SOS Biodiesel

The decision to remove the tax differential must be deferred, according to Tracey O’Keefe, director of the UK Sustainable Biodiesel Alliance, which is co-ordinating the SOS Biodiesel campaign

We are now less than a month away from the Treasury removing the tax differential on sustainable biodiesel produced from used cooking oil, and at this point ministers are looking out the hammer they will use to drive a nail into the coffin of the UCO biodiesel industry.

It has been for this reason that, back in November, we launched the ‘Save our Sustainable Biodiesel’ campaign with the intention of highlighting to the Government the benefits of the differential and the flaws in the Treasury’s policy of abolishing it in favour of what it has described as an alternative incentive – namely double certificates under the revised Renewable Transport Fuels Obligation (RTFO).

Problematic Solution
The problem with this ‘solution’ is that no-one really knows exactly what it will achieve, but the signs are that it will be all bad. Certificates trading under the scheme, which provide producers with variable income, will lack the consistency and dependability of the tax differential, with values highly exposed to global market fluctuations. These variations could push up the price of biodiesel, making it uneconomic to produce and for consumers to use. Latest evidence shows that certificates for the next financial year are already trading at half of the value of the differential, making production uneconomic for producers across the UK. Consequently, the Government’s alternative to the tax differential will undermine rather than sustain the UCO biodiesel industry.

With this in mind, the position of the SOS Biodiesel campaign is that the decision to remove the tax differential must be deferred. The Government had initially intended there to be a year’s overlap between the start of the new RTFO scheme and the end of the differential, so that the effectiveness of the former could be properly assessed, but delays in implementation of the revised RTFO have eroded that safety net. At the very least more work has to be done to fully establish what effect RTFO certificates will have and whether they can be made to stimulate and support the industry in the same way as the differential. By doing this the Treasury would be learning from the experience of other major European economies that faced similar decisions in the past – and would ensure that the Chancellor does not bring a blossoming industry to a grinding halt.

European experience makes the Treasury’s decision all the more baffling, given the lack of evidence to back up its position and the evidence of how removing successful incentives such as the differential have impacted upon biodiesel industries such as France and Germany. While France has kept its incentives for biodiesel consumption, and consequently retained its position within the marketplace, Germany – the European leader in biodiesel consumption in 2006 – abolished its incentives, shrinking its domestic market. To this day, although it remains one of biggest producers in Europe, biodiesel consumption in Germany is barely half what it was, while its industry operates at only 60 percent capacity.

Choppy Waters
Despite  the warnings, the Government is clearly pursuing the wrong course and is headed for turbulent waters. London, where many of the UK’s biggest fleets operate, can expect to be particularly badly affected by the contraction of the UCO biodiesel market – as will the 1,000 taxis that operate on London’s roads and run on UCO biodiesel. All of these consumers will almost certainly be forced to turn back to fossil fuels rather than pass on the inflated costs to their customers. This in turn will mean Londoners can expect near certain increases in carbon emissions – adding to the significant volume already produced in one of the world’s busiest cities.  All the while  millions of litres of used cooking oil will be poured down drains across the Capital – leading to further expense when they cause blockages and require maintenance.

None of this is in the Government’s interest – or that of the London Mayor Boris Johnson, who in recent weeks has not only set out his waste strategy for the Capital (which highlighted the need for London businesses to do more with used cooking oil), but has also begun a campaign against vehicles ‘idling’ on London’s streets and generating unnecessary carbon emissions.

During his autumn statement the Chancellor announced a freeze on fuel duty to prevent excessive increases in prices at the pumps that would harm not only the transport industry but the general public, yet he failed to afford the biodiesel industry similar protection by retaining the differential. Ironically, he also announced new investment for the procurement of low-emission HGV technologies and plans to launch an industry-led taskforce to promote fuel efficient and low-emission technologies – of which UCO biodiesel is one of the few.

Quite simply, by failing to reconsider his plans to abolish the tax differential, the Chancellor is hamstringing his own department’s plans to promote the more widespread use of low emission fuels in transport.  It would be tragic if the UK’s biodiesel industry was consigned to the scrapheap when it is in such excellent health.

About the author
Tracey O’Keefe is the Director of the UK Sustainable Biodiesel Alliance, which is co-ordinating the SOS Biodiesel campaign