Renewable Transport Fuels and Greenhouse Gas Emissions Regulations 2018

Lord Tunnicliffe Excerpts

Tuesday 6th March 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Transport (Baroness Sugg) (Con)]

My Lords, I ask that the draft Renewable Transport Fuels and Greenhouse Gas Emissions Regulations be considered.

[Lord Tunnicliffe (Lab)]

I believe that the Minister does not want them considered but approved. The Minister’s civil servants are always right for the Moses Room, but we are in the Chamber rather than there.

[Baroness Sugg]

I thank the noble Lord for that correction. I therefore ask that the draft Renewable Transport Fuels and Greenhouse Gas Emissions Regulations be approved. These regulations will amend two pieces of legislation relevant to suppliers of fuels: the Renewable Transport Fuel Obligations Order 2007—the RTFO Order; and the Motor Fuel (Road Vehicle and Mobile Machinery) Greenhouse Gas Emissions Reporting Regulations 2012—the greenhouse gas reporting regulations. In September, the Government set out a 15-year strategy for renewable transport fuels. This is an ambitious strategy to support investment in sustainable advanced fuels of importance to the UK and to help meet our carbon budget commitments. These regulations are the product of that strategy and are key to its implementation.

It may be helpful at this stage for me to provide an overview of the current regulatory framework. Under the Renewable Transport Fuel Obligations Order, suppliers of fossil fuel have an obligation to demonstrate that the equivalent of 4.75% of their fuel supply is from renewable sources. Suppliers of biofuel that meet sustainability criteria are rewarded with renewable transport fuels certificates, which can be traded on the open market. The greenhouse gas reporting regulations operate in parallel with the renewable transport fuel obligations scheme, and require fuel suppliers to report the amount and type of fuel they supply and its greenhouse gas intensity.

Under the Renewable Transport Fuel Obligations Order, the greenhouse gas emissions savings from renewable fuels have improved year on year. Last year, the average greenhouse gas saving of a litre of renewable fuel was 71% compared to petrol and diesel. The draft regulations build on that success. They would amend the Renewable Transport Fuel Obligations Order to increase the targets for renewable fuels to 9.75% of fuel supplied in 2020 and 12.4% by 2032, providing investment certainty; increase incentives for new fuels of strategic future importance to the UK, known as “development fuels”; make certain renewable aviation fuels and make renewable hydrogen eligible for reward; and place a limit on the contribution that biofuels produced from food crops can make to meeting targets.

The draft regulations will amend the greenhouse gas reporting regulation to create a new greenhouse gas credit trading scheme. Key features of this new scheme are an obligation on fuel suppliers to reduce the overall greenhouse gas emissions of the fuels they supply by 6% compared to 2010 levels, and incentives to suppliers through rewarding with greenhouse gas credits for fuels with lower greenhouse gas emissions than petrol and diesel, electricity used in vehicles and reductions in emissions from the extraction of crude oils.

The serious groundwork for these amendments began in 2014 and there has been input from industry and NGO experts throughout. The department has, rightly, taken time to build consensus in a controversial and complex policy area. In 2014, there was no final agreement in the UK or at EU level over how best to address negative indirect land use change impacts associated with some crop biofuels, no broad agreement on how to increase renewable transport fuel targets or on what the long-term strategy should be, and no firm proposals on how to incentivise novel renewable fuels or advanced development fuels of strategic importance to the UK.

These regulations set a 15-year strategy, mitigate indirect land use change risks and promote advanced development fuels, and they are the most ambitious in this area to date. They also strike a balance between maintaining support for an established UK biofuel industry which faces challenging market conditions and setting ambitious, stretching targets to support new development fuels.

The Government recognise both the environmental and the wider economic benefits of established UK biofuel production. The department has listened to suppliers and is now proposing that the Renewable Transport Fuel Obligations Order obligation level will reach 12.4% in 2032, providing longer-term certainty. Rather than set a 2% crop cap in 2018, that cap should reduce gradually from 4% in 2018 to 2% in 2032.

The department is aware that the UK bioethanol industry and its partners would have preferred a different approach on the crop cap and are seeking support for a rollout of E10 fuel. These regulations will not contract the market for UK bioethanol made from crops and will provide space for a market for E10, should suppliers choose to deploy it. Moving to E10 fuel could make achieving our renewable energy targets easier and provide an economic boost to domestic producers of bioethanol and UK farmers in the supply chain. The department therefore remains committed to working with industry to ensure that any future introduction of E10 is managed carefully and that E5 remains available for vehicles not compatible with E10.

In conclusion, the regulations before your Lordships will accelerate the delivery of sustainable development fuels, enabling the UK to lead in developing and deploying those fuels. They also take into account the wider economic importance of existing UK biofuel production and seek to maintain that market. I beg to move.

--- Later in debate ---

[Lord Tunnicliffe]

My Lords, I, too, support the instrument—indeed, as has been pointed out, we should be celebrating it, given how long it has taken to achieve.

I have worked hard to understand the instrument and its accompanying memorandum and I would probably have had many questions to ask. However, the Secondary Legislation Scrutiny Committee’s report rather effectively had that debate for us in some depth. At the end of the day I agree with its general conclusion, despite the industry intervention, that the balance is about right.

However, the instrument is directive driven and the targets are only made by the dependence on non-crop double incentive—and by the time I had got to a non-crop double incentive I thought perhaps it was time to retire. I say it is directive driven because I would have valued seeing somewhere the department’s long-term vision for biofuel. Most forms of transport have credible non-hydrocarbon solutions, at least in embryonic form, but aviation, with its requirement for very high fuel density, needs to look forward hopefully to biofuel, which can be 100%. So I would be grateful if the Minister could set out the department’s thinking about the long-term use of biofuels, particularly in aviation.

From reading the Explanatory Memorandum and the correspondence with the sub-committee, it seemed to me that one problem was with the potential feedstocks for non-crop biofuels. Asked for examples, we were given cooking oil and tallow—but there are only so many fish and chip shops generating used cooking oil. Is there a viable long-term source of feedstocks for non-crop biofuels that could start to contemplate meeting the volumes of fuel that would be needed if biofuels, particularly non-crop biofuels, became the preponderant fuel for aviation?

[Baroness Sugg]

My Lords, I thank all noble Lords for their contributions and for their broad welcome and support for these regulations. The noble Baroness, Lady Randerson, mentioned the delay in passing them, and I acknowledge that there has been a slight delay. The regulations have been informed by extensive consultation with industry experts and NGOs and they represent a complex set of changes. We felt that it was right to build consensus wherever we could in this area.

The noble Baroness asked how we can help new suppliers, particularly to aviation, get from the demonstration scale to the commercial one. Under our second competition, up to £22 million of government funding will be matched by private sector investment to construct a first-of-a-kind fuel production facility in the UK which will enable the demonstration of technical and commercial viability, including for aviation fuel. She also asked why we did not propose a target in 2018. Time would have been tight for a 2018 target. During the consultation there was little support for targets before 2020 and we therefore decided not to introduce one for this year.

The noble Baroness raised the point about the crop cap and asked whether the percentage we have set is correct. It is different from that in other member states. We have taken into account the consultation responses to the regulations and we have set the cap at 4% in 2018; it will be reduced gradually from 2021 to 2032. To put the figures into perspective, total UK bioethanol production capacity at the moment is equivalent to a little more than 1% of the transport energy requirement, and the current proportion of crops being used to produce biofuels is equivalent to less than 2% of the UK fuel supply. As I say, I acknowledge that the cap is lower than that set in some member states, but they are already using more crop-derived biofuels. The changes proposed in the regulations continue to support our existing bioethanol industry by encouraging future investment in waste-derived fuels. We think that a higher crop cap in the UK could result in more fuels being supplied that can cause an increase in greenhouse gas emissions.

The noble Baroness asked whether we will deploy E10 fuel. I hope that the Government have been clear that deploying E10 fuel is an option for suppliers in meeting their obligations and it may well be the best and most cost-effective option, but at this stage the regulations do not mandate E10 fuel in the sense of requiring that petrol should be blended with 10% bioethanol. The regulations provide the flexibility for fuel suppliers to determine how best to meet their obligations, and we think that flexibility will enable the costs to be kept down and allow suppliers to react to changes that impact on the market.

On exiting the European Union, I can confirm that the Government have no plans to change their policy in this area and the amendments have been designed to achieve our domestic carbon budget commitments and provide UK industry with the long-term investment certainty it needs, but as with any policy, we will keep it under review to ensure cost-effectiveness. On the question raised by the noble Baroness on the generation of electricity for electric vehicles, with her permission I would like to consider further how we can address this in the AEV Bill, and I will write to her on the issue.

The noble Lord, Lord Berkeley, raised the issue of compatibility of the various different engine types with this new fuel. We recognise that the owners of vehicles, be they regular cars, vintage cars or indeed boats, will ask whether they will be compatible with E10 and indeed E5 fuel. We are committed to working with industry to ensure that any rollout of E10 is carefully managed and that information on compatibility is made available to vehicle owners. We intend to consult very soon on proposals that will require that E5 fuel remains available to motorists, and how best to provide information on it. I am not aware of the detail concerning boat engines, so I will write to the noble Lord.

The noble Lord, Lord Tunnicliffe, talked about the long-term proposal. Obviously, as we transition to ultra-low emission vehicles, we will continue to need low-carbon liquid and gaseous fuels for decades to come, particularly in the aviation sector. In the absence of new measures and given the expected growth in the aviation sector, emissions are likely to increase, so low-carbon fuels such as biofuels are considered the only viable source of energy available to significantly limit aviation emissions by 2050. Electric airplanes are in development, but I think they are some years off. The UK aviation industry has for some time advocated its eligibility for an award under the RTFO because it would help to provide the support needed, as the noble Baroness, Lady Randerson, also mentioned, to kick-start the use of aviation biofuels which at present are not produced or supplied in the UK. The regulations before us will enable renewable aviation fuels to receive RTFO incentives for the first time, and we hope very much that that will encourage the industry to grow.

The noble Lord asked about the availability of waste feedstocks and the number of fish and chip shops both in this country and abroad, given that we import some of our feedstocks. We have carried out scenario testing to look at different waste supply potentials. Stakeholders have been helpful in confirming that the volume of waste feedstocks we think we will need to meet the higher targets is likely to be available, and we therefore continue to assume that the waste feedstocks can be supplied. There is some uncertainty over exactly which feedstocks will be supplied—noble Lords have mentioned cooking oil and tallow—but we anticipate that much of the increase will come from the waste already being used to make biodiesel. Furthermore, given the post-consultation changes to the crop cap, which, as I said, will start at a high percentage and gradually reduce towards 2032, we consider that the risk of waste biofuels becoming more expensive than the buyout is reduced. The development fuels sub-target is also designed to increase the diversity of feedstocks used to produce fuels.

I hope I have answered all noble Lords’ questions; if not, I will follow up in writing. I thank noble Lords for their contributions to the debate. The regulations are needed to support investment in sustainable advanced fuels for automotive, aviation, road freight and maritime; to provide certainty to UK producers and the farms that will supply them that existing bioethanol capacity will be fully utilised; and to help us meet our climate change commitments. In meeting our commitments, low-carbon fuels will be needed for decades to come, not least in the sectors that are harder to decarbonise through electrification, such as heavy goods vehicles and aviation. We feel that the targets in these regulations are ambitious and will provide an important contribution to UK carbon budgets. The amendments build on the success of the RTFO to date in delivering significant greenhouse gas emissions reductions. I hope your Lordships will agree that the regulations are the best way to proceed with our renewable transport fuels strategy. I beg to move.