UK to require 5% biofuel levels in road fuels by 2010

London (Platts)--10Nov2005

The UK government announced Thursday plans to require biofuels to make up
5% of all UK fuel sales by 2010, up from 0.25% currently but still below the
EU's biofuel penetration targets.

     The department for transport said it had now completed a feasibility
study on introducing a "Renewable Transport Fuels Obligation" designed to
promote the uptake of renewable fuels which are lagging the UK's EU partners.

     The RTFO will place a legal obligation on oil companies, importers and
other fuel suppliers to source 5% of their road fuel sales from renewable
energy sources or buy RTFO credits to meet any shortfall.

     Under the scheme, oil companies will receive tradeable certificates
showing how much biofuel they have sold in a given period. Most biofuels come
from crops like oilseed rape (biodiesel) and wheat and sugar cane (bioethanol)
which are mixed with gasoline and diesel and run in ordinary cars.

     "Taking action to tackle climate change is essential," transport
secretary Alistair Darling said in a statement. "The Renewable Transport Fuels
Obligation I am proposing today is predicted to save around 1-mil mt of carbon
dioxide emissions in 2010--the equivalent of taking 1 million cars off the
road." The RTFO plans follow a public consultation last year which showed the
majority of stakeholders favor the use of compulsory biofuel levels in
addition to tax incentives to boost the use of biofuels.

     The government's feasibility study concludes that, assuming no major
complications to the scheme, an RTFO could be introduced by 2008.

      UK BEHIND ON BIOFUEL TARGETS

      The UK has been offering a 20 pence (25cts) per liter duty incentive on
biodiesel for some time and the duty break was extended to bioethanol from Jan
1, 2005.

      But biofuels sales in the UK will be still be way below EU target levels
by the end of 2005, despite expectations that biodiesel and bioethanol sales
will jump ten-fold this year to about 136-mil liters, or 0.3% of total sales.

     The EU has said it wants to see biofuels making up at least 2% of
transport fuels by 2005, rising to 5.75% by 2010.

     Darling said the government planned to consult with the industry in
detail on how the RTFO will work in "due course," covering issues such as what
level the obligation should be set at in future years and how long each
obligation period will last.

     He said the RTFO would also include a carbon and sustainability assurance
scheme to ensure that biofuels are sourced sustainably. Obligated companies
would be required to report on the level of carbon savings achieved and on the
sustainability of their supplies.

     Without giving details, Darling also said the government intended to
investigate further the potential for hydrogen as a fuel in the UK by studying
how to build a "hydrogen infrastructure."

				--Robert Perkins, robert_perkins@platts.com

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