Increasing the Renewable Transport Fuel Obligation Buy-out Price to Ensure Continued Greenhouse Gas Savings DEADLINE August 11, 2020

(UK Department of Transport)Consultation proposals Summary -- This consultation seeks to ensure the continued decarbonisation of road transport fuels through the supply of renewable fuels under the Renewable Transport Fuel Obligation (RTFO). Biofuels supported under the RTFO have successfully reduced greenhouse gas (GHG) emissions from transport over the last 12 years and will make up a third of the UK’s transport carbon budget contribution.

Carbon budgets are made under the Climate Change Act, and every tonne of GHG emitted between now and 2050 will count1. Where emissions rise in one sector, the UK will have to achieve corresponding falls in another. In 2018 biofuels reduced carbon emissions from transport by over 3.5 million tonnes.

However, recent increases in the cost of biofuels relative to petrol and diesel mean that there is a risk that suppliers will ‘buy-out’ of their obligations to supply renewable transport fuel. This would result in lost GHG savings and a gap in UK carbon budgets as well as risking long-term impacts on the UK biofuels industry.

We therefore propose to increase the RTFO buy-out price to ensure the continued supply of biofuels and other renewable fuels and the GHG savings they deliver.

Support available for renewable transport fuels
The UK has two schemes which support the use of low carbon fuels for transport; the RTFO and the Motor Fuel (Road Vehicle and Non-Road Mobile Machinery) Greenhouse Gas Emissions Regulations 2012 (GHG Regulations).

The Renewable Transport Fuel Obligation
The RTFO commenced on 15 April 2008 and delivers reductions in GHG emissions from fuel used for transport purposes by encouraging the supply of renewable fuels. The scheme works by setting annual obligations on suppliers,2 increasing from 9.75% in 2020 to 12.4% in 2032, which can be met by supplying renewable fuel or purchasing renewable transport fuel certificates (RTFCs) from other suppliers.

RTFCs are issued to suppliers of sustainable3 renewable transport fuel and this trading mechanism enables obligated suppliers to meet their obligation in a cost-effective manner. Alternatively, suppliers can pay a fixed sum for each litre of fuel for which they wish to ‘buy-out’ of their obligation. It is likely that additional costs incurred by the fuel supplier from meeting their obligations are passed on to the motorist.

Fuel suppliers are likely to buy-out when the price of RTFCs consistently exceeds the buy-out price. The buy-out therefore provides a safety net to prevent the cost of this policy disproportionately impacting motorists by placing a cap on the maximum costs which can be incurred. It also provides flexibility for fuel suppliers in unusual circumstances such as a short-term fuel supply issue or other unforeseen event. As such, the buy-out option is an integral part of the RTFO.

The buy-out price is specified in the RTFO Order and stands at a fixed level of 30p/litre. This value has not increased since the start of the RTFO in 2008. To date, there has been no significant buy-out from the RTFO as it has been cheaper to supply biofuels or purchase RTFCs than pay the buy-out price.

Since 2019 obligated fuel suppliers have had to meet a second obligation to supply development fuels4, which has its own separate buy-out of 80p/litre. This consultation is regarding buy-out of the main obligation and the development fuel obligation is not considered further here.

The Motor Fuel (Road Vehicle and Mobile Machinery) Greenhouse Gas Emissions Regulations 2012
The GHG Regulations require suppliers to report annually on the amount, energy content and GHG emissions of relevant fuels supplied.

The GHG Regulations also set GHG reduction targets for suppliers of 4% in 2019 and 6% in 2020 compared to the 2010 fossil fuel baseline (94.1 CO2e/MJ). This obligation works alongside, but separately from, the RTFO.

Sustainable renewable fuel supplied under the GHG Regulations is awarded ‘GHG credits’ which have a cash value and can be traded with other suppliers (in the same way as RTFCs). Fuel suppliers can also buy-out of their GHG reduction obligations by paying a buy-out of 7.4p per kg of CO2e emitted above the reduction target.

There are no GHG reduction targets set beyond 2020. This consultation does not propose further targets in the GHG regulations at this time; however, the potential for future targets remains under review.

Consultation questions
Question 1: Do you agree that we should increase the buy-out price under the RTFO as soon as possible? (Agree/Disagree).

Question 2: If you agree that we should increase the buy-out price under the RTFO, do you agree that it should be 50p/litre? (Agree/Disagree).

Question 3: Would an increase to the RTFO buy-out price to 40p/litre be acceptable to you? (Yes/No).

For all questions provide reasoning for your answers and any evidence you may have to support your position using the downloadable response form.

Next steps
Our aim is to introduce any changes that result from this consultation in time for the 2021 obligation period i.e. they would apply in legislation from 1st January 2021. In order for this is to happen, legislation would need to be laid in Parliament in October.

Given the short timescales involved and the multiple pressures on Parliamentary time, there is a risk that this timetable will not be met. If the legislation is delayed this could mean any increases to the buy-out price would not be applied until 1st January 2022. We will keep stakeholders informed should we need to develop alternative options. READ MORE