The end of the road for biodiesel in the UK?

Same day couriers and other transport companies are increasingly turning to biodiesel to avoid the soaring cost of fuel. Some entrepreneurial transport companies have even started making their own biodiesel both for their own use and for resale to business associates.

In 2002, after much lobbying and with the approval of the EU, the UK introduced a lower rate of duty for biodiesel. At the time the biodiesel production was limited to a few enthusiastic companies who mainly produced their biodiesel from waste vegetable oil (WVO), used cooking oil from Fish & Chip shops etc, and before the introduction of this welcome ‘subsidy’, were able to produce fuel at a price that was slightly higher than traditional diesel fuel.

The introduction of the reduced rate of duty sparked a lot more interest in the production of biodiesel, increasing the demand (and the cost) for WVO and pushing biodiesel producers towards the use of virgin vegetable oil (VVO), which is anyway easier to process.

Move forward to 2008 and suddenly biofuel production seems a lot less ‘green’ than it was. Higher oil prices have increased the viability of fuel production from VVO and farmland throughout the world is being turned over to the production of oil and ethanol producing crops, forcing food production onto previously uncultivated land and leading to deforestation, worldwide food shortages and ultimately increasing the levels of greenhouse gas emissions.

The UK Government had already announced that biodiesel will be taxed at the same rate as normal diesel from 2010 but it had been hoped in some quarters that this would be cancelled to underline their ‘green’ credentials.

However, the Renewable Fuels Agency (RFA), the UK Government agency set up to ensure that biofuels account for 5% of all fuels sold on UK forecourts by 2010, has now released a damning report on biofuels – calling for a significant slowdown in the introduction of biofuels.

The RFA’s Gallagher Review calls for controls to put into place to reduce the demand for biofuels until controls are put into place to ensure that the effects on world food supply and the inappropriate use of prime agricultural land, as well as land that is not currently used for agriculture, is minimised.

Quite where this leaves the UK’s thriving small-scale biodiesel production industry is unclear. With oil prices at their current levels the business is just about sustainable without the 20p/litre duty reduction. But the price reduction is the only thing that encourages most users to use biodiesel; its use is still seen as a bit risky by many transport operators and there’s always a worry of warranty issues in the case of engine failure.

If oil prices continue to rise then it’s expected that the cost of both WVO and VVO will rise at a similar rate, leaving biodiesel with, at best, a few pence price advantage over normal diesel.

Many operators that use biodiesel, particularly those using fuel derived from WVO, are committed to using biodiesel for ethical reasons, for public relations reasons, or just for that extra bit of ‘greenwash’. It could be that in two years time these will be the only major producers and users of biodiesel in the UK.

Posted under Fuel Prices

Posted by Alec at 4:10 pm, August 14, 2008

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