I thank all noble Lords for their contributions to today’s debate. I also thank the Secondary Legislation Scrutiny Committee for raising various matters, a number of which have been echoed by noble Lords today. Most recently the noble Lord, Lord Rosser, mentioned that the impact assessment was not published alongside the draft SI. That impact assessment was already a public document, but we will certainly take that away and I hope that will not happen again. Perhaps we should make sure that we signpost noble Lords to previously published documents where we possibly can.
A number of issues have been raised, and I will of course write with further details if I am unable to cover them in my remarks. This is very much a question of balance; there is an awful lot of balance to be had here. Anybody working in the field of transport knows that there is no silver bullet to solve carbon emissions in transport. The solution will be in a large number of interventions, some of which will have to happen over a large period of time. We will be publishing the transport decarbonisation plan fairly soon, and that will set out the firm foundation on which our thinking is based.
I shall start by addressing the wider focus on E10, which is the last low-hanging-fruit option for renewable fuel blending. Again, it is about balance: it works alongside the RTFO. There are literally no other short-term options for reducing emissions from road transport immediately, so we have to consider not only the balance of what the intervention is but how quickly it can achieve the goals that we need to achieve. We know that using waste biodiesel blended from fossil diesel saves more carbon dioxide per litre than bioethanol. That is true but we are up to the limit on biodiesel—up to 7%. Our only option now is therefore to increase petrol to E10. We also know that the vast majority of cars can use E10 successfully.
The interaction with the RTFO is really important. I noted that there are many reasons why the gap has arisen between the E10 implementation and the changes
to the RTFO, including the technical reasons relating to the vapour pressure and the switchover of the type of petrol that is sold on the forecourt. However, we also know that the RTFO target can be changed only at the start of each calendar year because it is a market-based scheme; participants will of course plan their compliance through the whole of the year, so if we changed it mid-year it would be the same as a retrospective change and therefore deeply unwelcome. So the introduction of E10 in September, followed by increasing the targets in January, allows for a transition phase. We expect that during this phase blending will be ramped up, and that existing fuel stocks will be used up.
It is worth noting, as did the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, that the fuel for E10 can be from ethanol of 5.5% upwards. This flexibility is intentional to ensure that the overall RTFO targets can be delivered cost-effectively, based on market prices for different biofuel options, and to allow for seasonal and geographic variations. There would be no point in mandating immediately a much higher percentage for blended petrol.
Furthermore, the changes were made under two different pieces of legislation and different powers, so that has had an impact on how we can introduce this measure. There is of course a need for a comprehensive communications campaign, so there was always a need too for a date, at some stage in future, in order that consumers are well aware of what they will be buying when they go to the pumps in September.
I turn to the carbon savings in the four-month transition period between the introduction of E10 and the increase of the RTFO targets at the beginning of next year. The impact assessment did not specifically model the impact of the four-month period between these two interventions. A snapshot of the annual modelling suggests costs of around £29 million, with an emissions-saving reduction of around 0.07 megatonnes of carbon dioxide, but that shortfall in emissions savings —if it happens, because again these are assumptions—would be recouped by the end of January next year following the RTFO target rise. As I say, there will be a net overall carbon dioxide benefit of around 0.73 megatonnes by the end of 2022.
Exactly how the suppliers meet their RTFO obligations at the end of 2021, and the speed with which they ramp up the ethanol blending, is unknown due to commercial sensitivities. However, we can say with certainty that by introducing E10 we are maximising the available capacity for biofuel blending in the coming years and providing the space to increase the RTFO targets as a step change in 2022.
Noble Lords have noted that biofuels produce different emissions reductions from their fossil fuel comparator. The noble Lord, Lord Lucas, mentioned the impact of blending biodiesel. It is often made from used, or waste, cooking oil and saves more carbon dioxide per unit of energy delivered than for ethanol, although the difference is relatively small. As a result, where ethanol displaces waste biodiesel in the fuel mix delivered under the RTFO, the actual emission saved can be
reduced. That is why this has to happen along with the changes to RTFO targets from the start of next year; again, it is all about balance.
Turning to the costs and the impact on the motorist, although we believe blending the petrol at E10 is unlikely to alter the pump price of standard 95 octane petrol, as the noble Baroness, Lady Randerson, pointed out, drivers might experience a small reduction in miles per gallon. This will vary quite significantly by vehicle and the specific fuel blend used by that supplier, as well as the driving style. The overall reduction in miles per gallon is similar to driving with the aircon on, or with underinflated tyres.
Based on simplified assumptions and a potential worst-case scenario, the impact assessment estimated that each litre of E10 could contain around 1.7% less energy, which could result in increased fuel costs of around £70 million per annum. However, the industry has also suggested that there could be a change to the energy content, because different blends have different energy content according to the constituent parts of the petrol. This assumption could therefore be very much the worst-case scenario.
On incompatible vehicles, we again feel that there will be a very limited impact. Of the 5% of vehicles that are currently incompatible, the vast majority are classic or cherished vehicles, so fewer than 1% of the cars that are everyday run-arounds cannot use E10. As I have mentioned, we will make sure that E5 petrol will be available to owners of incompatible vehicles. It should also be remembered that those who own classic or cherished cars often use the higher super grade anyway, so they will see no difference in price. Again, the estimate of £70 million that might be added to fuel costs is very much a worst-case scenario. It assumes that all incompatible vehicles currently do not use the super grade, and we know that is not the case.
I turn to the bioethanol sector. The noble Baroness, Lady Randerson, suggested we were being led by the nose by industry. There are two different industries here and they both want it, while being on slightly different sides of the coin. We have the bioethanol industry and the traditional fossil fuel suppliers, and those suppliers want us to give them a kick because in Germany they did not give the industry a kick and have not had a very successful rollout of E10.
I have already mentioned that the bioethanol sector is a valued sector in this country and that, for the time being, it is essential that we look at all different ways of reducing our carbon emissions. Bioethanol is one of those and will provide highly skilled jobs and support the agricultural community, but I accept my noble friend Lord Lucas’s point that environmental concerns are also critical. Biofuels, supported under the RTFO, comply with strict sustainability and minimum greenhouse gas savings criteria. There are protections for biodiversity and land use change, such as deforestation. I will probably write more in a letter because I am aware that I am running out of time.
These regulations are about balance. We need to balance the need to maximise our efforts to decarbonise vehicles on the road today and support our domestic renewable fuel industry, while maintaining access to a suitable petrol grade for all. I believe that we have
achieved that balance and that by introducing them now, with changes to the RTFO in January, we will achieve our ambitions.