Memorandum from The British Association
for Biofuels and Oils (BABFO)
THE CASE FOR DUTY REBATES FOR BIODIESEL AND
The British Association of Biofuels and Oils
(BABFO) welcomes the Environmental Audit Select Committee's decision
to hold an inquiry into the "Pre Budget Report 2001"
to "take stock of where we stand on the process of environmental
tax reform which the Government committed itself to in the 1997
Statement of Intent." BABFO represents fuel companies, fuel
users, farmers, agricultural merchants and environmentalists,
and is dedicated to the promotion of transport fuels and oils
from renewable sources. The terms of the Committee's inquiry include:
The Government's progress to date
in its programme of environmental tax reform; and
The consistency of the Government's
approach and specific areas where further progress may be made.
This paper will address these two themes, and
is based on a paper we submitted to the Treasury in advance of
the Pre-Budget statement.
Providing serious support for liquid biofuels
is consistent with Government policy and would help achieve objectives
in a number of areas. In its election manifesto, the present Government
committed itself to "support....cleaner fuels and biofuels"
(Labour Manifesto 2001). Thus far, the Government's proposals
have been interesting but insufficient. The UK's nascent liquid
biofuels industry looks to the Chancellor in his forthcoming pre
Budget statement for policy delivery. BABFO submits that it would
be consistent and in the national interest to provide the same
level of duty (4.5ppl) for the biofuels as has already been given
to the gas fuels, LPG and CNG. This is because, on balance, the
biofuels save more energy and pollute our planet less than the
A. HOW AN
Government policy for road transport fuels includes
1. To increase the diversity of road transport
fuel supplies (particularly important now in view of the instability
in the Middle East).
One of the key energy issues facing the UK is
the need to provide for the near insatiable demand for transport.
DTI statistics show that transport is responsible for 34 per cent
of final energy demand in the UK (Digest of UK Energy Statistics
2000, DTI/National Statistics, 2000 Edition). This is projected
to rise to 38 per cent by 2020. At the moment, the vast majority
of this is satisfied by carbon-based fuels with inbuilt uncertainty
of price and supply. Given this, there is an urgent need for the
Government to take action to address the situation, and encourage
the production of non fossil transport fuels from domestic resources.
2. To conserve energy supplies (fossil gas
and oil reserves are finite and the UK will shortly be a net importer
Whilst the proportion of final energy demand
taken up by transport continues to increase, the supply of carbon-based
fuels continues to decline. The DTI's own submission to the Energy
Review shows that if current trends continue. UK oil production
will "fall from around 129 million tonnes in 2002 to around
88 million tonnes by 2006". The UK is already a net importer
of gas, and dependence on gas imports is likely to increase sharply
over the next five years; it is projected "that the UK will
have to import 15 per cent of its gas by 2006. (DTI's Energy Trends
2001). To further exacerbate the potential energy crisis, the
UK's existing nuclear power stations (which currently generate
25 per cent of the UK's electricity) are being progressively decommissioned.
3. To cut greenhouse gas emissions(road
transport fuel is the fastest growing element of GHG emissions).
FSBR 1998 5.43: states "the Government's
desire to move towards a fairer treatment of petrol and diesel
calculated on an energy or carbon basis"
4. To improve local air quality in cities
"We must do everything we can to cut this
loss of life by improving air quality, including further controls
on vehicle emissions which have brought about significant reductions
in emissions without imposing unreasonable burdens on car users
or on business". (A New Deal for Transport July 1998).
5. To stimulate and diversify the rural
environment and economy thereby improving opportunities for country
dwellers, and wildlife.
"Labour will expand this programme (rural
development grants) so farming can become more diverse and responsive
to consumers. And produce in a way that sustains and improves
the environment". (Labour manifesto 2001).
6. To minimise environmental damage from
handling of road transport fuel. (An unstated but obvious good)
7. To use fiscal incentives to achieve these
"The Government places a high priority on
the use of the tax system to deliver environmental objectives".
(Budget Statement 1997).
"The Government will aim to reform the tax
system to increase incentives to reduce environmental damage."(HMT
Environmental Taxation Policy Statement 1997).
The following submission demonstrates that substantially
reducing the fuel duty on bioethanol and biodiesel will achieve
policy objectives 1-6 with a high degree of certainty.
To date, Government policy has concentrated:
(successfully) on reducing pollution
from petrol and diesel combustion;
and (with little success) on promoting
the road fuel gases.
Hitherto, DEFRA/MAFF farmland policies have
neglected transport fuels entirely and instead concentrated on
biomass for electricity generation (to date with no measurable
successonly about 0.015 per cent of farmland is under biomass
crops). It would be premature to assess DEFRA's policies but it
is to be hoped that the new Department's policies will acknowledge
the compelling nature of the case for producing biodiesel and
bioethanol from UK farmland.
Until Budget 2001, the contribution biofuels
could make to reducing transport emissions and revitalising the
rural economy went unacknowledged by Government. Budget 2001 saw
the first signs of the Government's recognition of the environmental,
agricultural and economic credentials of these fuels, when the
Chancellor announced two initiatives:
an unnecessarily cautious "pilot
project" proposal for bioethanol;
and a welcome but inadequate 20p
rebate for biodiesel to take effect from Budget 2002.
In contrast, the Government has given major
incentives to the fossil gas fuels, LPG and CNG. Duty rates are
now of the order of 4.5ppl plus incentives (a further £30
million) through the Powershift programme for the engine modification
and infrastructure necessary to establish gas distribution. The
gas policy has not succeeded. In spite of these major incentives
only approximately 0.01 per cent of road transport is fuelled
by gas after at least five years of promotion (45,000 tonnes out
of 37 million tonnes). It must be in the interest of both the
Government and taxpayers to review this programme. If road fuel
gases are not commercially viable at a duty rate of 4.5p, it must
be asked whether they will ever be viable. (By contrast, biodiesel
and bioethanol certainly would be viable at this level of duty.)
Compared with biodiesel and bioethanol, the
gas fuels (and of course ordinary petrol and diesel) do little
to help achieve the Government's aim of a Low Carbon Economy.
It is therefore, not only appropriate but also
necessaryto look to alternative, cleaner, more acceptable
fuelsbioethanol and biodiesel. In addition to helping the
Government meet the agricultural, environmental, energy and policy
aims (outlined in objectives 1 to 6 at the beginning of this paper)
an established biofuels industry would also help the Government
in a number of other areas. These include satisfying an expected
European directive on biofuels and ensuring that at a difficult
economic time, industry chooses to invest in the UK as opposed
to other countries with more favourable biofuel tax regimes.
C. THE DRIVE
The EU is likely to propose that by 2005, 2
per cent of road transport be provided by biofuels and that by
2010 biofuels should provide at least three times this proportion.
A duty rate for bioethanol equal to that already given to CNG/LPG
would ensure that these targets were met, idle land was put to
good use, greenhouse gases were cut and air quality was improved.
At the recent Informal Meeting of the Agricultural
Council, Commissioner Franz Fischler discussed the promotion of
biofuels across the European Union. He noted the positive contribution
biofuels could make to reducing carbon dioxide emissions and the
difference they could make to the rural economy (European Union
figures show that on an EU-wide basis, between 45,000 and 75,000
jobs could be created by the biofuels industry, mainly in farming
However, Fischler also sounded a note of caution
and stressed the challenges that lie ahead for all European Governments
if the full benefits of biofuels are to be realised. For example,
he observed that "the clear discrepancy between prices for
biofuels and for fossil energy continues to present a major handicap",
continuing "we should remember that this price gap is only
seemingly a result of a real competitive disadvantage for biofuels".
He has repeated his call for member states to support biofuels
on several occasions. (28 September): "The Ministers of Agriculture
of the European Union are very interested to expand the use of
bio-fuels and enlarge the area of energy crops. This can make
an important contribution to reduce carbon dioxide emissions,
reinforcing the strategy of sustainable development of the Union."
David Jamieson MP, Under-Secretary of State
at the DTLR recently stated that "[the Government] intends
this country to be a world leader in biofuel technologies"
(Official Report, 4 July). If this ambition is to be realised,
and we are not to lag behind other European countries, it is vital
that the tax regime is favourable enough to stimulate demand for
biofuels. As Fischler warned: "income opportunities will
not be realised without considerable efforts on our side."
D. THE CASE
The bioethanol proposals in Budget 2001 seem
unreasonably cautious given that all that can sensibly be known
about bioethanol as a road fuel is already known. It is the third
most widely used road fuel after petrol and diesel. Countries
such as Brazil, the USA, Canada, France and Spain all have established
markets. The Government specifically excluded bioethanol derived
from mainstream agricultural resources from its considerations.
To use parliamentary language this was "unwise" and
the advice that led to this decision should be re-examined. We
question whether this advice was connected with the apparently
"comfortable" relationship between certain DTI officials
and the consultants AEA Technology PLC who have shown little interest
in the biofuels.
Treasury Ministers have appeared misinformed
when responding to letters or answering parliamentary questions
on the attributes of bioethanol as a fuel. Specifically, it is
untrue to state that bioethanol has no significant tailpipe emission
benefits compared with fossil fuels.
Bioethanol has probably the best tailpipe emissions
of any fuel in commercial use. (See attached copy of letter from
the Financial Secretary and working paper.) Bioethanol also has
significantly lower greenhouse gas emissions on a life cycle basis
and is energy positive and likely to become more so as yields
In a normal year, around two million tonnes
of what are exported, some at least of which will go for bioethanol
production on the continent. In such a case, the UK stands the
environmental disbenefit and the importing country gains the air
quality benefit. Is this really what Ministers wish? Bioethanol
can be produced from a wide range of crops. Wheat is currently
the main input but it is certain that with appropriate incentives,
other crops would be developed with higher yields and hence lower
unit costs in both financial and environmental terms. Fodder beet
is such a crop, where yields well in excess of 3t per ha of ethanol
could be achieved on a sustainable basis whilst improving biodiversity.
(Fodder beet is also a crop, outside the CAP regime, which could
generally be grown in the areas particularly stricken by the Foot
and Mouth epidemic).
Evidence already given under the Green Fuels
Challenge demonstrates the valuable positive feature of bioethanol
and we submit that on any unbiased assessment of the evidence,
bioethanol warrants the same duty rate as CNG and LPG. We wish
to ask specifically why this has not been granted before now and
on what advice bioethanol from mainstream crops has been excluded
UK petrol consumption is of the order of 22
million tonnes per year. Two per cent of this (the draft EU proposal)
is 440,000 tonnes. It will be impossible for this amount of fuel
to come in early time from pilot projects using only agricultural
and forestry waste. It will be essential to involve mainstream
May we please be assured that Ministers will
not be improperly influenced by lobbying from major oil and gas
companies who would lose control of perhaps 5 per cent of UK road
fuels if biofuels took this market share.
ETBE (ethyl tertiary butyl ether) is a high
octane petrol component based on bioethanol. It has the advantages
of MTBE without the disadvantages. We submit that there is a clear
case for a major duty rebate for bioethanol used for ETBE production.
At least one major petrol company is reviewing this for the UK
market and would be likely to go ahead if there was an appropriate
incentive as there is in France.
Growing specialist crops for bioethanol would
provide a useful, environmentally sound, new market for the agricultural
industry in line with recent policy statements by the Secretary
of State for the DEFRA.
Alternative land use is of particular importance
in the wake of the foot and mouth epidemic. Over 2m ha are currently
under stocked and may never again be fully restocked. Fodder beet
is a particularly suitable cash crop for such stock farms and
its introduction as a bioethanol feed stock would do much to revitalise
the whole rural economy in the stricken areas as well as providing
a much desired clean green transport fuel. In A Countryside: the
future (November 2001) the Government pledged its support for
non food crops arguing that these "contribute to sustainable
development both in environmental terms by reducing greenhouse
gas emissions and in economic terms by boosting farm diversification
and rural incomes".
Production of liquid biofuels for road transport
would contribute to the rural economy in just the way suggested.
On all independent objective evidence bioethanol:
Reduces greenhouse gases (by more
than LPG and CNG on a g/km basis)
Reduces substantially tailpipe emissions
compared with petrol
Is safe, easy to use and can be blended
directly with petrol or used to produce ETBE
Has a positive energy balance which
is likely to increase as crop yields increase
Can be produced from mainstream UK
agriculture in quantity sufficient to have a real influence on
fuel supplies and air quality.
The DTLR bioethanol pilot project scheme will
not produce any worthwhile amount of fuel for a very long time,
if ever. By contrast, around 500,000t of bioethanol pa could rapidly
be produced from 150,000-200,000 ha of cereal and root crops.
This would be no more than 3 per cent of the UK area of crops
and temporary grass.
The Chancellor's November statement presents
the Government with an ideal opportunity to signal its support
for a mainstream bioethanol industry from UK agricultural resources.
E. THE CASE
The proposed 20p rebate is welcome but inadequate
and likely to lead to disappointment and frustration as, at the
current rate, it will not stimulate the large scale production
necessary to achieve the very objectives it was designed to meet
eg the Government's drive to reduce CO2 emissions. The 20p recognises
some at least of the greenhouse gas benefits of biodiesel but
the other benefits go unacknowledged. These include improvement
of local air quality, safety, ease of use and biodegradeablity.
We understand that the rebate was designed only to encourage the
recycling of used cooking oil (RVO). On the most optimistic projections,
RVO might be able to produce up to 50,000 to 70,000tpa, but it
will not be able to bring forward sufficient fuel to influence
air quality and provide a genuine alternative supply.
Diversity of supply being a major plank of Government
policy, it is difficult to see why DETR advice was to exclude
mainstream agricultural production of biodiesel. The DERV market
is about 15 million tonnes per year. British agricultural could
produce 5 per cent of this750,000 tonnes from 450,000ha
(7.5 per cent of the area of crops and temporary grass). This
land could certainly be found including from set aside and second/third
wheat land. No new technology would be needed, husbandry of the
relevant crop is well understood and is known to be of environmental
The Government's present proposal will also
lead to a further problem. There is overall clear agreement that
only biodiesel which meets the agreed quality standard can qualify
for the 20p debate. BSI and EU authorities have agreed a draft
standard acceptable to engine manufacturers for biodiesel (FAME,
Fatty Acid Methyl Ester).
Experts on biodiesel production/esterification
in the UK and elsewhere are agreed that it will be very difficult
for biodiesel made only from RVOs to meet this specification.
Such a fuel would thus be very unlikely to qualify for the rebate.
There is, however, little doubt that a blend of one part recycled
oil (of vegetable or animal origin) to 8-10 parts RME (Rape Methyl
Ester) produced pure from oilseed crops would meet the standard.
However, major manufacturers have made it clear that the 20p rebate
is not sufficient to justify the necessary investment although
the financial and technical resources are certainly available.
Biodiesel is safe and easily biodegradeableit
can even be used to aid the clean up of mineral oil spillages
and requires no engine modification.
Agriculturally, it is quite practical to see
300,000 tpa of biodiesel in short to medium term from up to 200,000
ha as shown above. This, if blended with 50,000 tpa of recycled
oil would produce 350,000tpa2.3 per cent of current diesel
usagea far better performance than the gas fuels have managed
to date (0.01 per cent of the market). In the longer term, 10
per cent fuel from 10 per cent of UK farmland is a realistic target.
Again, a duty rate similar to that for gas (4.5ppl)
would bring forward the necessary large scale investment.
F. MAFF/DEFRA/DTI POLICY
MAFF/DEFRA/DTI policy on renewable energy is
in disarray. The new department would now do well to concentrate
on the benefits to be obtained from liquid biofuel production
from British agriculture. All past effort has gone into encouraging
short rotation coppice for use in specialist wood burning power
stations. The potential for biofuels has been completely ignored.
However, the flagship ARBRE power station in Yorkshire (if it
performs economically at all) will produce electricity at least
three times the cost of the fossil alternative. Unsurprisingly
only some 1500 ha (0.015 per cent of farmland) have so far been
planted with coppice due to the uncertainty. Shrewd farmers do
not wish to risk their land and livelihood.
Biodiesel has been criticised on the basis that its
basic pre tax cost is perhaps two times the fossil alternative.
However, electricity from biomass costs at least three times but
is receiving heavy Government support. An explanation for this
inconsistency is required. However, the wind energy programme
for electricity generation has shown how sound technology with
appropriate State aid can lead to worthwhile progress. The same
applies to biofuels for road transport.
Thoughts that hydrogen can be the fuel of the
future must be shelved until the basic energy dilemma has been
resolvedit takes at least twice as much energy to make
hydrogen as is obtained from using it. Hydrogen fuels halve available
energybiodiesel doubles it.
It is clear that by using fiscal incentives
(parity of duty with the gas fuels) H M Treasury could turn farmers
from fuel protesters into fuel producers and thus achieve the:
productive use of idle land
revival of the rural economy
improvement of local air quality
reduction of greenhouse gases
approval of vehicle drivers and the
BABFO's submission is that it would be logical,
scientifically sound and in the national interest to grant the
same level of duty rebate to bioethanol and biodiesel as has already
been given to the fossil gas fuels ie a duty rate of around 4.5ppl.
The existing heavy rate of fuel duty was introduced
to curb the use of polluting depleting fossil sourced diesel and
petrol. There is therefore no logic in taxing the biofuels at
the same rate as fossil fuels as the biofuels are the sound, sustainable,
clean, alternative fuel potentially available now to the road
transport industry. And only mainstream agriculture can supply
these fuels in worthwhile quantities. We therefore urge the Chancellor
to reconsider policies on duty rates for biofuels for road transport
and give parity with the gas fuel ratesa duty rate of 4.5ppl.
Otherwise potential economic and environmental gains will be lost
and investment will go elsewhere.
BABFO. BABFO Office, Curlew Court, Sutton Bridge,
Lincolnshire, PE12 9QQ. Email [email protected]
All statements of a scientific nature in this
submission can be independently verified. Much of the material
was published in the BABFO Green Fuels Submission.
13 November 2001