Record of sustainability reporting stakeholder workshop, 26 July 2007

RTFO Workshop – Sustainability Reporting Stakeholder Workshop
2.30pm-5.30pm
26 July 2007
Department for Transport, 76 Marsham Street, London.

Introduction

The workshop was introduced by Rupert Furness, the RTFO Programme Director. He explained that the purpose of the day was to focus on the sustainability reporting requirements: detailed discussion on the carbon calculation methodology and default values had been the subject of separate technical workshops and would not be covered in the meeting. The meeting provided an opportunity to ask questions, to clarify points of detail and to discuss some of the principles behind the guidance.  The Government, LowCVP and the technical consultants were in listening mode.  Delegates were encouraged to submit written responses to the consultation document as soon as possible.

Summary of reporting requirements

Greg Archer (LowCVP Director) gave a high-level introduction to the reporting scheme and emphasised that biofuel sustainability issues are now mainstream. He noted that addressing these issues successfully required a collective response from governments and industry. The reporting scheme introduced by the Government was intended to work on the principle of corporate social responsibility.  Suppliers would be required to submit monthly reports on the carbon intensity and the sustainability of the fuel they supplied and certificates would only be issued on receipt of the report. The scheme had been developed to take account of several constraints including those presented by WTO rules.  As a result, for the first phase of the RTFO certificates would be issued regardless of the quality of report.  Suppliers would be allowed to report that they did not know the provenance of their biofuel, but targets had been set that indicated the level of performance that the Government expected from suppliers.

Annual reports would be required by 30th September of the year following the reporting cycle. The first report would therefore be due by 30th September 2009. These reports would have to be independently verified and would be published by the Administrator.  The Administrator would also report to Parliament on an annual basis providing details and rankings of company performance.

The Technical Guidance had been developed with significant stakeholder input and signed-off for consultation by a cross-departmental steering group and by Government Ministers.  The consultation will close on 13th September and the Guidance will be modified following the consultation and in light of the piloting activities being conducted in parallel.

Detailed discussion topics

The consultation questions were addressed in groups according to related topics.

Questions 1, 2, 3 and 10

Q1 Is the general scope of the reporting requirement appropriate?
Q2 Is the meta-standard approach appropriate?
Q3 Are the environmental and social principles the right ones?
Q10 Are there any standards that should be benchmarked from the outset?

Jessica Chalmers introduced the discussion on these questions. She confirmed that:

• Whilst the scope of the carbon calculation methodology covers a well-to-wheel approach, the sustainability reporting scope is focused at the farm/plantation. This practical approach focuses on some of the most significant initial risks (e.g. biodiversity loss) but should be developed into a full chain approach over time.
• The approach can utilise existing standards for the farm/plantation effectively and will provide demand for those standards under development.
• A comprehensive list of principles and criteria has been defined and used as a meta-standard. Existing standards have been benchmarked against this theoretical standard to determine the extent to which they are ‘sustainable’. The audit quality of existing standards has also been benchmarked.
• Not all standards meet the meta-standard but those meeting a defined norm will be identified as ‘Qualifying Standards’. The list of Qualifying Standards is defined in the Guidance.
• RTFO certificates will be issued on receipt of a C&S report. ‘Unknown’ answers are accepted in the first phase of the RTFO. 
• Reporting a benchmarked standard will count towards the data capture targets identified in the guidance.
• Reporting a benchmarked standard that is a Qualifying Standard will also count towards the qualifying standard target identified in the guidance.

Questions & comments raised: 

1. Stakeholders raised the concern that there is likely to be insufficient feedstock covered by qualifying standards. Greg Archer said that the interviews conducted with owners of the standards confirmed the coverage of certification is dependent upon demand and is therefore the limiting factor. The volume of certified feedstock should expand if demand increases.

2. Some stakeholders were concerned that the low quantity of certified feedstock and the development stage of some standards would lead to low sustainability performance. Some stakeholders suggested it unlikely that suppliers will use the meta-standard criteria in the Guidance to audit some feedstock e.g. sugarcane. When/if the Better Sugarcane Initiative and other standards become available the Administrator should benchmark them and the benchmarking process should be pro-active and transparent.

3. The targets for qualifying standards are overall targets rather than feedstock-specific.  Some felt that this was likely to dampen the incentive to source certified feedstocks despite the sustainability risks as the targets for early years can be met with ACCS (if ACCS is a qualifying standard for example).

4. Some stakeholders were concerned that multiple initiatives were underway for some feedstocks and this may cause confusion among suppliers.

5. The ACCS standard has been modified and is likely to be a qualifying standard. The new standard should be benchmarked as soon as possible for confirmation in the final version of the Guidance or as soon as the Administrator is in place.

6. The results of benchmarking exercises should be published annually by the Administrator. It was noted that standards used in meta-standard processes have an obligation to inform the meta-standard operator when they have been modified.

7. It was agreed that in order to address displacement effects sustainability should be addressed globally. A desirable minimum for stakeholders would be a European scheme for biofuels and the government were encouraged to seek to extend the criteria developed to other forms of biomass and to promote this within the food sector.

8. One stakeholder suggested there may be merit in combining CDM methodologies with these sustainability requirements. IPCC guidelines upon which the CDM methodologies are based have also been used for the carbon calculation methodology.

Questions 4, 5, 11 & 12

Q4 Do the proposals for the content of monthly reports provide enough detail?
Q5 Is there other information that should be required in the annual reporting requirements?
Q11 Is excluding by-products appropriate? Are the by-products suggested in Annex A the right ones?
Q 12 Is the exemption for mechanised farming appropriate?

Jessica Chalmers confirmed the following:

• Reporting takes place on the basis of administrative batches that are defined by homogenous sustainability characteristics.
• Two cases where sustainability risks and administrative burden appear imbalanced have led to proposals for a more practical approach:
  • By-products represent low sustainability risks and in some cases are effective waste management alternatives. They have been defined by an objective metric (proportion of value compared to original product) and their generally low price does not enable influence over production practices. They are required to report on carbon intensity but not wider sustainability criteria.
  • Crops that are farmed in a highly mechanised process are proposed to be exempt from reporting on labour rights. Land rights and environmental criteria however are not exempt. The Guidance states the crops covered by this exemption that cover a wide geographical origin.
• Annual reports should contain aggregate monthly information and should also identify activities that the supplier is undertaking to improve the reporting performance and sustainability of the biofuels sourced. This may include details of company policy to source feedstock from idle land.

Questions and comments raised:

1. It was suggested that the fact that suppliers did not need to report on the sustainability of by-products might lead to unfavourable waste management practices, eg through tallow imports.

2. One stakeholder was concerned that the categories for land use change did not sufficiently allow for conservation of biodiversity. Jessica Chalmers explained that the categories were intended for use in defining the carbon impact of land use change. The biodiversity criteria are addressed within the environmental principles and therefore adherence is verified through certification to the appropriate standard.

3. The legality under WTO rules of the exemptions (in particular the proposed exemption from reporting on social standards for highly mechanised crops) was questioned.  Rupert Furness confirmed that the Guidance had been checked by Government lawyers. Some stakeholders were concerned that the approach to defining highly mechanised crops, whilst practical, may be perceived as favouring ‘western’ production. The implications of removing this proposal would be that all farms would be required to demonstrate compliance with social criteria through certification.

Questions 7, 8 & 9

Q7 Is our approach to the chain of custody set out in Chapter 5 a sensible one?
Q8 Are we right not to allow C&S information not be transferred in an equivalence trade?
Q9 Is our approach to verification set out in Chapter 6 appropriate?

Jessica Chalmers introduced the principles behind the guidance and explained that:

• Information has to travel from the farm through many steps to get to the obligated supplier. Physical evidence will not travel but a link is necessary in order for effective verification of sustainability claims and is necessary in order to use more detailed carbon calculations (e.g. information from the conversion process).
• Of the three options available the guidance proposes that where an existing certified chain of custody is not in operation the RTFO approach should be on a "mass balance" basis (units-in and units-out). This is intended to balance practicality and credibility against administrative costs.
• All three options (book and chain, mass balance and bulk commodity) drive sustainable production of biofuels.
• Equivalence trading as practiced under the Common Agricultural Policy (CAP) is a "book and claim"-type process with a mechanism in place to prevent double-counting. The Guidance proposes that swapping C&S data in this exchange does not take place but it is acknowledged that there is strong feeling about this proposal.
• Parties operating the "mass balance" approach should keep details of input and output records and conversion factors. An inventory of C&S data should also be maintained in order that companies cannot sell more output with C&S data than it sourced.
• The annual report should be supplied with an independent third party auditor’s statement. The guidance proposes that verification of C&S data is carried out through a limited assurance engagement as set out in ISAS3000. Verification activities are therefore likely to be risk-based and operate on a sample approach.

Questions and comments raised:

1. Rupert Furness explained that the proposal in the consultation document was that equivalence trading should be allowed, but that the c&s data that should be used in these situations were those relating to the actual feedstock used in the biofuel refinery.  He suggested that this would give a more accurate reflection of the actual carbon savings and environmental impacts of the RTFO.  The decision not to allow data exchange had also been based in part on the fact that equivalence trading was not permitted under the RO, and there were implications for co-products under these situations.

2. There was, however, a broad level of support for allowing C&S information to be exchanged in an equivalence trade. Stakeholders noted that equivalence trading is well established in the EU and is necessary to maintain competitiveness and maintain liquidity in the UK. It allows all participants to benefit from EU incentives regardless of proximity to market or off-take. Stakeholders stressed that the principle of influencing behavioural change through the supply chain is negated if the C&S data does not come from the contracted farm and explained that under an equivalence trade there is no commercial contract between the biofuel producer and the actual feedstock delivered. Default values would therefore be used in reporting and the potential carbon saving that was influenced through the contract may be reported outside the UK if that product is exported. The opportunity to influence the supply chain would be lost.

3. It was suggested that if a co-product was used for energy as an end use then equivalence should not be assumed but that if the co-product was animal feed then the process of equivalence should be allowed to operate.

4. Sue Finlay said that set-aside for autumn 2007 and spring 2008 sowings has been set at 0% by the European Commission.  This may limit the equivalence trading under CAP for this period but it should not be seen as pre-empting the CAP healthcheck in 2008. Rupert Furness suggested that allowing data to be exchanged in an Equivalence Trade under CAP but not for others outside the EU may constitute a trade barrier under WTO and would require review.

5. Several stakeholders requested confirmation of the verification requirements. Greg Archer confirmed that an obligated supplier cannot undertake the audit of their own supply chain to replace the annual independent third party verification. However undertaking an internal review of the supply chain may be beneficial to the supplier as the breadth and depth of the final independent audit is likely to be able to take these internal management systems and protocols into account.

Question 6 and 15

Q6 Are the targets for reporting appropriate – should they be higher/lower?
Q15 Are the costs of complying with the guidance as set out in the Partial Regulatory Impact Assessment for the draft RTFO Order 2007 broadly correct?

Rupert Furness introduced the targets for a) the percentage of feedstock meeting qualifying sustainability standards b) the GHG savings of biofuels and c) the data capture within monthly reports.

He also said that the Partial Regulatory Impact Assessment for the RTFO Order consultation included estimated costs of compliance. Views are sought on the extent to which these costs are representative. 

Questions and comments raised:

1. Some stakeholders believe that the data provision target should be mandatory and there was general consensus that the target was too low in early years as it included requirements that should be known e.g. feedstock and feedstock origin. It was suggested that the data capture targets should be increased in the early years or reviewed in light of the priority of data fields. The targets for GHG saving levels should also be reviewed against the target for data provision as the two are linked.

2. There was concern about the signals from government post-2011 given the significant increase in GHG targets year on year. There was broad agreement that the targets for GHG saving are aggressive and while challenging targets are necessary, those proposed at present are generally felt to be unrealistic. While most stakeholders agreed that progress should be made year on year it was noted that the level of increase in savings would be delivered by increased data provision rather than through significant technological advances and that offers limited opportunity for such large increases initially.

3. Some stakeholders noted that there were uncertainties in the GHG calculation methodology that may affect GHG targets. Greg Archer agred that there was some uncertainty in this field but said that the resulting methodology would make use of best available scientific evidence with the practicality of implementation. One stakeholder stressed that these two aims are not necessarily compatible.

4. There was a significant degree of interest in next steps towards a carbon-based scheme. Rupert Furness said that the details had yet to be worked through as the announcement had only just been made and stakeholders will be consulted in the development of proposals. The targets set for GHG saving under the reporting scheme had caused concern among stakeholders that targets under a carbon-based scheme may be unreasonable. The subject of ‘grandfathering’ of existing assets was raised in order to ensure existing plant are not penalised for decisions made now in an uncertain future framework.

5. There was broad agreement that the costs for complying with the guidance would exceed those estimated in the partial RIA, in some instances stakeholders believed significantly so. Further details and information will be submitted as part of the consultation.

8 August 2007