emissions caused by aviation. The Government are committed to a SAF mandate by 2025, requiring 10% of jet fuel to be from SAF by 2030. The alternatives to SAF, hydrogen and electricity, are on a much slower trajectory, so in the short term SAF is the only way to go.

However, the UK is trailing the US and many European countries where Governments have introduced incentives to support the sustainable aviation fuel industry. In his introduction, the Minister referred to government grants and various forms of support. I would be grateful if he could provide us with more detail, so that we can judge whether the Government have gone anything like far enough to ensure that the UK becomes a world leader in sustainable aviation fuel.

I have a supplementary question to that. Do we have any plants manufacturing in this way at the moment and, if so, how many?

Finally, on a very much more detailed note, as a member of the Secondary Legislation Scrutiny Committee, which was referred to extensively in the previous item of business, I look with interest at impact assessments. I was disappointed to see, in paragraphs 12.3 and 12.4 of the Explanatory Memorandum, that there has been no impact assessment, because it is judged that there will be

“no significant … impact on the public sector”.

That seems to me a major misjudgment. This is being treated as a cost-benefit analysis item for the Treasury, but it has huge implications. By giving this permission, there is the possibility of dealing with a large part of municipal waste problems, and that, surely, is of significance to the public sector. So I think the Government have not looked broadly enough at the impact and potential of this statutory instrument.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for his presentation of this statutory instrument. It is not an instrument that I have got on with very well. I decided to try to understand it, and that has absorbed a great deal of my time. As I tried to understand it, my old history teacher’s test came to mind: “You don’t understand it until you can explain it in your own words”. So I shall explain what I think it means, in my own words, and see whether the Minister agrees.

At one level, this is an elaborate and benign waste-management exercise. Let us look at the two comparisons here. A renewable transport fuel comes from taking CO₂ out of the atmosphere and turning it into fuel using those wonderful devices called “plants”. We then turn the energy captured in those plants into fuel and burn it in vehicle engines and so forth, which releases the energy and the CO₂ back into the atmosphere. The impact of the CO₂ is neutral: in other words, the plants’ photosynthesis activity captures energy, essentially from the sun, and that energy is turned into fuel and then released.

A recycled carbon fuel takes carbon from beneath the earth, in the form of oil or carbon or whatever, and in this case turns it into something useful such as plastic, which then becomes waste. It is then, in this process, turned into fuel. That means, essentially, that it is burned. Energy is released and the CO₂ is released into the atmosphere. The impact of CO₂ is adverse, in the sense that carbon is taken from its fossil source and put into the atmosphere, which is a bad thing.

It is only if the feedstocks are not burned wastefully, through incineration or whatever, that there is a net benign effect: only if very strict controls are applied to the feedstock to make sure that it is inevitable that the feedstock is turned into free CO₂, left to incineration et cetera—or it goes into landfill, which once again is an adverse outcome. Therefore, properly controlled, this policy is benign and has our support. So the Minister can stop his concerns; we are not going to try to vote this down, first because it is benign and, secondly, because we do not want a constitutional crisis.

Moving on, I have a few questions about this order. The emphasis in the literature seems to be on aviation fuel. Can the Minister give us some feel on the extent to which it will be a significant contribution to aviation fuel or where else it would be used in any significant amount? Indeed, will it be significant in any non-aviation applications? Next, is there an international dimension here in terms of the UK creating this instrument, which will stop the development of international agreements on this way of handling waste? Finally, is it within this instrument’s power for the Government to withdraw it, because it needs to meet two tests? The first is on the strict control of the feedstock while the second is about whether the financial incentives contained in the order actually work. If it is impossible to get a set of financial incentives that work, can the Government withdraw the instrument and its impact?

[Lord Davies of Gower (Con)]

My Lords, I thank all noble Lords for their consideration of this order. I will now attempt to respond to the specific points that they made.

Let me start by saying that the RTFO includes a range of strict eligibility criteria to ensure that all fuels supplied are sustainable and provide a minimum level of greenhouse gas savings. Although RCFs are a fossil fuel, and therefore emit fossil carbon when combusted, their carbon savings are determined by comparison to the counterfactual end-of-life fate of the waste feedstock. For instance, black binbag waste uses an assumption that the waste would otherwise be incinerated in an energy-from-waste plant and calculates the benefit seen by diverting that waste into fuel production. This still needs to provide an emissions saving of 50% compared to simply using fossil diesel.

Different counterfactuals can be considered, depending on the specific waste feedstock. This ensures that the use of these fuels delivers effective greenhouse gas savings. Converting residual non-recyclable waste plastic into recycled carbon fuels can encourage a more effective use of our waste, as it can achieve greater energy recovery than disposing of the waste via conventional means.

Any recycled fuel produced from plastics will have to meet the same fuel standards as all other fuels to gain support from the RTFO. We are aware that pyrolysis oil, which is an initial stage of chemical waste recycling, can be used as a fuel for some applications and can have negative air quality issues associated with its use. However, such fuel would not be eligible under the RTFO order proposed here, as it does not meet the relevant fuel standards outlined in the order. Pyrolysis oil created during RCF production would need to be further refined into a diesel fuel that complies with existing fuel standards to receive RTFO support. We are not aware of any evidence to suggest that this would alter the air quality performance of the final fuel compared to regular diesel.

I will now address one or two of the points that were made. The noble Lord, Lord Ravensdale, made a couple of points; in particular, he talked about nuclear-derived fuels. I can tell him that we received the primary powers required to support nuclear-derived fuels under the RTFO following Royal Assent of the Energy Act 2023. We continue to consider the inclusion of nuclear-derived fuels in the RTFO. We have confirmed that the forthcoming mandate for sustainable aviation fuels will support nuclear-derived fuels; it is on track to come into force on 1 January 2025.

On the issue of cross-departmental working, DESNZ, the DfT and the Treasury are absolutely aware of the need for it and are making great efforts to work together in order to take it forward.

17:15

The noble Baroness, Lady Randerson, talked about emissions savings. They are calculated based on a counterfactual methodology which takes into account production emissions and compares them with alternative end-of-life fates. Full guidance on this has been published. The RTFO unit, which administers the scheme, conducts detailed waste assessments to ensure that the waste hierarchy is respected. Additionally, the technology development of RCFs will support the development of the advanced chemical recycling processes needed for hard-to-recycle plastics.

The mandate for sustainable aviation fuel is on track to start on 1 January 2025. It will include support for RCF-derived aviation fuel. The Government’s response to the second consultation will set out the final design of the SAF mandate and will be published in the spring of this year.

We will continue to consult on the design and implementation of a revenue certainty mechanism to support the UK SAF industry, including producers of RCF fuels, with the aim of delivering the mechanism by the end of 2026. Through the Jet Zero Council, we are working with the SAF industry to consider what other measures could be put in place before the revenue certainty mechanism is implemented.

RCFs are eligible for support only when produced from fossil wastes that cannot be avoided, reused or recycled and have the potential to reduce greenhouse gas emissions relative to traditional fossil fuels such as petrol and diesel. In line with the principles of the waste hierarchy, our recent consultation set out eligibility criteria to ensure that RCFs would not be produced from recyclable material. In practice, this means that, for RCFs produced from solid wastes to be eligible for support, suppliers must demonstrate that the feedstocks are derived from facilities that have adequate separation processes to remove recyclable dense plastics and that the resulting feedstock is categorised as refuse-derived fuel.

Lastly, on the point about the EU’s position, the UK is a leading country in the development of this policy. Although the EU’s renewable energy directive allows the support of RCFs, no EU country has yet implemented that support. This legislation will pave the way for other countries to introduce support for this emerging industry.

I hope that I have addressed most of the points raised; I will look at the record to see whether I have missed anything. I thank noble Lords for their contributions and commend this instrument to the Committee.

Motion agreed.