PORTLAND
MARKET
REPORT
March update
Civil servants are not normally known for their
alacrity and, in fact, are often ridiculed for their
inactivity. Indeed, the popular BBC comedy
series “Yes Minister” was basically just a long,
drawn-out joke on how civil servants spent their
entire careers ensuring nothing actually ever
got done (“there are two types of files in this
Ministry…’under consideration’ means we
have lost the file. ‘Under active consideration’
means we are trying to find it…!”).
So, there is obviously something in the
water at the Department of Transport (DfT),
because the current speed of legislative change
being enacted around biofuels is nothing
short of miraculous. Up until April 2018, the
mandated biofuel level in diesel and petrol (ie,
road fuels) had been at 4.75% for the previous
8 years. It was at this point though that the
DfT mandarins started to take their legislative
amphetamines! Firstly, they increased the
mandated biofuel level to 7% but they also
introduced a crop cap of 4% (so that there
is a limit to how much fuel can be generated
from food producing crops). Then on January
1st 2019, the biofuel level was increased again
(this time to 8.5%), but even this wasn’t
enough for the DfT, who also introduced a
0.1% Development Fuel requirement (0.1%
of fuel must now be derived from 100%
waste). And then finally for good measure, they
chucked in the Greenhouse Gas (GHG) tariff
on all road fuels. Woah boys and girls…slow
down!!
Some of these new targets are really,
really difficult to understand and often rely on
comically complicated measurements, such
as “Grams of CO2 equivalent per Megajoule
of Energy” (gCO2e/MJ)! But in their simplest
form, the new rules are seeking to reduce the
greenhouse gas intensity of road fuels (diesel
and petrol) versus a government set baseline.
So, for example, if we take standard (neat)
diesel, then on average this grade of fuel has a
greenhouse gas intensity of around 95 gCO2e/
MJ. The initial 2019 target set by government
is that road fuels should have an intensity of
90gCO2e/MJ, which means that suppliers have
to blend a higher volume of lower greenhouse
“ALL OF THIS EXTRA
REVENUE IS SIMPLY GOING
INTO THE “BLACK HOLE OF
GOVERNMENT”
gas fuels – which at present, just means
biofuels.
But simply blending fuel to the required
biofuel minimum is not enough to generate
sufficient GHG savings. In fact, “standard”
bio lending only generates between 60%
to 70% of the required GHG target. Which
logically means that to meet the GHG targets,
extra biofuels have to blended into the UK
fuel pool. This sounds all well and good, until
you realise that fuel suppliers are not actually
legally permitted to blend at higher biofuel
levels, because that would make their fuel
“off-spec” and thus invalidate automotive
engine warranties. In fact, the legally permitted
maximum of biodiesel in the UK is 7% – even
though the mandated target is 8.5% – go
figure!! These “impossible” specification targets
not only massively complicate things, but they
also make a mockery of the new legislation.
Therefore, to address this, the government
allows fuel suppliers to pay a GHG buy-out –
basically a direct tariff of 0.70ppl on petrol and
1.27ppl on diesel.
Then there is a similar “impossible”
problem that applies to the 0.1%
Development Fuels target. On the surface,
this sounds another progressive step and a
powerful way of diversifying biofuel supplies
towards lower carbon waste solutions. But
the fairly major problem here is that these
fuels literally do not exist in sufficient quantity
anywhere in the world – confined as they
are to the development stage of laboratory
experiments. Which once again means that
suppliers are forced to simply opt for the
government buy-out, which on Development
Fuels is 80p, multiplied by the number of litres
that make up 0.1% of sales. Phew…we did say
it was complicated!
“A PAINFUL END-RESULT
FOR FUEL CONSUMERS”
Add all of this together and you have a
painful end-result for fuel consumers. Step 1;
increase biofuels content of fuel = price rise
by circa 1.00ppl (because biofuels cost more
than diesel and petrol). Step 2; force suppliers
to pay the Development Fuel 80p buy-out
because the fuel actually doesn’t exist = price
rise of 0.10ppl (80p x 0.1%). Step 3; set the
GHG target higher than is possible to achieve
with the mandated biofuels obligation, thus
requiring a further payment to government =
price rise of circa 0.50ppl (0.70ppl / 1.27ppl
levy minus the credits generated by bio-
blending). Result = a total price rise of 1.60ppl.
Multiply that by the total consumption of road
fuels on the UK (48bn litres) and you have an
overall increase in cost to the British Motorist of
£770m. If ever there was a better example of
a stealth tax, then Portland would like to see it!
Certain consumer groups would be up in arms
(if they could understand it) and they would
probably be even more dissatisfied, if they
found out that all of this extra revenue is simply
going into the “Black Hole of Government”
and none of it is actually being earmarked
for Research & Development into renewable
fuels…
If we ignore that last issue though (which
surely is inexcusable?), it may be that the
cynics and critics are missing the point. In a
climate where most government departments
are currently taking a Brexit induced holiday
(“we will have to defer action on that issue,
until we know the outcome of Brexit”), credit
must go to the Department of Transport for at
least trying to implement change. The most
common refrain from green activists at the
moment, is that “nothing is being done” on
the environment, but in fact nothing could
be further from the truth when it comes to
alternative fuel legislation. More thought is
still needed to remove some of the technical
contradictions for sure, but in this action-
packed corner of North Yorkshire, we say hats
off to the DfT for implementing an action-
packed agenda for change.
For more pricing
information, see
page 22
Portland Fuel Price Protection
ection
www.portland-fuel-price-protection.com
Fuel Oil News | March 2019 13