E-briefing: Biofuels - A Sustainable Road?

• On 17 December 2008, the EU Parliament voted in favour of a directive to extend the proposed 10% by 2020 target for biofuels use in transport to include contribution from all forms of renewable energy used in transport, including electric vehicles and trains.

• A draft Renewable Transport Fuel Obligations (Amendment) Order 2009 (the "2009 Order") has been laid before Parliament which proposes to slow the rate of the renewable transport fuel obligation ("RTFO") to 0.5% per annum, to reach 5% by 2013/14 instead of 2010/11. This 2009 Order is proposed to come into force on 15 April 2009.

• On 15 January 2009, the EU Anti-Dumping Committee carried out a preliminary examination of the joint anti-subsidy and anti-dumping complaints made by the European Biodiesel Board ("EBB") to the European Commission regarding the imports of subsidised 'B99' biodiesel originating from the USA.

Biofuels – A Sustainable Road?

A series of recent UK and EU developments will have significant implications for future levels of biofuel production. These include:

EU Renewable Energy Directive

• On 17 December 2008, the EU Parliament voted on the Proposal for a Directive on the Promotion of the Use of Energy from Renewable Sources (COM (2008), the "Renewable Energy Directive"). Despite recent fears over biofuel production causing rising food prices and loss of biodiversity, the vote supported the European Parliament's Industry and Energy Committee decision to reconfirm the proposed mandatory 10% (by energy content) target by 2020 for renewable fuels use in transport (equivalent to 13% by volume).

• The vote also reconfirmed the proposal to require that at least 40% of the target should be met by "non-food and feed-competing" second-generation biofuels or by trains or other vehicles running on green electricity or hydrogen. The draft Directive also requires that biofuels, regardless of origin, meet various sustainability requirements in order to satisfy a member state's compliance with national targets. In addition, to meet ongoing concerns regarding sustainability, the European Commission has been asked to come forward during 2010 with proposals to limit indirect land use change caused by the switch to biofuel production.

UK Renewable Transport Fuel Obligations (Amendment) Order 2009

• On 28 January 2009, the Department for Transport ("DfT") published a summary of responses to its recent consultation on the Government's proposal to slow the rate at which the RTFO increases on an annual basis. This consultation was in line with the findings of the Gallagher Review published on 7 July 2008 which considered the wider environmental and social indirect effects of biofuels production.

• The DfT has considered the results of this consultation and has now laid before Parliament the draft 2009 Order, proposed to come into force before the start of the next obligation year on 15 April 2009. If transposed into UK legislation, this 2009 Order will change the RTFO to set an obligation level of 3.25% (total renewable and fossil fuel supplied) for 2009/10, such amount to increase by 0.5% per annum to reach 5% by 2013/14 instead of 2010/11.

European Biodiesel Board

• Changes to US legislation recently ended the practice of 'splash and dash' production whereby foreign producers were taking advantage of the USA's biodiesel credit before shipping the biodiesel to Europe. The EBB has estimated that a surge in US B99 biodiesel exports has resulted in a 40% increase in volume of US B99 exports arriving in Europe in 2008 (compared against 2007 volumes).

• On 15 January 2009, the EU Anti-Dumping Committee began a preliminary examination of the joint anti-subsidy and anti-dumping complaints made by the EBB to the European Commission on behalf of biodiesel producers in respect of imports of subsidised 'B99' biodiesel originating from the US. If upheld, the biodiesel industry is hopeful that imported B99 blends will no longer be able to be sold in Europe as 'pure biodiesel' or at the heavily discounted prices seen to date which have undermined the short term viability of the EU biodiesel market.

Background:

1. Support for biofuels within the UK has developed in response to the EU's Biofuels Directive 2003/30/EC requiring Member States to set indicative targets for the supply of biofuels and other renewable fuels.

2. The RTFO came into effect on 15 April 2008. It was introduced by the Renewable Transport Fuel Obligations Order 2007 which was made under powers contained in the Energy Act 2004. The purpose of the RTFO is to help deliver significant greenhouse gas savings from the transport sector.

3. The RTFO is administered by the UK's Renewable Fuels Agency ("RFA") and places an obligation on suppliers of fossil fuel in the UK for road transport purposes to produce evidence that an amount of renewable transport fuel has been supplied. The current RTFO obligation levels are set at 2.5% of total fuel supplied (by volume) for 2008/9, rising to 3.75% in 2009/10 and 5 % in 20010/11.

4. The RFA published its first quarterly report on the RTFO on 7 October 2008. It gives details of the amount of biofuels supplied by fossil fuel companies and their performance against 3 government targets (percentage of fuel supplied, sustainability and reporting obligations). Biofuels accounted for 2.61% of UK road fuel in the first quarter, exceeding the government target of 2.5% for the year to April 2009.

5. The Gallagher Review concluded that although biofuels can play an important role in global concerns of energy security, climate change and rural development, the introduction of biofuels should be significantly slowed. The Review concluded that agricultural expansion to produce biofuel feedstock should be directed towards suitable idle or marginal land or the utilisation of appropriate wastes or non-crop feedstocks; without adequate controls on land use change, biodiversity will be reduced, upwards pressure on prices for some food commodities may continue and such change may also lead to an increase in net greenhouse gas emissions.

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