Renewable Transport Fuel Obligations (Amendment) Order 2013

Lord Berkeley Excerpts

Wednesday 27th February 2013 Grand Committee

[Earl Attlee]

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.

[Lord Berkeley]

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.

[Lord Bradshaw]

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.

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[Earl Attlee]

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.

[Lord Berkeley]

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?

[Earl Attlee]

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—

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[Earl Attlee]

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.

[Lord Berkeley]

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.

[Earl Attlee]

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.

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[Lord Berkeley]

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.

[Earl Attlee]

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—