UK to lift RTFO buyout price from 2021

The UK government will increase the Renewable Transport Fuel Obligation (RTFO) buyout price for fuel suppliers from January, if it can find time to pass the necessary legislation.

The buyout price will rise to £0.5/l ($0.6/l) from £0.3/l ($0.4/l) from 1 January, with most industry respondents agreeing with the increase in a consultation that closed on 11 August.

Of the 60 respondents to the consultation, 56 agreed that the main obligation buyout price should rise, with 45 of those in favour of an increase to 50p/l. All obligated suppliers that responded supported raising the buyout. Lifting the buyout price to 50p/l will result in a maximum additional cost of 2p/l to the motorist.

The government proposed an increase to 40p/l or 50p/l, with a preference for the latter because it provided the "greatest certainty of mitigating the risk of suppliers buying out of their obligation and the UK losing greenhouse gas (GHG) savings". The government said the buyout price increase will help protect the RTFO scheme against rising prices for biofuels, and ensure that investments in UK biofuel facilities continue to have a market.

The RTFO aims at reducing GHG emissions from transport fuel by setting annual biofuel blending obligations for fuel suppliers. This obligation is 9.75pc this year, and it will increase incrementally to 12.4pc by 2032. A supplier can meet this by physically supplying biofuels or by purchasing Renewable Transport Fuel Certificates (RTFCs) from others. RTFCs are issued for every litre of sustainable and renewable fuels blended.

Fuel from certain wastes or residues, fuel from dedicated energy crops, and renewable fuels of non-biological origins (RFNBOs) are incentivised by awarding double the RTFCs per litre or kilogram supplied.

Fuel suppliers are only likely to pay the buyout if the cost of RTFCs regularly exceeds 30p/l. In January, offers for RTFCs for the 2020 compliance year were 30.25p/l, and since the beginning of July offers have regularly been higher. Offers for the 2021 RTFCs have been reported to Argus as high as 33p/l this week.

The government aims to have the legislation in place for 1 January, but said if this is delayed the increase to the buyout price would come in on 1 January 2022. Delay could arise if the twin effects of the Covid-19 pandemic and the approach of the country's exit from the EU take up parliamentary time.

By Daniel Mackay