Renewable Transport Fuel Obligations (Amendment) Order 2009

The order will give legal effect to changes to an existing scheme that requires suppliers of fossil fuel for road transport to ensure that a proportion of the fuel they supply is renewable. The legislation before us is of key importance in our efforts to tackle climate change. Biofuels are the most readily available technological alternative to fossil fuels. They will play a key role in meeting our European renewable energy targets and keeping within our forthcoming carbon budgets. It is of both environmental and economic importance that we amend the order today. The Renewable Transport Fuel Obligation was introduced in April 2008 by the Renewable Transport Fuel Obligations Order 2007, made under powers contained in the Energy Act 2004. The RTFO obligates suppliers of fossil-based road transport fuels to source a certain percentage of their fuels in the United Kingdom from renewable sources. If they do not supply enough renewable fuel themselves, they can buy renewable transport fuel certificates from renewable fuel suppliers or pay a buyout price. The RTFO is administered by the Renewable Fuels Agency, which operates an internationally acclaimed carbon and sustainability reporting system. In the year from April 2008 to April 2009 the RTFO obligation level is 2.5 per cent of total fuel supplied. "Total fuel" means the total amount of renewable fuel and relevant hydrocarbon oil. In other words, suppliers have to produce certificates for an amount of renewable fuel equivalent to 2.5 per cent of the total fuel that they supply. Under the 2007 order the obligation level increases each obligation year until it reaches 5 per cent in 2010-11. I take this opportunity to refer to the helpful consideration of this draft amendment order by the Merits Committee. In response to its seventh report I wrote to the committee on 27 February and provided some additional information about our biofuel policies. I hope that that response has been helpful, and I would be happy to answer any further questions on the points raised in their report. Three important changes will be made to the RTFO as a result of the draft amendment order. First, it will slow down the rate of increase of the annual RTFO obligation levels. The obligation level will reach 5 per cent of total fuel supplied by 2013-14, instead of by 2010-11. This slow-down is in response to concerns about the current sustainability of existing biofuel production, following the publication of the Gallagher review in July 2008. The Gallagher review concluded that biofuels have the potential to deliver approximately 338 million to 371 million tonnes of global carbon dioxide savings every year. However, because of sustainability concerns, Gallagher proposed a slower rate of increase for our obligation levels than that set out in the 2007 order. That is why we are amending the RTFO order today: to give effect to the Gallagher recommendations. Secondly, the draft order will correct a significant problem that we have identified with the definition of "relevant hydrocarbon oil" in the 2007 order. The definition determines whether a supplier is obligated, and, if so, how many certificates the supplier must produce. In short, this means that obligated suppliers have the opportunity to supply lower volumes of biofuels than we intended when we made the 2007 order. Clearly this would have an undesirable effect on the demand for biofuel products. The order in front of the Committee today corrects this problem, with effect from 15 April this year. It also proposes a higher obligation level than we originally consulted on for the next obligation year, which commences next month. This is to help make up for any shortfall in the levels of biofuel supplied over the past year as a result of the problem to which I have just referred. Accordingly, the obligation level for 2009-10 will be 3.25 per cent of total fuel supplied, instead of the 3 per cent level recommended by the Gallagher review. This problem needs to be corrected now if we are to prevent it continuing into the next obligation year and to avoid any unwanted consequences for the UK biofuels industry. However, we do not have powers under the Energy Act to legislate retrospectively. Thirdly, we are adding two new fuels to the renewable fuels eligible for certificates under the scheme: namely, biobutanol and renewable diesel. This increases the flexibility for obligated suppliers to meet their obligation in the future. The changes before the Committee today are intended to balance the environmental concerns about the impacts of biofuel production with the need for greater investor certainty in renewable energy. If left unresolved, the problem with the definition of relevant hydrocarbon oil in the 2007 order could depress demand for biofuels and threaten the future of the UK biofuels industry. It would also be a step backwards in our plans to meet our climate change goals. I therefore commend the order to the Committee.