Supplementary memorandum submitted by
Greenergy
INTRODUCTION
Greenergy welcomes the opportunity to respond
to the Environment, Food and Rural Affairs Committee on Alternative
Uses for Crops. As a potential producer of biofuels, Greenergy
welcomes the Government's objective to increase the use of biofuels
as an alternative transport fuel and its recognition of the role
of UK agriculture in delivering this objective.
In the early 1990s, Greenergy was the first
UK oil company to introduce low emission fuels to the UK market.
To date most of Greenergy's experience has been in the sales and
marketing of biodiesel blends. In 2002 Greenergy developed GlobalDiesel,
a blend of ultra low sulphur diesel and biodiesel, and more recently
Greenergy launched GlobalPetrol, a blend of ultra low sulphur
petrol and bioethanol.
GlobalDiesel is a blend of 95% ordinary diesel
and 5% biodiesel. The biodiesel is a rapeseed methyl ester and
is imported from the EU. Greenergy is also planning to build a
biodiesel production plant in the UK and the feedstock materials
for this plant will be virgin oils produced from oilseed rape
and other oilseed crops, as well as waste cooking oils. However,
at present no biodiesel is produced in the UK from crops because
the current Government economic incentive does not support biodiesel
production either from domestic oilseed rape or other feedstocks.
Most UK oilseed rape is sold into the food industry or exported.
Greenergy is of the view that in order to kick-start a UK market
in crops for biofuels, and provide a valuable alternative revenue
stream for UK agriculture through diversification of farmers'
source of income, the Government will need to review current economic
incentives for all fuels.
ALTERNATIVE USES
FOR CROPS—BIODIESEL
PRODUCTION
Much of the debate and discussion on biofuels
has focussed on the use of oilseed crops for biodiesel production.
This is because the potential here is more immediate, and potentially
more significant, than crops for bioethanol production where the
feasibility and desirability is less clear. For example, in the
case of crops for bioethanol production there are concerns over
environmental additionality and whether UK produced bioethanol
reduces greenhouse gas emissions or can be justified on the grounds
of fuel security of supply benefits. Our submission therefore
focuses on the benefits of oilseed rape and the contribution it
can make to a UK biodiesel industry.
With an efficient farming sector and a climate
ideally suited for growing high oil content oilseed rape, the
UK could utilise a significant proportion of its oilseed rape
for biodiesel production. However, as yet, there are no major
biodiesel production plants in the UK. Most production plants
are small-scale, producing biodiesel from waste cooking oils as
the Government duty incentive does not support biodiesel production
solely from virgin oils.
Greenergy has been investigating the development
of a 100,000 tonnes per annum biodiesel production plant. Our
analysis has demonstrated that a plant of this size will only
be economic if it has the ability to produce biodiesel from a
range of feedstocks, in this case both virgin oils and waste cooking
oils, and an increase in the biodiesel duty incentive. Securing
the feedstock supply through long-term contractual arrangements
are also key to the viability of the plant.
THE GREENERGY
FIELD-TO-FORECOURT
CONTRACT
The presence of alternative markets for crops
is not well known by the agricultural community in the UK. The
traditional market from oilseed crops has been the food oil and
rape-cake market, and most oilseed is sold to the two main rapeseed
crushing plants, ADM and Cargill. Working with the oilseed rape
production chain, farmers, seed merchants and crushers, Greenergy
developed a Field to Forecourt contract. The Field to Forecourt
contract, launched at Cereals 2003, links the ultimate receiver
(Greenergy) directly with the producer of the feedstock crop (the
farmer) through a partnership with grain merchants. The merchant
offers contracts to farmers, and Greenergy contracts to purchase
the crop from the merchant at either the current market price
for oilseed rape, or a minimum floor price based on the prevailing
diesel price if the oilseed market price is low, for biodiesel
production.
The benefits of the Field to Forecourt contract
are several. Primarily, the contract can support the development
and expansion of the UK biodiesel oilseed feedstock resource base
by bringing farmers directly into the supply chain. With the confidence
that the oilseed crop will have a buyer, and perhaps more importantly,
a guaranteed return, more farmers will cultivate oilseed rape
and thus expand their market opportunity. An example of a Field
to Forecourt contract is given at Appendix One together with the
biodiversity guidelines developed by Greenergy in conjunction
with the RSPB and Greenergy's requirements on Carbon-Certification(r).
Working with a number of oilseed merchants and
crushers, Greenergy has secured 2004 oilseed contracts with farmers
which could deliver approximately 240,000 tonnes of biodiesel.
In 2003, less than 250 tonnes of UK grown oilseed rape was used
to produce biodiesel.
The Greenergy Field to Forecourt contract has
been successful in engaging farmers and others within the agricultural
supply chain alternative uses for crops. Others within the agricultural
supply chain are now developing similar contracts.
MEASURES TO
PROMOTE BIOFUELS
PRODUCTION AS
AN ALTERNATIVE
USE FOR
CROPS
There has been much debate and discussion on
what economic incentives the Government should provide in order
to stimulate UK biofuels, both a biodiesel and bioethanol industry.
However, what must be recognised is that the needs of a bioethanol
industry are different to that of the biodiesel industry. For
example, in the case of bioethanol production, the requirement
may not only be economic support in the form of duty incentives,
but also capital grant support.
For oilseed crops the main alternative use is
biodiesel production where the biodiesel can be used for both
transport and biomass. In the case of biodiesel for transport,
the Government's current economic incentives does not enable the
production of biodiesel from oilseed rape that can be sold at
a competitive price at the pump.
Greenergy is of the view that in order to stimulate
the right conditions for biodiesel production from oilseed rape
and other feedstocks, the Government should consider:
— differential rates of duty for all
fuels based on their well-to-wheel greenhouse gas emissions. This
would help to distinguish and reward lower carbon forms of fuels
and send a long-term commitment to the biofuels industry, in particular
the biodiesel production sector;
— increasing the biodiesel duty incentive
and restricting it to blends. This would not only increase participation
in the biodiesel industry by the major oil companies, there would
also be wider availability of biodiesel blends through their forecourts
of a quality controlled product.
CONCLUSION
A domestic biodiesel industry will be an important
alternative market for UK grown crops, in particular oilseeds.
However, this will depend on the development of a successful UK
biodiesel industry which is in turn dependent on the Government
providing the right economic incentives, as well as recognising
that the most effective route to significant market penetration
of biofuels, in particular biodiesel, is to restrict the economic
incentive to biodiesel blends.
September 2003
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