By Alec Whiter
On 15 April 2018 the Renewable Transport Fuel Obligation (RTFO) was amended to require certain fuel suppliers to supply a greater volume of sustainable biofuel, and create new opportunities for producers of development and advanced biofuels. Our briefing explains some of the main RTFO amendments and explores the opportunities they create.
What is the Renewable Transport Fuel Obligation?
The RTFO was introduced in 2008 and forms part of the government’s legislative drive to fulfil its climate change commitments, decarbonise the transport sector and increase the UK’s energy resilience.
In broad terms, the RTFO requires certain suppliers of fossil fuel-based road and non-road mobile machinery transport fuel (obligated suppliers) to supply a certain volume of sustainable biofuel each year.
Obligated suppliers are required to demonstrate their compliance with their sustainable biofuel targets at the end of each year. They do this with a mixture of redeeming Renewable Transport Fuel Certificates (RTFCs) and/or by paying a fixed sum (currently £0.30) for each litre of fuel for which they wish to ‘buy-out’ of their obligation. RTFCs are obtained by obligated suppliers through the supply of renewable fuels.
What has changed?
On 15 April 2018 the following changes occurred:
- There was an increase in the overall main obligation level of obligated suppliers from 4.987% of supply in 2018 to 10.637% of supply by 2020, climbing to 10.959% by 2032.
- An additional sub-target for ‘development fuels’ was applied, with development fuels being defined relatively widely to include certain waste based renewable fuels and certain renewable fuels of non-biological origin.This new sub-target is initially set at 0.109% of supply from 2019, rising to 3.196% by 2032. Obligated suppliers are being incentivised to supply development fuels through the double reward of development fuel RTFCs. Development fuel RTFCs will also be eligible to be used by obligated suppliers to meet their main obligation.
- Obligated suppliers will only be permitted to satisfy up to 4% of their main RTFO obligation through RTFCs accrued in relation to fuels made from agricultural crops. The cap will then reduce annually from 2021 to reach 3% in 2026 and 2% in 2032.
- The RTFO was extended to include renewable aviation fuels and renewable fuels of non-biological origin.
Potential Opportunities
The amended RTFO has been designed from a demand side perspective, to build a firm platform for investment to drive technological advancement and the development of sustainable advanced fuels for automotive, aviation and road freight (including new waste derived fuels). It will also support innovation in new carbon saving alternative fuels for planes and lorries.
It is widely anticipated that the revised RTFO (particularly the development fuel changes and the extension of the RTFO to renewable aviation fuels and renewable fuels of non-biological origin) will create larger (and in some cases new), government supported markets for renewable fuels and lead to innovative fuel suppliers and fuel supply models coming to the market.
More widely, the UK is on the cusp of another transport revolution built on low-carbon and low-emission technologies, with electric vehicles likely to play a pivotal role. Liquid fuels will however continue to be required in large volumes in the short to medium term, and even in the longer term, areas such as aviation and heavy goods vehicles will continue to be reliant on liquid fuels. As a result, the revised RTFO offers pioneering developers, funders and investors an immediate opportunity to invest in a growing, low-carbon market that is strongly supported by the UK government.
How can Burges Salmon help?
Burges Salmon works with clients across the transport, funding and investor communities to appraise and help bring forward innovative transport developments throughout the UK. This includes our market leading work on electric and autonomous vehicles, low carbon fleet transport solutions and the rail sector.
If you have any questions on the content of this article, or would like to discuss the opportunities or challenges that arise from the amended RTFO, please contact James Phillips.