Renewable Transport Fuel Obligation (RTFO) feasibility report

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1. Executive summary

People want to travel more for business and leisure and expect to be able to buy more goods and services from across the globe. This means that good transport is vital. But it is essential that we balance the increasing demand for travel fuelled by increased economic prosperity, with our goals for protecting the environment and improving the quality of life for everyone, in line with the UK's strategy for sustainable development.

That is why it is important that we look at options to encourage a shift away from a transport system reliant on fossil fuels to more sustainable sources, thereby reducing harmful CO2 emissions and ensuring a long term replacement for fossil oil. Biofuels are one way of delivering this objective.

In the 2004 Pre-Budget Report the Government therefore announced that it would look at the possibility of a Renewable Transport Fuel Obligation (RTFO), along the lines of the Renewables Obligation which exists in the power generation sector.

An RTFO would require transport fuel suppliers to ensure that a percentage of their sales in the UK were from a renewable source. Biofuels are transport fuels which are produced from plant material or other forms of biomass. Because the crops used to make the fuels take in CO2 when they grow, they would reduce the transport sector's contribution to climate change. They can also be mixed with more conventional fuels and run in unmodified cars at low blends.

An RTFO would enable the transport sector to play a more active part in carbon emissions reductions. This study finds that an RTFO could be introduced by April 2008. The benefits in 2010 would be around 1 million tonnes of carbon per annum at 5% of all road fuel sales from the transport sector - between 2 & 3 per cent of transport emissions.

By 2020 "second generation" biofuels using lower value feedstocks such as straw and even organic waste materials should become available. These offer even higher levels of carbon savings, and potentially lower costs too. Advanced biofuels technologies could also provide a stepping stone to renewably produced hydrogen - which itself offers the prospect of virtually disengaging transport from harmful tailpipe emissions.

The introduction of an RTFO would give industry more certainty to invest in biofuel production for the longer term, stimulating innovation and advances in technology. And a growing proportion of renewable transport fuels in our economy would also contribute to the UK's diversity and security of energy supply.

There could also be benefits for the rural economy. We have ample land capacity to supply at least 5% of road fuels today. With advances in technology, it is estimated that by 2050 the UK could produce as much as one third of its transport energy needs from biomass.

Imports will play an important part too, and an RTFO could help provide a valuable export market for the developing world. Brazil is already a market leader in bioethanol (a petrol extender) production, and the prospects for production in Africa are already being explored. However, sustainability of supplies will be an important issue. This report recommends that an environmental assurance scheme is developed and integrated into the RTFO to ensure that the fuels supplied offer real environmental benefits. Initially, and to ensure that it did not delay the introduction of an RTFO, this could be through a reporting requirement, and in the longer term the intention would be to move to a hard carbon saving target.

No decisions have been taken as to precisely how an RTFO would operate. This report sets out a possible design and makes a series of recommendations following work with Government departments, the devolved administrations, stakeholders and consultants. These detailed design aspects will be the subject of thorough consultation.

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