Written evidence submitted by Electromobility UK (FTF0062)

Fuelling the future: motive power and connectivity[1]

Electromobility UK[2] brings together UK companies and organisations who by their own efforts and joint working are driving the shift to net zero emissions through a transition to battery electric vehicles.

We applaud the UK commitment to net zero greenhouse gas emissions and recognise a shift to battery electric vehicles using renewable electricity will be the key solution for vehicles if we are going to meet these commitments. We support the government’s intention to only allow the sale zero emission cars and vans from 2035.

Surface transport is the single biggest contributor to the UK’s CO2 emissions. It is also one of the sectors to make the least progress in reducing emissions since 2008. Making rapid progress on decarbonising road transport should therefore be the Government’s single biggest objective when developing policies to achieve its net zero ambition.

While progress has been far too slow, the technology now exists to facilitate the rapid decarbonisation of road transport. Hundreds of thousands of drivers are already driving battery electric vehicles in the UK and believe they are benefitting from an enhanced experience relative to their old petrol or diesel cars. From an environmental perspective, battery electric vehicles achieve significant reductions in transport CO2 emissions today.

They also present the most viable solution for complete decarbonisation of vehicles. In addition, battery electric vehicles achieve considerable co-benefits in terms of tackling air pollution; supporting increasingly renewable electricity grids; the creation of jobs and wealth; and improving the UK’s energy security.

Electromobility UK would emphasise that regarding fuel policy, the Renewable Transport Fuel Obligation must be reformed into a Renewable Transport Energy Obligation where electricity can participate to provide a market-based mechanism to support public chargepoints.

The Renewable Transport Fuel Obligation and international casestudies of the inclusion of electricity and reforms to include electricity.

What is the Renewable Transport Fuel Obligation (RTFO)?

• First implemented in 2008 as a result of the EU Renewable Energy Directive I and secondary legislation from the Energy Act 2004. European countries have their own equivalent versions; California also has a similar mechanism called the Low Carbon Fuel Standard.
• The RTFO is an obligation on suppliers of fossil petrol and diesel to supply a certain percentage of renewable fuel to the UK market.
• The scheme works by setting an annual obligation on suppliers to supply “renewable fuels”, in practice largely biofuels. Currently at 9.6% in 2021 due to rise to 14.6% in 2032. In subsequent years suppliers' obligation levels will remain at the 2032 level.
• In 2021 Government consulted on this 2032 increase to 14.9%. The preferred option was to increase it by 2.5%, in fact it will now increase it by 5%[3] to 14.9% in 2032. Alongside these changes government also plan to support Recycled Carbon Fuels through the RTFO and expand the remint of renewable hydrogen but it may require an amendment to primary legislation (as it is currently beyond the RTFO’s scope)
• The RTFO applies to companies that supply 450,000 litres or more of any road transport fuel for use in the UK during the course of an obligation year (15 April to 14 April). The 450,000 litre figure includes all fossil fuels and biofuels[4].
• Those companies supplying less than 450,000 litres can still participate and generate credits.
• Fuel suppliers meet this obligation by supplying renewable fuel or purchasing renewable transport fuel certificates (RTFCs) from other suppliers or buying out of the obligation.
• RTFCs are issued to suppliers of sustainable renewable transport fuel and this trading mechanism enables obligated suppliers to meet their obligation in a “cost-effective manner”.
• There is a buy-out price for compliance, currently set at 50p/litre. This was increased from 30p/litre in 2020 as the cost of blending was reaching the buy-out level and therefore diminishing the incentive to blend versus buying out of the obligation. This had an impact of increasing the cost of fuel by 2p/litre for the consumer.

Policy ask and rationale

• The RTFO must be transformed into a Renewable Transport Energy Obligation (RTEO) to allow the inclusion of renewable electricity use in transport.

• This change allows a market based mechanism to support the roll out of charging infrastructure, as opposed to continued reliance of government funding

• The Netherlands, Germany and France amended their equivalent fuel blending mechanism to include electricity in 2015, 2017 and 2022 respectively; in July 2021 the European Commission proposed to mandate the inclusion of electricity in its proposal for a recast Renewable Energy Directive. California’s Low Carbon Fuel Standard is now being adopted by a number of other States.

• In the UK, the RTFO was amended in 2018 to allow the inclusion of hydrogen use in transport. The eligible hydrogen categories include hydrogen generated from renewable electricity[5]. This created a distortion between hydrogen and electricity that needs to be removed. Moreover, it allows renewable electricity to participate indirectly through the creation of hydrogen, which is then used in transport, but electricity cannot be used directly in an electric vehicle.

Key considerations:

• Does electricity inclusion increase the cost of fuel? It shouldn’t. In fact it should be noted that the buy-out price for the RTFO had to be increased recently, therefore increasing the cost of compliance. The impact was 2 pence / litre on the price of fuel. Therefore, electricity inclusion, as an additional compliance route, could be beneficial to the overall cost to the consumer - potentially even reducing these increases in the cost of compliance.

• Does electricity inclusion support charge point revenue? Yes, credit revenues from this market based mechanism improves the investment case for chargepoints an area which continues to be highlighted industry wide. Therefore, this can support EV uptake without any additional pressure on government budgets. In addition, this is strong market mechanism for e-truck charging investment.
• What about additional benefit created by electricity inclusion? Charging infrastructure is cited as a limiting factor to EV uptake and charging companies struggle with profitability today. Therefore, creating a better business case for investing in charging ahead of demand should increase uptake of EVs, particularly for those who do not have access to private charging. A calculation of additionality could be applied by understanding the impact of increased charging roll out and the related early displacement of vehicles as confidence charging brings forward earlier EV purchases.

• But isn’t this double subsidy for electricity? No, this mechanism is not about subsiding electricity, any revenues would be for CPO not generators. This is about ensuring: (i) any market distortions are corrected in the RTFO mechanism - as is the case with hydrogen inclusion and electricity exclusion (ii) optimising existing policies to support delivery of the 2030 ICE phase out date. Electricity inclusion in the UK ensures that the UK keeps pace with Europe, which has now mandated for the  inclusion of electricity in their RTFO type mechanisms. Without it, the UK risks having a less attractive investment case for charging infrastructure. The EU will have an e-credit component to the charging revenue stack where the UK will not.

Context

• The RTFO must be transformed into a Renewable Transport Energy Obligation (RTEO) to allow the inclusion of renewable electricity. As the name implies, the RTFO currently focuses on renewable fuels. In practice largely biofuels. This stems from a time when non-combustion renewable energies were not considered realistic in transport.

• To demonstrate this, in 2010, we had just 247 EVs in the UK. EVs were not considered viable. Now, we have over half a million plug in vehicles[6]; it is time to update regulation and treat all forms of renewable energy equally, not just the ones that come in the form of fuel. It should be noted that hydrogen used in transport was able to generate credits from 2018 when the RTFO was amended, at this point a distortion was created in the market.

• Electricity is a form of renewable transport energy and therefore must be included within a reformed RTEO for consistency and to correct the distortion created by renewable hydrogen inclusion.

• We must ensure our existing policies work harder to electrify transport now that the pathway is clear for cars.

• With electricity inclusion the government may wish to increase the overall RTFO target[7], if they wish to protect biofuels. In fact, an increase to the target was announced om 2021, which was higher than expected, arguably allowing space for electricity inclusion already.

• Electricity inclusion also offers an additional compliance route, which could be beneficial to the cost of complying with this mandate, and ultimately therefore the cost to the consumer, which was recently increased by the buy-out price.

• There is precedent for electricity inclusion in national “RTFO type” instruments - The Netherlands and Germany updated their schemes to include electricity in 2015 and 2017 respectively. The EU has now mandated electricity inclusion within national schemes. California has a similar instrument – the Low Carbon Fuel Standard.

• There are no sustainable revenue streams supporting chargepoint operators, only small government grants, which are time limited and could be removed. Inclusion of electricity in the RTFO is a market-based alternative.

Benefits:

In addition to the point of updating for consistency and correction of distortions, enabling electricity to generate RTFCs / Renewable Transport Energy Certificates delivers additional benefits:

(1)  Improves the business case for chargepoints (and EVs dependent on design), thus supporting faster EV uptake without any additional pressure on government budgets.

(2)  enables biofuels, hydrogen and electricity to complement one another within one policy mechanism to decarbonise transport fuel in the ultimate aim of net zero

How does it work?

Chargepoint operators[8] use invoices of their electricity suppliers and/or their own metering systems to establish kWhs of renewable energy delivered to road vehicles in a year. These kWhs are then input to the same credit platform biofuel suppliers are currently using. A multiple of four should be applied to account for the powertrain efficiency factor; an additional multiplier should be applied to account for the fact that not all electricity is renewable (currently 42% of energy is generated by renewables in the UK). As only the renewable energy percentage is eligible for a certificate there is value in CPOs ensuring they have a green tariff. 

Which jurisdictions are already making use of electricity inclusion in a fuel mandate?

We need to make our existing policies work harder in light of net zero and to provide the access to charging needed for everyone to transition away from ICE vehicles. A number of other countries / states have already made use of including electrcitu within their fuel blending mandate and more plan to do so.

The Netherlands made the change from RTFO to RTEO, by including electricity in its previous ‘biotickets’ system, in 2015. Public chargepoint operators generate credits for the use of the chargepoints (renewable component of electricity only), These can be used for compliance alongside biofuel blending. Their 2020 target is 16.4%, which is far higher than the UK’s current 9.75% or even the UK’s proposed 2032 target of 12.4%. Notably their CO2 emissions reduction targets are in fact lower at 49% by 2030 (due to rise to 55%) compared to the UK’s of 78% by 2035. Given this target we must update existing polices to work harder for transport as a key polluting sector in the UK[9].

Although we have left the European Union it is noteworthy that as part of the implementation of the RED III Directive[10], more Member States are planning to include electricity in their compliance schemes:

France has approved including electricity used at public chargepoints- although it will be in force as of 2022.

Germany is planning significant reforms of its current system, which included electricity from 2017. It will resemble the Dutch system but with an additional feature for home charging. From 2022 a default amount of kWh credits will be provided to owners of electric cars. Third parties will act as aggregators of these credits and have the ability to sell them to fuel suppliers. This is another key mechanism to encourage the uptake of electric mobility. The beneficiaries of these credits can be CPOs, car manufactures or energy companies. Their scheme promotes competition to give consumers the best offering in return for credits.

A system also exists in California (the first jurisdiction to introduce it through its Low Carbon Fuel Standard LFCS).

We recognise the Government’s view that biofuels meeting specific sustainability criteria could deliver CO2 savings to existing ICE vehicles on the road, aviation and shipping. Alongside this, the importance of regulatory certainty for investments made in biofuels that deliver CO2 savings. Therefore, if the Government deems it is important for the contribution of biofuels and investment in this area to be unaffected by the inclusion of electricity, an appropriate increase in the RTFO target should be made. This would have the overall effect of reducing the volume of fossil fuel required rather than biofuels required to meet the target, which is aligned with meeting net zero.

Further information: credit systems for renewable electricity in transport

A system to credit renewable electricity used for charging vehicles can apply to public charging as well as home charging. It is possible to integrate electricity into the current system used for RTFC (as seen in The Netherlands and Germany), therefore there would be no new system needed, this could apply to publicly accessible chargepoints and home/private charging.

Netherlands

The Dutch system was the first in Europe to include electricity, from 2015, and it has been helping with the business case for charging points since its inception. The inclusion is one of the explanatory factors behind the Dutch fast charging network becoming the densest in Europe.

The Dutch system allows companies that supply electricity to electric vehicles and that have "connections to the electricity grid exclusively for this purpose" to generate renewable energy credits. In practice this means that operators of fast charging stations have been primary beneficiaries. Recently, electricity supplied to road vehicles through certified meters became eligible too, likely prompting a wider range of beneficiaries going forward. The Dutch RTFC is called HBE, and is worth 1 GJ.

The amount of renewable electricity supplied is calculated by taking the lowest of energy bills and meter readouts respectively, multiply it with the Dutch share of renewable electricity, and with an ‘equivalence factor’ for electricity of 4. The factor 4 follows the EU Renewable Energy Directive's recommendation to account for the higher efficiency of the direct electrification pathway.

https://www.emissionsauthority.nl/topics/claiming-deliveries---energy-for-transport/claiming-delivery-of-renewable-energy/claiming-delivery-of-electricity

Germany

Germany started to include electricity in its clean fuel mechanism (38th BImSchV) in 2017. From 1-1-2022 a new regulation is in place.

The German system is GHG based, with tonnes of CO2 ‘THG Quoten’ being the traded unit. An equivalence factor of 3 is used for electricity to account for its higher energy efficiency.

Charge point operators are the principal eligible entities, as in the Dutch system. However, the German system goes beyond the scope of the Dutch system by including a default credit for private charging (e.g. workplaces, homes, car parks). This works by assigning the owners of EVs, be that an individual or a fleet, 2,000 kWh of credit value annually. This can then be transferred to a “3rd party” to aggregate. The third party isn’t specified, which has led to a lively marketplace with aggregators fiercely competing for customers by passing on the credit value. https://www.umweltbundesamt.de/themen/verkehr-laerm/kraft-betriebsstoffe/vollzug-38-bimschv-anrechnung-von-strom-fuer#berichtspflichten

France

Just like Germany, France also introduced a new law 1 January 2022: TIRUERT, replacing TIRIB. For the first time France now includes electricity in the country’s renewable fuel scheme as a compliance option for fuel suppliers.

The scope for electricity crediting is public chargers, with an eye on expanding to private chargers. Units of energy are measured in volumes (litres) of fuel, like the RTFO. Energy amounts have to be declared on a quarterly basis, and are multiplied by the national share of renewables in electricity generation, and an equivalence factor of 4 to account for the higher efficiency of electric drivetrains, as in the Netherlands, and as recommended in the EU Renewable Energy Directive.

California

In California, the Low Carbon Fuel Standard policy introduced an obligation on fuel suppliers to reduce the greenhouse gas intensity by 10% by 2020 for all fuels sold in the state and a crediting system that also covers renewable electricity supplied in transport.

Several entities can generate credits for electricity supplied both for public and private charging. For residential charging, the administrative authority (CARB) provides state estimates and assigns credits to energy suppliers, but with the possibility for other subjects like vehicle manufacturers to obtain additional credits if they demonstrate the possibility of counting the electricity actually supplied for charging electric vehicles at home, for example through on-board metering devices. Data from the vehicle must be able to differentiate between residential and public charging to prevent double counting, for example by Geofencing (vehicle location information being utilized to identify and exclude charging sessions occurred at public stations). For public charging, several parties can participate in the mechanism, such as car manufacturers, charging point operators, EV fleet operators.

This mechanism covers a broad amount of the energy used in transport and provides incentives to support electrification without government subsidies.

https://ww2.arb.ca.gov/resources/documents/lcfs-electricity-and-hydrogen-provisions

The program has been deemed successful and as of July 2021, Oregon, Washington, and Canada are implementing similar programs, and other regions are expected to follow. The number of credits (and therefore revenue) that a fleet generates is based on the amount of electricity used to charge and the carbon intensity of that electricity. Typically fleets that use electricity from renewable sources generate 15% more in revenues from credit sales, and for medium- and heavy-duty trucks that 15% difference can add up to thousands of dollars annually per vehicle. This therefore creating a demand for more renewable electricity.

Annex 1 – Hydrogen eligibility in the RTFO

Hydrogen inclusion creates a distortion, this must be corrected to enable hydrogen, biofuels an electricity to deliver carbon reductions together. It should be noted that hydrogen created from renewable electric receives double awards of RTFC but renewable electricity directly into a vehicle clearly is not eligible.

Suppliers of renewable hydrogen are eligible to apply for RTFCs. Fossil hydrogen is not obligated under the RTFO Order.

Suppliers of renewable hydrogen that meet the same carbon and sustainability requirements as other renewable fuels are awarded 4.58 RTFCs per kg. They receive double the reward ie 9.16 RTFCs per kg if the hydrogen is made from certain wastes or residues or is made from renewable energy other than bioenergy (i.e. if it is a RFNBO).

A wholly renewable fuel means one where all of the energy content of that fuel originates from renewable sources. A biofuel is a type of renewable fuel where the feedstock is wholly biological. A RFNBO is a type of renewable fuel where all the energy of the fuel comes from the input process energy (with no feedstock energy), and all of this process energy is from renewable sources e.g solar or wind and not a bioenergy.

RFNBOs are defined as renewable liquid or gaseous transport fuels for which none of the energy content of the fuel comes from biological sources. This means that RFNBOs could be made using electricity and/or heat and/or cold from wind, solar, aerothermal, geothermal or water (including hydrothermal sources, waves and tides). RFNBOs cannot be derived from bioenergy sources and therefore would not be able to be derived from biomass, landfill gas, sewage treatment plant gas or biogases. As the available energy source of RFNBOs comes from the process energy, the input feedstocks must contain no usable energy. In practice this means that the feedstock must be either water and/or carbon dioxide (CO2). The simplest RFNBO is renewable hydrogen (for example from wind or solar power electrolysis) that is directly used in transport applications: either in an internal combustion engine or a fuel cell electric vehicle.

January 2022

Endnotes