Andrew Owens of Greenergy looks at the arguments for creating a biofuels market The government needs biofuels if it is to achieve its targets for reductions in greenhouse gas emissions, and if it is to respond to EU directives on biofuel sales. But without legislative backing and fiscal support for quality, biofuels are always going to remain premium products in a price driven market.
The transport sector, accounting for a quarter of the UK’s greenhouse gas emissions, is key to achieving the government’s targets of a 20% reduction in overall CO2 emissions by 2010. In both the short and longer term, biofuels figure prominently in the government’s game plan for low carbon transport, alongside reduced fuel usage and alternative engine technologies.
Biofuels are easy for consumers. In blends of up to 5% (blended with diesel or petrol) they can be used on a “fill up and go” basis, with no changes needed to engine, oil or servicing requirements. This gives them a crucial head-start over alternative fuels and technologies which need changes to vehicle fleets before they can enter into usage.
Second, biofuels are renewable fuels, many offering very significant whole-life greenhouse gas emission benefits. That said, it should be noted that careful government control is needed to ensure that support for biofuels steers the industry and consumers towards the most sustainable forms of biofuels offering the greatest whole-of-life carbon reduction.
And finally, biofuels offer benefits for the domestic economy. There is significant potential for UK farmers to diversify into energy crops such as rapeseed, for which the UK climate is ideally suited. Collection and use of waste oils and, in the future, use of products such as straw or forestry waste will all give rise to new economic activity, as will construction and operation of biofuel processing plants.
But despite these factors, very few players in the UK to have taken biofuels into the mainstream, with sales through the forecourts of retailers such as Tesco and Sainsbury’s and to an increasing number of fleet users. And while there has been a steady growth in sales, biofuels as a whole still account for less than 0.1% of total UK diesel consumption.
The reason lies in the economics of the sector. In 2002, the government took the first step towards creating a UK industry by introducing a duty incentive for biodiesel, setting the duty rate at 20p/litre under the rate for standard diesel.
But critically this level of incentive, which remains in force today, has not been sufficient to cover the additional cost of making quality biodiesel from the oils of energy crops such as rapeseed. The net result is that quality biofuels remain at a premium price which, while supporting independent producers, will not get the major players on board.
Identifying a mix of measures
The challenge for government is to identify an appropriate mix of fiscal and other measures that will provide real stimulus to the development of a significant domestic biofuel industry. It is our opinion that the current consultation led by the Department for Transport needs to result in early decisions – on support measures and consumption targets – if there is to be any chance of biofuels making a meaningful commitment to transport-related greenhouse gas emissions.
A significant step forward, and one that will facilitate meeting EU directives, will be the implementation of a biofuels obligation, similar to the Renewables Obligation that already exists for the electricity industry. This would require all fuel suppliers to supply a proportion of their fuel as biofuel or pay a penalty and would be successful if it were to operate alongside the current duty incentives.
There is a UK market for biofuels, the requirement is for government to make it a mass market. Until that time we will continue to source UK rapeseed and invest in a production infrastructure while developing networks in the fast growing European biofuels market.
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