Policy position: Lower carbon fuels
Summary
There is a current shortage of technical skills in the UK, essential for both today’s operations and the transition to net zero across the whole of industry. Despite recent efforts, this shortage is still likely to continue to the end of the decade. Therefore, businesses need access to the flexible international workforce. Otherwise, the UK will fall behind in the transition to net zero and energy security will be at greater risk.
Problem Statement
Lower carbon fuels (LCFs) could contribute far more to the UK’s growth and emissions targets, particularly in the efficient and effective decarbonisation of transport. Currently only around 7.5% of fuels delivered are LCFs but this could increase greatly and allow decarbonisation without building new infrastructure or waiting for consumers to buy new vehicles.
Investment in UK LCF production has not progressed significantly in response to recent policies and targets, including the previous UK government declaring an ambition to have five UK SAF plants in operation by 2025 . Meanwhile production is developing in other jurisdictions, notably the US and EU. Despite those issues, the emissions reduction from use of renewable LCFs like biofuels and synthetic fuels was equivalent to removing over three million cars from the road in 2022. That is more than the total number of electric vehicles sold in 2022 and 2023 combined.
Current Situation
UK production of lower carbon fuels at scale is limited to a number of plants:
- P66 Immingham refinery (co-processing of renewable oils) 50 kilo-tonnes per annum (ktpa)
- Argent Energy, Stanlow (Fatty Acid Methyl Ester, FAME) 95 ktpa
- Greenergy, Immingham and Teesside (FAME) (no production data available)
- Ensus, Teesside (Bioethanol) 350 ktpa
A second 45 ktpa Argent FAME plant in Motherwell closed in 2024. The 350 ktpa Hull Vivergo bioethanol plant closed in 2018. A revenue certainty mechanism (RCM) for SAF was announced in 2024 and was followed by a consultation. Further work is being progressed by the Department for Transport) DfT, and the RCM introduction requires further legislation to be passed by the UK parliament. The UK SAF mandate legislation passed into law in November 2024, with the mandate itself starting in January 2025. The SAF mandate is expected to be mainly met with imported Hydroprocessed Esters and Fatty Acids (HEFA). Despite a number of interested companies, there have been no recent announcements on investment in UK lower carbon fuel production.
Deliver an effective LCFs strategy which signals to investors that LCFs have a long-term role in decarbonising the UK economy
A government strategy is needed to signal the long term importance of LCFs and their potential to accelerate emissions reductions by delivering far higher proportions of the UK’s liquid fuel demand than now, as part of a comprehensive approach to transport decarbonisation. The strategy must sit above the existing policies for both the RTFO and SAF mandate, simplifying and aligning them, as well as delivering consistency with the wider biomass strategy and net zero targets.
Opportunities for comprehensive transport decarbonisation policy could include:
- Indicate that a larger proportion of LCFs (well beyond existing blend wall targets) could be part the transport energy mix beyond 2050.
- Making the RTFO more consistent with the SAF mandate by basing it on Greenhouse gas (GHG) reductions rather than volumes, focusing on fuel carbon intensity reduction as a key policy objective.
- Aligning DfT with DESNZ policy on the low carbon hydrogen standard by recognising of blue hydrogen in the RTFO and SAF mandate and allow so called “multiple incentives” for UK-produced hydrogen as already allowed in the US.
- Ensuring the proposed renewable heating obligation in the 2023 Energy Act is consistent with the SAF mandate as kerosene is an integrated supply chain.
- Incorporating EV charging into a comprehensive transport strategy which combines LCFs and other energies could improve efficient transport decarbonisation. There are several EU member states and US states which already count EV charging in a similar way to LCFs in their schemes. If the RTFO is updated to include EV charging, then the targets should be commensurately increased.
Encourage growth in consumer demand to secure large-scale UK adoption of LCFs and support UK production
Current government incentives through supplier mandates and R&D funds have had success, but current supply is less than 10% of all fuels. Current policies have not secured large-scale UK production nor have the potential to provide LCFs as a majority of the UK’s liquid fuel demand. The UK imports the majority of its LCFs and consumer awareness is low, despite growing interest in low carbon technologies in transport.
To maximise the decarbonisation potential of LCFs, the UK must:
- Introduce consumer incentives for LCFs use – for example an emissions-derived fuel duty that sees LCFs taxed at a lower rate than fossil based fuels - to rapidly grow demand by offering consumers a monetary reason to purchase higher blend LCFs.
- Deliver an awareness campaign for drivers of LCFs alongside the introduction of consumer-focused incentives. Providing an agreed lifecycle analysis which can be applied to all vehicle power trains would improve consumer information.
- Both these initiatives would improve the business case for investment in UK LCF production facilities.
Simplify current regulation around LCFs which is unnecessarily burdensome
The DfT requirements for LCFs are typically more onerous than those required by other jurisdictions (such as the US under the Inflation Reduction Act), increasing the costs of supply in the UK. Examples of potential improvements include:
- Removing policy limitations on feedstocks and replacing them with clear sustainability criteria in the relevant guidance that fuels must meet if they are to be delivered. Current UK restrictions apply to alcohol to jet and the HEFA cap for SAF which are not seen in the US or EU.
- Reviewing the 2027 SAF mandate sub-target for Power-to-liquids (PtL) regularly to ensure it can be met without buying out given there is insufficient production to meet the requirement at present and no clear trajectory for growth of domestic e-fuel production.
- Rationalising verification of obligated fossil fuel volumes. These volumes are currently billions of litres in any calendar year but highly detailed verification is required precisely to the litre, for little practical benefit. The consumer-focused policies above could also reduce reporting burdens.
- Providing more transparency on the definitions and approval pathway for renewable fuels. The EU defines advanced biofuels as those produced from feedstocks listed in the Renewable Energy Directive legislation , which is far clearer for companies seeking to develop such fuels.
- Further simplifications of the DfT guidance that could remove additional requirements over and above those specified in the legislation.
Remove barriers which prevent the UK development and manufacturing of new LCFs
There are feedstocks which offer potential as LCFs which are currently not permitted for use in the UK, reducing the options available to UK producers and suppliers. Removing the barriers to their use could increase availability and reduce costs as well as making the UK a more attractive place to produce LCFs.
- There is no recognition of low/no ILUC crops such as cover crops or degraded land under the SAF mandate, while their eligibility under the RTFO is unclear. The use of oil seeds derived from cover crops should also be included in the list of available feedstock as some of these crops primarily provide nitrogen re-fertilisation of the land and non-edible oil seeds. These feedstocks and their potential have been recognised in the EU and the US.
- The use of wood, not just waste woody biomass, should be allowed as a feedstock subject to developing robust new requirements for sustainable use.
- Ensure that any updates to the guidance on the RTFO and SAF mandate are subject to full consultation to ensure policy certainty for obligated suppliers.
Opportunities
An active market for lower carbon fuels has been established in the UK, through the RTFO and SAF mandates. However this is currently being met with imports, and the UK is struggling to compete with other jurisdictions for investment in production facilities. If investment in UK production can be made attractive and the long-term future for LCFs assured, then it has potential to create jobs and UK growth as well as improving UK energy security. This is also in line with the five missions stated by the current Labour administration.
Risks
The UK relies on being able to attract imports from other jurisdictions, notably from the US and China. If it cannot compete for these imports against the schemes in place in each jurisdiction, and the potential trade restrictions that may be in place, then UK fuel suppliers will be unable to meet their obligations under the RTFO and SAF mandate. This will incur “buy-out” penalties, incurring costs in the fuel supply chain for no environmental benefit.