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Building a Market for Highblend and BiofuelsSERA meeting with John Healey MP, Financial Secretary HMT - The carbon impact of biofuels varies according to a number of factors, but all independent research demonstrates that, with an optimal combination of feedstock, growing methods, and refining processes, CO2 reductions can be very significant indeed. - We are very encouraged at the Chancellor's commitment to look at discounts for company car drivers who might choose a bioethanol-fuelled car. But a discount on company car tax by itself is unlikely to be enough to persuade company car drivers to choose an FFV car. A package of measures is needed. - We have looked at the figures that derive from a 3%, 5% and 7% discount from company car tax. At 7%, this would provide a company car driver paying 40% income tax with a £550 discount on a Saab 9-5 BioPower 2.0t. That sounds good, however the benefit is cancelled out by him or her having to pay around £685 more for the price of running the vehicle on E85 instead of petrol. (Based on bioethanol at 81.9 p per litre and petrol at 83.9 pence per litre; bioethanol as 30% less fuel efficient than petrol; mileage of 15,000 miles per year). - There is currently a 20 pence per litre duty rebate on E85. But the current lack of scale economies for production, as a result of very low demand for E85, means this translates into a price reduction of just 2 pence at the pump compared to petrol. - In this context, we are particularly concerned about the government's policy to phase out the current rebate in two years time, replacing it with an increased buy-out price for those fuel suppliers who fail to comply with the RTFO. Our concern is that this mechanism will help to drive "supply push", but will do nothing to stimulate consumer "demand pull" which is what is needed to build this market. The current rebate needs to remain in place beyond 2008 - in the short term, we believe there is a case for raising it above 20 pence per litre to kick start demand and offset the higher costs of running a car on E85 due to the decreased fuel efficiency. - There is some belief that suppliers who do not comply with the RTFO will have to pay the buyout price, this creating a pot of money which can be recycled to the suppliers who exceed it. However, there is no evidence that suppliers will pass these benefits on to the consumers. There is also significant evidence that all suppliers plan to comply with the RTFO and so this pot will not exist. - Over time, we would expect the cost of fuel production to come down, scale economies for vehicle manufacturing to develop, and consumer awareness of and support for the technology to increase. There are significant differences between FFVs and LPG cars which show that FFVs are more likely to achieve greater uptake from consumers. The behaviour of consumers does not have to change considerably and they won't lose space in their vehicles. But in the short term, to have a meaningful impact on consumer behaviour, government needs to look at establishing a combination of incentives through company car tax, fuel duty, and VED and variable road user charging. - There are plans to raise the RTFO gradually starting with a rise to 10%. As there are a number of cars currently on the market and on the road which can't cope with more than a 5% blend, an increased use of high blend fuels could be key to achieving the 10% overall target. |