Been to your local petrol station recently? Of course you have and, like me, you will have been horrified to see that both petrol and diesel prices are now well over £1.10 per litre.
This recent rise is, in part, due to the end of the VAT holiday – and, of course, the albeit modest rise in oil prices.
However, it’s going to get a lot worse. There are big increases in fuel duty planned for 2010 due to the reintroduction of the fuel-price “escalator” in last year’s Budget. It is likely to add at least another 1p or so per litre, but this could be peanuts if some of the predictions mooted by City analysts and the Petroleum Retailers Association are realised.
The appalling state of the public finances could easily lead to an increase in VAT to 20%, which would add at least another 2.5p. Even worse, there is some speculation that a post-election Budget could well lead to duty being increased by another 2p per litre. If one adds to this the anticipated increase in wholesale prices, it is possible that, by the end of 2010, prices could have increased by anything between 10p and 12p per litre.
Of course the fuel price “escalator” is another tax aimed at trying to reduce car use and so cut down on emissions. It is therefore not considered by the Government as a tax, but as an environmental necessity.
Of course, this argument is somewhat weakened, if not completely destroyed, when one also realises that the 20p per litre tax break on bio-fuels is going to be withdrawn by the Government in April.
According to the International Energy Agency, the situation as at the end of 2009 was that most of the growth in the production of both bio-diesel and bio-ethanol is happening in just three countries – the US, Brazil and Germany, which together account for more than half of bio-diesel and more than three-quarters of bio-ethanol production.
The UK ranks sixth as a bio-diesel producer and ninth for bio-ethanol – a tiny fraction of Germany’s output of either. This, of course, makes it difficult for the UK to achieve its own targets for bio-fuel use. This target is known in Government jargon as the “Renewable Fuel Transport Obligation”, or RTFO for short.
Under the RTFO, the yearly obligation level for fuel suppliers was modified in 2009 and they are now 3.25% for 2009-10; 3.5% for 2010-11; 4% for 2011-12; 4.5% for 2012-13, and 5% for 2013-14. The new levels are in line with recent recommendations in the Gallagher Review of Bio-fuels advising a slowing down in the rate of increase of bio-fuel content in road fuels to reach 5% in 2013-14 – not because of the economic downturn but, ironically, over concerns about the environmental impact of bio-fuel production.
In particular, there’s a real worry about the so-called displacement issue. That is to say, the use of agricultural land for bio-fuel plants versus food cropping, plus large-scale deforestation.
In Scotland – as far as I can tell – there is just one bio-fuel production plant, Argent Energy, and that mainly reprocesses cooking oil and similar products. Other projects previously reported in Energy at Grangemouth and Rosyth have been shelved.
The impact of the removal of the bio-fuel tax break in an era of severe economic stress caused by higher taxes (generally as well as on fuels) is unlikely to see these projects revived in the near future.
All that apart, I believe that, if we can grasp the nettle, the future for bio-fuels could be extremely bright. But we need to show some real initiative and some real vision.
I have written before about the potential for bio-fuel from algae fed on carbon-dioxide, and I won’t dwell on that other than to say that money is pouring into that technology – not here, but mainly in the US. The figure is now well over $1billion.
That tells me that this isn’t a pie-in-the-sky idea. Companies and governments don’t invest in this sort of technology unless they are fairly confident it’s all going to work.
What surprises me is how little real R&D is going on here. There is one small algae pilot plant in Scotland, which is good stuff, but in terms of other work in bio-fuel development, we seem to lagging somewhat.
It seems that the only dedicated bio-fuel university research department is at Napier, in Edinburgh. Doubtless I will be swiftly corrected on this. If so, then good. Such work should be visible.
In fact, Scotland is well endowed when it comes to bio-sciences. Although aimed mainly at pharmaceuticals, much of the expertise could be equally applicable to bio-fuels.
Genetics is a Scottish strength, and I was made very aware recently of how important this could be to the development of bio-fuel when an American company demonstrated bacteria that had been genetically modified to eat sugar and produce pure bio-diesel.
This is clever stuff, but this technology and simpler processes are unlikely to become commonplace here until the Government can get its act together properly on the tax issue and provide the incentives that will persuade both researchers and potential producers to invest.
Of course, it’s not only transport fuels that are an issue. In the US (again), they are now producing limited quantities of bio-kerosene for trials in both civil and military aircraft. In the UK, we use kerosene as a heating fuel and the price of that is entirely dependent on the oil price. VAT on heating oil is 5%, although I suspect that will increase over the next year or so.
There’s plenty to do in the bio-fuel world and we need a strategy that involves carrots to balance out the sticks. We have the talent, so let’s start developing some capacity. We can’t keep leaving these things to other countries, as we have stated time and again in Energy.