Closed consultation

Renewable transport fuel obligation: addressing multiple incentives

Published 29 February 2024

Executive summary

In June 2019, the UK became the first major economy in the world to pass a law that requires the government to achieve net zero greenhouse gas (GHG) emissions by 2050.

In April 2021, we committed the UK to reducing economy-wide GHG emissions by at least 68% by 2030, setting a new target on our pathway to net zero. The government’s plan to decarbonise all sectors of the UK economy is laid out in the powering up Britain: net zero growth plan. The accompanying carbon budget delivery plan sets out the detail of the package of proposals and policies that will enable carbon budgets and net zero to be met.

The government is making good progress delivering on these plans – the UK over-achieved against the first and second carbon budgets and the latest projections show that we are on track to meet the third. Transport has a huge role to play in the economy reaching net zero. The government set out an ambitious pathway for decarbonising transport in its 2021 transport decarbonisation plan and is continuing to build on this plan.

To date, low carbon fuel (LCF), has played an important role in decarbonising surface transport. LCF delivers a third of carbon savings from the transport sector and will remain an important tool in reducing emissions across many transport modes – including road, rail maritime and aviation – as we progress towards net zero by 2050.

Since 2008, the renewable transport fuel obligation (RTFO) has successfully reduced GHG emissions through the mandated supply of renewable fuel used in transport and non-road mobile machinery (NRMM).

In July 2022, the government also confirmed its intention to introduce a sustainable aviation fuel (SAF) mandate, starting in 2025. This scheme, based on the RTFO, will incentivise the supply of LCF for aviation.

Need for intervention

The globally traded nature of LCF and the support available in different countries mean that it is possible for renewable fuels or chemical precursors ^{[footnote 1]} that would receive support under the RTFO (and forthcoming SAF mandate) to also receive support in their country of production. For this consultation, this is known as ‘multiple incentives’. 

The government recognises that the availability of multiple incentives has the potential to distort the market and have a detrimental impact on domestic suppliers.  

The UK government wants to ensure there is a level playing field and, therefore, prevent fuels and chemical precursors from receiving more than one incentive, both domestically and internationally.

Consultation summary

This consultation seeks to set a position on how the Department for Transport (DfT) will address the issue of multiple incentives in the case of the RTFO and SAF mandate. It includes specific proposals to update the existing rules relating to multiple incentives for fuel production in both the RTFO and SAF mandate.

To prevent fuels and chemical precursors from receiving multiple incentives, amendments need to be made to our current approach to support domestic and international fuel under the RTFO, while ensuring the eligibility criteria remain proportionate and administrable. Changes to the RTFO would also be replicated in the upcoming SAF mandate to ensure these 2 schemes operate consistently.

Introduction

Since 2008, the RTFO has successfully achieved GHG emission reductions through the mandated supply of renewable fuel used in transport and NRMM. In 2022, 3.3 million litres equivalent of renewable fuel was supplied in the UK achieving an average GHG saving of 82% compared to the fossil fuels they replaced. This resulted in a reduction in GHG emissions of over 7 million tonnes carbon dioxide equivalent (CO₂e) over this period.^{[footnote 2]}

In July 2022, the government also confirmed its intention to mandate the use of  SAF from 2025. This scheme, modelled on the RTFO, will incentivise the supply of LCF for aviation. The government has committed to at least 10% of jet fuel to be from sustainable sources by 2030. DfT consulted on the principle of the mandate in July 2021 and its detailed design in March 2023.^{[footnote 3]} The government response to the second consultation will be published in spring 2024 and the SAF mandate will be operational from 1 January 2025.

The LCF and feedstocks eligible under the RTFO and forthcoming SAF mandate are traded on a global market. Fuels and chemical precursors are shipped between countries and used across different sectors, including transport, heat and electricity generation.

Governments, including the UK, support the production of renewable fuels and their chemical precursors through a range of schemes, such as issuing green certificates or providing tax incentives. The globally traded nature of these commodities and the support available in different countries means it is possible for renewable fuels or chemical precursors eligible for support under the RTFO and the forthcoming SAF mandate, to be considered eligible to receive more than one form of financial support.

Addressing multiple incentives

Across Europe and further afield, similar schemes to the RTFO and SAF mandate are either being developed or expanding as countries look to meet international agreements and their climate targets.

Demand for LCF will, therefore, continue to rise encouraging investment in production facilities and government support mechanisms globally, including in the UK. Examples of government support mechanisms include GB and EU biomethane support schemes.

To maintain a level playing field, it is important that we prevent fuels and chemical precursors from receiving multiple incentives. The government can make changes to the RTFO and SAF mandate and their eligibility criteria to achieve this.

The regulations that support these schemes can be amended to make it clear that a domestic fuel producer is only able to use a single government support scheme for a consignment of fuel. Equally, fuels that are imported from overseas should not be able to stack incentives in both the country of production and when supplied in the UK.

Example: support for biomethane

Across the EU, there are multiple schemes that support the production and use of biomethane. Biomethane can also be imported and supplied under the RTFO either as a fuel or as a chemical precursor to the production of biohydrogen.

There is a risk that without appropriate regulation, suppliers may receive multiple incentives for the same fuel or chemical precursor.

Multiple incentives: fuel production support

Current rules in RTFO

The current RTFO Order contains specific rules that prevent renewable fuels or chemical precursors that have previously been counted towards any renewable fuel or renewable energy target applied by the UK, a European Economic Area (EEA) state or group of EEA states from receiving reward under the RTFO. These are contained in Article 16 of the RTFO Order.

The definition of a ‘support scheme’ also means the fuel must not have received, or be going to receive, financial incentives applied by the UK or any other EEA state. These rules are reproduced in the RTFO current rules section and are set out in detail from page 50 of the 2024 RTFO compliance guidance

We previously consulted on the issue of multiple incentives and the eligibility criteria for fuels in the RTFO in the 2021 targeting net zero – next steps for the renewable transport fuels obligation consultation.

In our 2021 government response, we committed to strengthen existing restrictions to help promote a fair market, limiting distortions.

In the 2023 SAF mandate consultation, it was proposed that the multiple incentives rules under the mandate should align with those of the RTFO, as far as possible. This consultation builds on these and seeks to set a position on how the government will resolve the potential for over-subsidiary.

Proposed changes to multiple incentive rules for RTFO and SAF mandate

Now the UK has left the EU, fuels produced and imported from EEA states need to be treated the same as those produced and imported across the rest of the world. Fuels from outside the UK/EEA are currently not prevented from receiving state support in their country of origin and claiming support under the RTFO. This legislative gap creates an unfair advantage for international suppliers outside of the UK/EEA.

To address the potential for multiple incentives being claimed in different countries, we propose to amend the RTFO Regulations and replicate this change in the SAF mandate. We have considered the below options, with option 1 being preferred.

Option 1: extend current UK/EEA provisions to fuel that is supplied from the rest of the world but remove reference to tax-related support from the RTFO’s definition of a support scheme. The Trade Remedies Authority (TRA) would continue to investigate international unfair trading practices and provide objective, unbiased, World Trade Organization (WTO)-compliant advice to ministers to implement trade remedies where necessary.

Option 2: extend current UK/EEA provisions to fuel that is supplied from the rest of the world, which would prevent the claim of all forms of multiple incentives.

Option 3: align EEA treatment with current treatment for the rest of the world, permitting the claim of multiple incentives. The TRA would continue to investigate international unfair trading practices and provide objective, unbiased, WTO-compliant advice to ministers to implement trade remedies where necessary.

Option 1

Extend current UK/EEA provisions to fuel that is supplied from the rest of the world but remove reference to tax-related support from the RTFO’s definition of a support scheme.

We propose to revise the RTFO regulations by extending the current UK/EEA provisions to the rest of the world. This will ensure eligible fuels or chemical precursors can only be supported under the RTFO if they have not already been supported through a state support scheme anywhere in the world.

However, many of the most complex forms of support relevant to fuels and chemical precursors overseas relate to tax incentives. Tax-based incentives are often nuanced and require specialist handling and expertise.

While DfT’s RTFO unit is experienced in administering the RTFO scheme, it does not have the expertise or resources required to assess international tax-based incentives and enforce compliance. Additionally, a blanket prohibition of claiming any form of tax incentive in the country of production may cause unintended consequences.

For example, a tax incentive may not be significant enough to create a genuine advantage and it may, therefore, not be appropriate to prevent that fuel from being supplied under the RTFO or SAF mandate.

The UK currently has trade remedies in place to protect domestic industries against injury caused by international unfair trading practices, such as dumping and subsidies. This may include where overseas producers benefit from tax-based subsidies, however, for a subsidy to be actionable under WTO rules, it needs to meet certain criteria – as per the WTO agreement on subsidies and countervailing measures. It remains appropriate for the TRA to retain the role of investigating and addressing these subsidies.

We, therefore, propose to amend the current definition of a ‘support scheme’ to extend its application to the whole world, while removing reference to tax incentives.

The combination of the measures proposed within the RTFO and SAF mandate regulations together with the department’s work with the TRA will ensure that the level playing field is maintained for LCF currently supplied, and to be supplied, in the UK.

Option 2

Extend current UK/EEA provisions to fuel that is supplied from the rest of the world.

This option would see the current rules that apply to fuel from the UK and EEA states extended to the rest of the world. The fundamental issue with this approach is that it would also capture any tax-based support for LCF production anywhere in the world and prevent that fuel from being supported under the RTFO or SAF mandate.

There could be complexities and unintended consequences involved with this approach.

Option 3

Align EEA treatment with current treatment for the rest of the world.

Fuels from outside the UK and EEA are currently not prevented from receiving state support and claiming under the RTFO. This option would remove restrictions on fuels produced in the EEA, put them on the same footing as fuels produced outside the UK and EEA.

In this scenario, the TRA would continue to investigate international unfair trading practices and provide objective, unbiased, WTO-compliant advice to ministers to implement trade remedies when necessary.

However, this option could open up the possibility of fuel produced and supported in the EEA being imported to the UK. It could also result in fuels counted under European Directives being paid for and supplied in the UK. This runs the risk of undercutting domestic producers.

Consultation questions

1. Rank the 3 options in order of preference and provide a short explanation for your reasoning, including evidence or data where possible.

2. Would any of the options impact the fuels that you either produce or supply under the RTFO, or intend to supply under the SAF mandate? Provide reasoning and evidence for your answer.

3. Are there any alternative approaches that you think should be considered? Provide a short explanation if so, including evidence or data where possible.

Interactions with a future SAF revenue certainty mechanism

In September 2023, the government committed to introduce and consult on the design and implementation of a revenue certainty mechanism to support a UK  SAF industry – with an aim to implement the mechanism by the end of 2026^{[footnote 4]}.

We recognise this mechanism could have implications connected to the multiple incentive rules proposed for the SAF mandate. As the revenue certainty mechanism is developed, we will consider whether other changes to these rules would be necessary to ensure the effective operation of the SAF mandate.

Interactions with carbon capture utilisation and storage schemes

Under both the RTFO and the proposed SAF mandate, fuel must meet minimum GHG savings. The SAF mandate will also reward fuels based on the carbon savings it provides relative to a fossil fuel comparator.

Across many LCF production pathways, carbon capture utilisation and storage schemes (CCUS) ^{[footnote 5]} can be incorporated to capture carbon dioxide (CO₂) streams released during the production process, increasing the carbon savings a fuel provides. These processes may also be eligible for reward under specific CCUS support schemes.

We recognise the RTFO and SAF mandate regulations will need to account for the establishment of CCUS schemes both in the UK and overseas. As the CCUS sector develops, we will consider if further changes to the eligibility criteria would be necessary to maintain a level playing field for domestic and international fuel producers, while also ensuring these important decarbonisation technologies are appropriately supported.

Full consultation questions

These questions are included here so you can read them in the context of this document. See the Ways to respond section of the GOV.UK home page for this consultation for an online response form and other ways to respond.

1. Rank the 3 options in order of preference and provide a short explanation for your reasoning, including evidence or data where possible. 

2. Would any of the options impact the fuels that you either produce or supply under the RTFO, or intend to supply under the SAF mandate? Provide reasoning and evidence for your answer. 

3. Are there any alternative approaches that you think should be considered? Provide a short explanation if so, including evidence or data where possible.

RTFO current rules

RTFO Order, Article 16 – application for RTF certificates

The evidence which must be included in the application is a declaration from an individual nominated by the transport fuel supplier, which confirms the:

• information submitted in the application and referred to in paragraph (3)(b) is accurate

• renewable transport fuel, or a chemical precursor to it, has not already been, and will not be, counted under a support scheme, or a UK renewable energy obligation other than the renewable transport fuel obligation of the supplier (but see paragraph (6))

Nothing in paragraphs (2)(a)(ii) or (3)(ea) applies to support schemes in the form of:

• investment aid benefitting the production plant in which the renewable transport fuel was produced, whether situated in the UK or elsewhere

• the reduction in any duty payable in the UK under the 1979 Act

RTFO Order, Article 2 – interpretation

‘Support scheme’ means any instrument, scheme or mechanism applied by an EEA state, a group of EEA states or the UK, that promotes the use of energy from renewable sources by:

• reducing the cost of that energy

• increasing the price that energy can be sold for

• increasing the volume of energy that can be purchased, by means of a renewable energy obligation or otherwise

For this purpose ‘instrument, scheme or mechanism’ includes:

• investment aid
• tax exemptions or reductions
• tax refunds
• renewable energy obligations
• direct price schemes including feed-in tariffs and sliding or fixed premium payments

‘Renewable energy obligation’ is a scheme that may be fulfilled by using RTF certificates, or equivalent, including:

• energy producers to include a given share of energy from renewable sources in their production

• energy suppliers to include a given share of energy from renewable sources in their supply

• energy consumers to include a given share of energy from renewable sources in their consumption

How to respond

See the Ways to respond section of the consultation page on GOV.UK to find out how you can respond to this consultation.

What will happen next

A summary of responses, including the next steps, will be published following the consultation closing. Paper copies will be available on request.

If you have questions about this consultation, contact:

Low Carbon Fuels team
Great Minster House
33 Horseferry Road
London SW1P 4DR

Alternatively, you can email: lowcarbonfuel.consultation@dft.gov.uk.

Further information

Freedom of Information

Information provided in response to this consultation, including personal information, may be subject to publication or disclosure in accordance with the Freedom of Information Act 2000 (FOIA) or the Environmental Information Regulations 2004.

If you want information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory code of practice with which public authorities must comply and which deals, among other things, with obligations of confidence.

In view of this, it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information, we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on DfT.

DfT will process your personal data in accordance with the Data Protection Act (DPA) and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.

Data protection

This consultation and the processing of personal data that it entails is necessary for the exercise of our functions as a government department. If your answers contain any information that allows you to be identified, DfT will, under data protection law, be the controller for this information. 

As part of this consultation, we are asking for your name and email address. This is in case we need to ask you follow-up questions about any of your responses. You do not have to give us this personal information. If you do provide it, we will use it only for the purpose of asking follow-up questions. 

DfT’s privacy policy  has more information about your rights in relation to your personal data, how to complain and how to contact the Data Protection Officer. 

To receive this information by telephone or post, contact us on 0300 330 3000 or write to:

Data Protection Officer 
Department for Transport 
3rd Floor 
One Priory Square 
Hasting 
East Sussex, TN34 1EA

Your information will be kept securely on secure IT systems within  DfT and will be destroyed within 24 months after the consultation has been completed.

Consultation principles

This consultation is being conducted in line with the government’s consultation principles.

If you have any comments about the consultation process, contact:

Consultation Co-ordinator
Department for Transport
Zone 1/29 Great Minster House
London SW1P 4DR

Email: consultation@dft.gov.uk.

1. A chemical precursor is not a feedstock but is an intermediate state between the feedstock and the finished fuel, this might be a fuel in its own right but used to carry energy into the finished fuel of another type for example, hydrogen in a synthetic methane. See the renewable transport fuel obligation proposed amendments (PDF), page 72. ↩

2. See DfT renewable fuel statistics, 2022. ↩

3. See the pathway to net zero aviation: developing the UK sustainable aviation fuel mandate, 2023. ↩

4. See the revenue certainty mechanism for SAF: delivery plan. ↩

5. CCUS refers to a suite of technologies that capture CO₂ from industrial emissions which is then either permanently stored or utilised, thereby reducing the CO₂ output of the emitter. Greenhouse gas removals (GGR) refers to a specific scenario where the installation of CCUS leads to net negative CO₂ emissions across the lifecycle of the fuel production. ↩