Following on from its recent response to the consultation on the Green Gas Support Scheme (see here for our blog post on this) the Government has published a consultation on a package of proposed changes to the Renewable Transport Fuel Obligation (RTFO).

The RTFO has been in operation since 2008 and has been changed over time to deliver increased carbon savings, reinforce sustainability standards and align the scheme with wider international standards. However, the core principle of the regime has generally remained the same – suppliers of fuel for use in road transport or non-road mobile machinery in the UK are obliged to supply a certain amount of renewable fuels.

The consultation proposes an increase in the contribution of sustainable low carbon fuels by increasing what is known as the “main obligation” by 2.5% by 2032 (for further information see here). The consultation also proposes changes that would support a greater diversity of low carbon fuels in transport in the long term as part of the energy transition to net zero greenhouse gas (GHG) emissions by 2050 while updating sustainability requirements for renewable fuels. In particular the consultation proposes to modify the RTFO by:

  • inclusion of support for recycled carbon fuels (see here);
  • improved support for hydrogen and renewable fuels of non-biological origin (RFNBO) (see here);
  • expansion of the scope of the RTFO to other transport modes (see here);
  • changes to the sustainability criteria and GHG emissions savings requirements for renewable fuels (see here); and
  • aligning civil penalties and removing multiple incentives (see here).

The consultation closes on 23 April 2021.

The changes proposed to the RTFO are forecast to produce additional GHG savings equivalent to the removal of 1.2 million cars from the road by 2032. The consultation is also a precursor to the Transport Decarbonisation plan which is scheduled to be published this spring and will set out a broader set of measures to decarbonise the transport sector.

Proposed changes to the RTFO

Increasing the renewable fuel target The consultation sets out a number of options for changes to the renewable fuels target (the main obligation) ranging from no change to a 5% increase by 2032. The Government’s preferred option is for the main obligation to supply renewable fuel to increase from 9.6% in 2021 to 12.1% in 2032, an overall increase of 2.5%. The proposed increase would be incremental, with a 1.5% increase in 2022 and followed by an additional 1% which would be spread out until 2032. The target levels would then remain at the 2032 levels.

The initial proposed increase of 1.5% in 2022 is intended to complement the rollout of E10 petrol, which will occur during the summer 2021 and require the standard petrol grade in the UK to contain 10% renewable ethanol. Further increases to the target until 2032 is intended to facilitate the growth of other renewable fuels and feedstocks, without introducing significant delivery and sustainability risks.

Inclusion of support for recycled carbon fuels The consultation proposes that the scope of the RTFO be expanded to include recycled carbon fuels (RCFs). Such fuels are produced from certain waste fossil materials that cannot otherwise be avoided, reused or recycled (eg fuel produced from non-recyclable plastic).

The Government’s rationale for this change is that diverting wastes from their current disposal routes (ie landfill, incineration in the UK or sent overseas for incineration) to become RCFs can offer a greater energy recovery from the waste and therefore achieve greater GHG emission savings. The Government also sees that providing support through the RTFO gives the UK an opportunity to become a global leader in RCF technology as it will encourage investment in developing advanced conversion technologies such as gasification and pyrolysis.

Only two types of RCF feedstock would be supported under the RTFO – the fossil component of municipal solid waste streams; and industrial waste process gases containing carbon monoxide. In addition, only those fuels that are currently categorised as “development fuels” under the RTFO would be eligible for support. These include aviation fuel (avtur or avgas), substitute natural gas produced from gasification or pyrolysis, and hydrogen produced using carbon capture and sequestration.

The expansion of the RTFO to include RCFs will require amendments to the underlying legislation. As this will take additional time the Government does not propose that RCFs are introduced as part of the current package of amendments to the RTFO.

Hydrogen and renewable fuels of non-biological origin (RFNBO) Increased scope to use renewable power from the grid

Under the current RTFO regime a RFNBO such as renewable hydrogen must demonstrate that it satisfies the applicable sustainability criteria and GHG emission saving requirements in order to be eligible for support.

Where the RFNBO is produced from electricity sourced via the national grid (such hydrogen produced through electrolysis) the RFNBO will be considered as partially renewable as the power from the national grid will be derived from both renewable and fossil sources. In addition, any GHG emissions that arise from the displacement of renewable energy from the wider grid have to be accounted for (because the production facility will have diverted renewable power away from other uses that will need to be replaced).

The effect of these requirements is that any RFNBO produced via power from the national grid is unlikely to satisfy the minimum GHG savings required by the RTFO scheme (as the grid is not sufficiently decarbonised) and therefore not be eligible for any support. The easiest way to satisfy the sustainability and GHG emission requirements is to co-locate the RFNBO plant with the generation of renewable power.

The Government has proposed changes as part of the consultation that seek to acknowledge that the GHG savings can be demonstrated in additional ways, so as to make it easier to receive RTFCs for RFNBO where the power is procured from the grid. It is proposed that the RTFO scheme would be modified:

  1. to recognise the role of power purchase agreements (PPAs) in demonstrating that a RFNBO has been produced using renewable energy supplied through the grid. However, further requirements such as temporal correlation (ie the supply of the renewable energy and the production of the RFNBO must happen within the same 30 minute period) would also need to be satisfied, in order for the RFNBO to be treated as a wholly renewable fuel.  The Government is of the view that REGOs are not sufficient to demonstrate the renewable nature of the energy used;
  2. to formalise the additionality principle. It is proposed that the RTFO administrator will need to be satisfied that the RFNBO production has not diverted the renewable energy sources from existing uses – ie power would not have been available to the grid in the absence of the power demand from the RFNBO facility.

Changes to the level of reward for bio-hydrogen

The RFTO currently specifies a development fuel target which is intended to incentivise the development of strategically important renewable fuels using advanced technologies.

The consultation proposes that as hydrogen produced from steam methane reformation (SMR) or autothermal reformation (ATR) of bio-methane is an established technology, it should no longer be treated as a development fuel unless hydrogen production is linked with carbon capture and storage (CCS) technology. Instead, hydrogen produced from bio-methane reformation without advanced technologies will be eligible for normal renewable transport fuel certificates (RTFCs).

Expansion of RTFO to other transport modes  The RTFO currently supports renewable fuel for use in road vehicles and non-road mobile machinery (such as farm machinery and rail vehicles). The RTFO also provides support for renewable fuels used in inland waterways but not ships operating at sea.

The Government proposes to expand the scope of the RTFO so that RFNBOs used in maritime shipping would be eligible for development fuel RTFCs. No obligation on suppliers of fossil maritime fuel would be imposed at this time.

In addition, the Government also proposes to expand the scope of the RTFO so that all renewable fuels used to power rail vehicles and non-road vehicles would be eligible for support regardless of the actual power system used. This would mean that renewable hydrogen used in fuel cells to power trains and non-road vehicles such as forklifts would become eligible for support.

Changes to sustainability criteria  The RTFO requires renewable fuels to satisfy certain sustainability criteria in order to ensure that the RTFO supports fuels which provide significant GHG savings and prevent negative environmental consequences (such as deforestation and loss of biodiversity) for the cultivation of raw materials in biofuel production.

The current sustainability criteria is aligned with that set out in the EU Renewable Energy Directive (as amended by the Indirect Land Use Change Directive). The RTFO also imposes further measures, such as a cap on the level of crop derived fuel, that are intended to improve sustainability and focus suppliers on waste derived biofuels.

As part of the consultation, the Government is seeking to refine and strengthen these sustainability safeguards. These changes include:

  • updates to the methodology for calculating GHG emission savings and default GHG emission values for certain renewable fuel production pathways;
  • updates to the fossil fuel comparator and the minimum GHG emission savings thresholds;
  • requiring biofuels produced from agricultural wastes and residue feedstocks to demonstrate that soil monitoring and management plans are in place that focus on soil quality and soil carbon;
  • introducing specific sustainability requirements for fuels produced from forest biomass, including being able to demonstrate that the forest areas harvested are then regenerated; and
  • the inclusion of new protected land types such as “highly biodiverse forests” and updating definitions of “highly biodiverse grasslands” to reflect changes in international definitions.

Many of these changes will align the RTFO with the sustainability requirements in REDII which will take effect in the EU in July 2021.

Aligning civil penalties and removing multiple incentives It is proposed the RTFO civil penalties arrangements are modified so the calculation used to determine the amount of any penalty charge is aligned with the recent increase to the RTFO buy-out price.

It is also proposed that the opportunity for suppliers to receive multiple incentives for renewable fuels and chemical precursors will be further limited by the introduction of additional eligibility conditions. The changes will mean that the renewable fuel or chemical precursor must not have received, or be expected to receive, other incentives in the UK or any other country. However, there will be an exemption for financial support to develop fuels and technologies.

Contacts

John Williams
John Williams
Of Counsel, London
+44 20 7466 2392
Steven Dalton
Steven Dalton
Partner, London
+44 20 7466 2537
Sarah Pollock
Sarah Pollock
Partner, London
+44 20 7466 2786
Reza Dadbakhsh
Reza Dadbakhsh
Partner, London
+44 20 7466 2679