Chasing Zero: Biofuels and Renewable Transport Fuel Obligation update

• a lack of tax-based expertise and resources within the Department for Transport's RTFO unit;
• potential difficulties in enforcing compliance; and
• unknown adverse effects, for example a renewable fuel not being eligible under the RTFO due to a tax incentive that is not actually advantageous.

This is the Government's preferred option.

This option would capture any tax based support for fuel production and prevent that fuel from being supported under the RTFO or SAF mandate.

The Government is concerned that there could be complexities and unintended consequences if this approach were implemented.

This change would mean that fuels produced and supported in the EEA could be imported in the UK and be eligible for support under the RTFO or the SAF mandate, with the risk of undercutting UK domestic producers and therefore not favoured by the Government.

In terms of feedstock eligibility, the RTFO Administrator will take a principles-based approach to determine the effects of the feedstock on carbon emissions, agriculture, other economic activities, sustainable development and the environment more generally.

Imported non-renewable feedstocks will need to meet the same criteria as those sourced in the UK.

The eligibility of feedstocks will be determined on a rolling basis with prospective RCF suppliers submitting applications at any time for assessment. This mirrors the RTFO's current approach to biogenic wastes and residues.

(b) Biogenic content requirements

Departing from an earlier consultation in 2021, the Government has decided to remove (with caveats) the explicit minimum biogenic content requirement, which had previously been suggested of at least 25%. However, the RTFO Administrator may, where appropriate, still include a minimum biogenic content requirement in the definition of specific feedstock types.

• A 'single default' counterfactual method will be applied to determine whether RCF feedstocks deliver environmental benefits. Emissions resulting from the production and use of the relevant RCF would be compared against emissions resulting from the next likely end-of-life use of that feedstock. The RTFO Administrator will also have an option to define alternative counterfactuals where necessary.
• The carbon intensity applied to the displaced electricity in the counterfactual will be based on the grid average emissions of Government's most recent yearly figures.
• The efficiency of conversion in counterfactual use for energy from waste (electricity only) will be 22%, with industrial waste gases being determined on a plant-by-plant basis.
• Energy content allocation will be used where an RCF production plant produces multiple co-products.
• To receive RTF certificates a minimum greenhouse gas emission savings threshold must be met which will be tied to the grid carbon intensity and become more stringent over time.
• Reporting and verification requirements for RCFs will reflect the existing RTFO requirements.
• Only one of the RTFO's 'sustainable waste criteria' will be applicable to RCF suppliers, being that adequate monitoring or management plans are in place to address the local environmental impacts caused by sourcing or processing the waste.

This incentivisation is considered sufficient as it (i) remains lower than truly renewable development fuels with greater carbon savings and (ii) ensures that the reward rate is not so high that the production of RCFs is made more favourable than the production of a non-development fuel waste-based biofuel.

• sustainability;
• security;
• adaptability;
• commercial viability; and
• compatibility.

Respondents are asked to provide insight on their view of biomethane market barriers so that these can be identified and addressed, as well as to comment on the opportunities posed by various biomethane production methods.

• the revenue potential of the green gas certification market and renewable transport fuel certificates;
• the costs and profits relating to carbon capture on anaerobic digestion (AD) plants;
• the barriers to maximising revenue from carbon dioxide; and
• the role of gate fees.

DESNZ expects that some form of incentive mechanism will be required to support growth in the biomethane industry and the consultation seeks to understand which market based mechanism is best placed to provide to do this and shift the industry towards being financially self-sustaining. The mechanisms under consideration include:

• contracts for difference
• a supplier obligation underpinned by a tradeable certification scheme (like the RTFO)
• grants and loans from Government; and
• a hybrid option.

Recognising the particular impact of feedstock sustainability on the overall biomethane production process, the consultation outlines the six minimum criteria that could be used for assessing feedstocks:

(i)             costs;

(ii)            greenhouse gases;

(iii)           air quality impacts;

(iv)           land use;

(v)            water quality requirement; and

(vi)           water quality impacts.

Also highlighting a regulatory gap in the biomethane production process, as well as plant and equipment standards for AD plants, the consultation questions whether a future framework should include broader guidance on overarching AD plant building, maintenance, and operating standards.

The consultation notes that whilst current plant locations are decided via a market-led approach, this could be altered to a government-led approach after which industry would develop the plants, for example, through a competitive process.