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A Briefing Note for Parliamentarians & Policy Makers

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A Briefing Note for Parliamentarians & Policy Makers Written evidence submitted by Agri Energy 1. Introduction to Agri Energy 1.1 Agri Energy is one of the UK’s largest distributors of fresh cooking oil to the catering industry and is the largest collector of waste cooking oil, collecting from over 60,000 catering establishments in the UK. Agri Energy collects Used Cooking Oil (UCO) from food manufacturers and the retail and catering sectors, preventing it from being dumped illegally, and turns it into biodiesel for use as a renewable transport fuel. It has twelve depots across the UK, three bio-refineries capable of processing UCO into renewable bioliquid or biodiesel, and employs 350 people across the country. 1.2 Agri Energy has, in conjunction with its partners, been able to deliver a ‘closed loop’ of sustainability which sees us deliver fresh cooking oil to our clients’ premises, then collect the waste oil and turn it into sustainable biodiesel which is then used to fuel captive fleets. One project in particular has seen a reduction of 9,429 tonnes of CO2 emissions per annum, as well as a saving of 5,000 road journeys through reverse logistics solutions. It has necessitated investment of £4.5m and the creation of 40 full time jobs, and is exactly the sort of innovation that will be necessary if the Government is to meet its challenging targets for emissions reductions, renewable energy use and the creation of a green skills economy. 1.3 Agri Energy also offers a rapidly expanding Food Waste collection service for its customers. Food waste is taken for composting or as a feedstock for Anaerobic Digestors. Agri Energy is in the process of establishing its first Anaerobic Digestion plant. 1.4 Agri is fully supportive of the Government’s emphasis on the green economy and its commitment to ensuring that the renewables industry becomes an ever increasing part of the UK’s energy mix. 2. Summary 2.1 This paper sets out Agri’s submission to the Environmental Audit Select Committee’s inquiry into how the Government can remove the barriers preventing the transition to a green economy and create the conditions necessary for investment in low carbon skills and jobs in the renewable energy sector to flourish. It is comprised of four sections and makes recommendations on how the tax and regulatory regimes in each of the following areas can be reformed to encourage greater take up and investment of renewable energy:- • The 20p fuel duty differential for sustainable biodiesel • The 2,500 litre fuel duty derogation for biodiesel producers • Bioliquids and the Renewable Heat Incentive • Anaerobic Digestion 2.2 Our submission to the inquiry makes the following policy recommendations:- • The 20p fuel duty differential for biodiesel made from UCO should be extended beyond April 2012 to compensate for the inherent flaws in the Renewable Transport Fuels Obligation, and to ensure that the sustainable biodiesel industry retains a competitive price advantage against fossil fuels. • The 2,500 litre fuel duty derogation for biodiesel producers should be abolished as it has driven the creation of a large black market biodiesel industry and led to increased theft of raw materials. It also undermines investment and job creation by legitimate sustainable biodiesel producers by subjecting them to unfair competition. • The 0.5 ROC uplift for bioliquids in Combined Heat and Power should be abolished in favour of eligibility for the Renewable Heat Incentive. There also needs to be a greater appreciation within the Department for Energy and Climate Change (DECC) of the benefits of sustainable biofuels over those made from less desirable feedstocks. • A ban on food waste to landfill, with a two year grace period to allow the supply infrastructure to be put into place, would ensure that more waste is effectively diverted into Anaerobic Digestion. 3. The 20p fuel duty differential for sustainable biodiesel 3.1 Biodiesel made from UCO is acknowledged to be one of the most sustainable transport fuels. As a waste product, UCO avoids the negative indirect land use impacts traditionally associated with biofuels and is one of the only truly sustainable feedstocks that can help meet the Government’s objective to increase the proportion of transport fuel made from renewable sources. 3.2 Figures from the Renewable Fuels Agency based on a life-cycle analysis suggest UCO can deliver emission reductions savings of 84%. Our own measurements using ISO 14064 show savings of at least 95% for biofuel production when the required heat and power is provided by CHP run on a bioliquid. This is higher than any other biofuel feedstock. Agri is proud of this achievement and acknowledges that it has only been made possible by the variety of support mechanisms offered by government. 3.3 Biodiesel produced from UCO currently enjoys a 20p per litre fuel duty differential compared to regular diesel. This has been largely successful in promoting the use of waste derived bioliquids in transport fuel and ensuring that waste oil is not illegally poured down the drain. By creating stability and market certainty it has given investors the confidence to plan new projects, and the clear cost benefit has encouraged many large companies to switch their captive fleets to biodiesel. It has also helped drive waste collection and renewable energy creation, allowing businesses to research new conversion techniques and train employees in the green skills that will be required for future innovation. 3.4 However, this good work is in danger because of uncertainty over the future of the 20p duty differential. The differential is due to expire in April 2012. The Government has said it hopes double certificates under the Renewable Transport Fuels Obligation (RTFO) will become the main support mechanism for the sustainable biodiesel industry after the differential is abolished. However, the RTFO is a poor substitute for the duty differential. It is overly complex and bureaucratic, and is an expensive system to run. It is complicated to understand and requires significant time on the part of businesses to calculate estimated cash flows. Certificate prices are prone to significant fluctuations, making long-term planning and revenue forecasting extremely difficult, and this problem is likely to be exacerbated once UCO biodiesel becomes eligible for double certificates as the potential spread of incentive will increase from 20p-50p to 0p-60p. 3.5 As the European Commission is undertaking work on possible further legislation regarding the sustainability of biofuels and the RTFO is to be reviewed again in 2014, the regulatory environment for investors remains highly uncertain. This is acting as a barrier to investment and a disincentive to take advantage of the opportunities offered by the renewables sector. 3.6 There is a real danger that, when the differential is abolished in April 2012, biodiesel from UCO will suddenly become 20p per litre more expensive. Many captive fleets will simply find it cheaper to switch back to mineral diesel, negating all the work that has been done in promoting an increase in renewable transport fuel and potentially causing many biodiesel producers to go out of business. 3.7 As a solution, Agri would propose an extension of the 20p fuel duty differential for biodiesel produced from UCO until the Government becomes clearer about how it wishes to incentivise sustainable and renewable road transport fuel beyond 2014. Agri has set out a number of options to the Treasury and Department for Transport (DfT) on how this could be accomplished while still meeting the requirement to double count waste derived transport fuels under the Renewable Energy Directive. 4. The 2,500 litre fuel duty derogation for biodiesel producers 4.1 In 2007 the Chancellor announced that motorists who refine or use less than 2,500 litres of biodiesel per year to run their cars would be exempt from paying fuel duty. This was in response to unflattering news stories of police officers and tax inspectors staking out supermarkets and sniffing exhaust fumes to identify drivers that were buying cheap cooking oil and pouring it straight into their tanks without paying any duty. 4.2 However, this duty derogation has created a lucrative underground industry with black market producers selling their product illegally and ignoring the 2,500 litre limit. Moreover, the proliferation of unregulated biodiesel, which contains dangerous combustible elements and by-products, can pose a serious health and safety threat to those involved as well as to the environment unless it is produced as part of a strictly controlled and monitored process. The fuel duty exemption for those who produce less than 2,500 litres of biodiesel per year has also led to a spate of thefts of UCO from catering establishments. Agri estimates that 25% of all UCO is stolen, equalling 30 million litres of biodiesel with no duty paid. 4.3 Black market biodiesel is a profitable business. A small processor can be bought for as little as £995, or leased for £7 a week. It costs about 20p a litre to turn vegetable oil into biodiesel if you cut corners, use inferior elements and do not follow stringent regulations and processing methods. If a producer steals the UCO, it costs nothing to get the raw material, nor is VAT paid at 20%. Diesel currently costs about £1.32 per litre at the pump. The cost to produce sustainable and professional biodiesel from UCO is around £1.24 per litre, but producing black market biodiesel with stolen materials can cost just 20p a litre. It also creates unfair competition for legitimate biodiesel manufacturers, who adhere to strict standards for health and safety and fuel quality. 4.4 As a solution, Agri would recommend the abolition of the fuel duty derogation for those who refine less than 2,500 litres of biodiesel per year.
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