Select Committee on Environmental Audit Second Report


Memorandum from The British Association for Biofuels and Oils (BABFO)



  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 gas fuels.


  Government policy for road transport fuels includes the following:

  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 again).

  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 and towns.

    "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) and

  7.  To use fiscal incentives to achieve these ends:

    "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 success—only 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 necessary—to look to alternative, cleaner, more acceptable fuels—bioethanol 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.


  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 regions).

  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."


  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 increase.

  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 from consideration.

  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 agriculture.

  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.


  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 this—750,000 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 benefit.

  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 biodegradeable—it 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 350,000tpa—2.3 per cent of current diesel usage—a 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.


  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 resolved—it takes at least twice as much energy to make hydrogen as is obtained from using it. Hydrogen fuels halve available energy—biodiesel 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 general public

  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 rates—a 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] October 2001

  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

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