Report on RTFO stakeholder workshops: 2 and 3 November 2006

The workshops were introduced by Rupert Furness; the presentations focussed on two areas: Fergus Horkan set out the scheme design while Jessica Chalmers and Greg Archer covered Carbon and Sustainability reporting.

Scheme Design

2. Fergus Horkan confirmed that:

• Biofuel producers will not be obligated though it was expected that many will wish to register so that they can trade in certificates.
• the Obligation period will run for one year from April 15th to April 14th.
• the Obligation rate will covers all road fuels (except RFG) and will be applied to total fuel sales
• Certificates will be currency units associated with a period; they will not have an identifier or other properties
• Monthly reporting of CES data and other scheme performance information will be required.
• Anyone who can supply the required information can register on the scheme and trade certificates

3. He explained that we are still working to secure the legislative slot which would provide for an information gateway with HMRC. Though we know this would be the most efficient way of validating the information we receive, we cannot be certain that we will be successful in securing the legislation. We are therefore planning on the assumption that the gateway will not be in place. In this eventuality auditors' opinions would be key to the process - company auditors would be expected to confirm that the oil companies had provided the same information to the Administrator as they had to HMRC. Audit and inspection would then be on a risk basis. Companies' track record, their internal processes - for instance whether their procedures were subject to ISO9000 - would all be taken into account when assessing risk.

Carbon and sustainability reporting

4 Greg Archer and Jessica Chalmers explained that the work to define the required carbon reporting was still at an early stage; no details had been finalised nor any commitments made to any particular method or solution. It is expected that the carbon calculations will use a range of default factors based on robust calculations to enable practical reporting when actual data is not available. The calculations will be on a well to wheel and CO2 equivalent basis and emissions associated with crop production e.g. nitrous oxide would be taken into account . Every effort is being made to align the UK requirements with those under development in the Netherlands. The development of an assurance scheme in respect of carbon and sustainability reporting within the auspices of existing quality standards is currently being explored within the wider context of verification

5. In debate the following points were made.

• The HMRC Gateway would simplify procedures for oil companies as well as the Government. It was suggested that it might be possible for HMRC to provide the information with a company's consent. It was explained that this would not be possible because that would effectively force companies to give consent. It was stressed that everything was being done to secure the legislative slot.
• Some delegates felt that the obligation should operate not at the duty point, as proposed, but from sales of fossil fuels based on stocks, plus manufacture, plus imports, less exports, as this would create fewer problems in passing on carbon and sustainability information associated with inter company trading.
• Many delegates felt that the obligation should be on fossil fuel sales only rather than total fuel sales as there were concerns that an obligation on total fuel sales could lead to an unlevel playing field. A fuel supplier which was solely supplying biofuel would not be obligated but a company producing both fossil and bio fuels would be obligated on the total. There were also fears that oil companies might set up bio producing subsidiaries so as to avoid the obligation or require the biofuel companies to sell them biofuel which had been duty paid.
• If the decision were made to stick to the 5% obligation on total fuels the industry would miss the target because the European specification limited the biofuel element on standard blended fuels to 5%; the only way to ensure that it was not exceeded was to blend slightly lower amounts.
• There was a discussion about what constituted a biofuel. The view was expressed that eligible fuels should be clearly listed in the regulations rather than defined by being subject to HMRC duty. If the duty incentive were to be abolished there would need to be a process to put new fuels on the list, otherwise it could provide a drag on second generation processes. The Government, rather than the Administrator, would have the authority to add new fuels to the list, with any change to the RTF Order needing to be debated in Parliament. Delegates were assured that the Government recognised that companies needed to receive credit for new products promptly. We would therefore be looking at alternative fuels as they came in and it should be possible for them to be listed before they appeared on the market.
  A discussion took place about the powers of the Administrator. The point was made that the Administrator should have a duty to check out C&S data. Delegates were assured that the duties of the Administrator would be set out in the regulations.
• A warning system should be introduced if a company had supplied insufficient data.
• Some delegates thought it important to demonstrate the intention to improve standards as some suppliers could be tempted to make cheap biofuels. Concern was expressed that if poor biofuels received RTF certificates it could give biofuels a bad name.
• It would be helpful for a decision to be made at an early point on whether, and if so when, the Government would move to a carbon based scheme because investors needed certainty.
• The Administrator's annual report must be robust and clear. It should if at all possible include details of individual companies' performances against the Obligation (both in terms of sales and environmental reporting), as well as aggregate data.

Questions raised

Q Could certificates be carried forward and for how long?
A Certificates can be held over for a year but there is a 25% limit on the amount of the current year's obligation that can be made with certificates from the previous year.

Q. Would the Administrator create an efficient market by making prices at which certificates trade public?
A The Administrator will make a lot of information public but price recording companies were better placed to record this kind of information.

Q Would it be necessary to submit the vintage date of certificates?
A It will always be necessary to associate a certificate with the obligation period in which it was awarded. This means that when certificates are traded, the selling party will have to advise the administrator of the vintage of the certificates to be sold.

Q. Would the vintage be reflected in a futures market?
A. Suppliers may elect to create a futures market amongst themselves via exchanges or other mechanisms. However, trades on the exchange can only be in awarded certificates. The price might be reflected in a futures market. The Administrator will not allow companies to sell certificates that they do not have: they will not be allowed to go into deficit. Companies may not borrow from "future" certificates to meet a current obligation.

Q Why exclude road fuel gases?
A Because LPG is a very small market and there is no obvious bio substitute.

Q Are there any legal impediments to limiting certificates to fuel produced in the UK?
A It would not be possible; the Government was in favour of a free market within the EU and such proposals would be protectionist.

Q What do you mean by the "identify of the organisation"?
A The legal entity that pays duty.

Q Will there be a dispute resolution procedure?
A There will be an appeal process though the details were yet to be worked through. It was likely that it would be first at official level. The ultimate appeal would be through Judicial Review.

Q Will additives be subject to the Obligation?
A If duty were paid upon them they would be subject to the Obligation unless they fell under the de minimis concession.

Q Could more be done for micro businesses? If micro businesses did not get a continuing duty incentive it would mean that used vegetable fuel would not be turned into biofuels and would go back to landfill.
A Nobody knows how soon the duty incentive will be phased out; it may take some time.

Q Should certificates be issued only to fuels which meet a minimum standard?
A At present no link to quality but there is the expectation that the RTFO will force up quality of biofuels. It will be possible for purchasing companies themselves to put in a specification about quality.

Q If there were loopholes how long would it take correct them?
A The Administrator might be able to close loophole or it might require a change to the regulations. Changes to the regulations would be subject to the Affirmative Resolution procedure.

Q Could traders be eligible for the Buy-out Fund?
A No, it would mean amending the Energy Act.

Q. Would it be possible to trade equivalent crops?
A It was unlikely initially as it would make the scheme too complex. We would look into the ramifications.

Q What incentive is there not to put "don't know" into each box? Why can't certification be linked to carbon content?
A The role of the Administrator in overseeing and reporting on progress and performance is likely to provide an incentive to complete the sustainability reporting as fully as possible. We hope by publishing information it will create peer pressure on the oil companies to complete the sustainability reporting as fully as possible. In time there may be some kind of target set about information returns. Also an obligated company which ticked the "don't know" box when it did, in fact, have the relevant information might be liable to a civil penalty. Initially we need to encourage data provision; at a later date we may migrate to an incentive based scheme. There is not sufficient confidence in the availability and consistency of carbon data to award certificates on that basis at the outset.

Q What is a batch? Can information be aggregated from different batches?
A A batch has not yet been defined. The definition we use may well include the principle that a batch consists only of fuel with the identical carbon and sustainability data and is not limited by volume. Recommendations will be made in December 2006.

Q Would air quality emissions be considered?
A No; air quality emissions were out of the scope of the RTFO. Air quality emissions would be monitored separately. There was already a mechanism to regulate this through the maximum permissible levels which applied to vehicles.