Amendments to the Motor Fuel Greenhouse Gas Emissions Reporting Regulations give rise to 'GHG credits' that can be traded for a value. This is a new revenue stream for licensed electricity suppliers.


Context

There are two EU targets that apply to transport fuels.  The EU Renewable Energy Directive (2009/28/EC) requires all EU member states to ensure that at least 10% of their transport fuels come from renewable energy sources by 2020.  The UK brought in the Renewable Transport Fuel Obligation (RTFO) to enforce this.

The EU Fuel Quality Directive (2009/30/EC) requires transport sector fuel suppliers in EU member states to reduce the average lifecycle greenhouse gas (GHG) intensity of transport fuels by 6% (from a 2010 baseline) by 2020.  It also introduced rewards for GHG emissions savings in the form of GHG credits.

Despite Brexit, these targets are still relevant.  The UK's Climate Change Act 2008 has a target of an 80% reduction in GHG emissions by 2050 compared to 1990 levels.  As about a quarter of UK carbon emissions are from transport, the UK still needs to decarbonise the transport sector and so will continue with current policies.  Until Brexit happens, the UK must still comply with EU law.  The UK has therefore enacted the new requirements under the Fuel Quality Directive by amending the Motor Fuel (Road Vehicle and Mobile Machinery) Greenhouse Gas Emissions Reporting Regulations 2012 (GHG Reporting Regulations).

GHG obligation

The amended GHG Reporting Regulations introduce a new GHG obligation with certificate trading scheme and a buy-out price.  This should sound familiar to those who have experience of the Renewables Obligation (RO) and the Renewable Transport Fuel Obligation (RTFO).  Suppliers get a GHG certificate (GHG credit) for each kilogramme of carbon saved, but incur a GHG obligation on all fuels with a GHG intensity above the target level for the relevant period.  One unit of GHG credit (1 kgCO2e) is required to offset each unit of GHG obligation incurred.

Suppliers who have a GHG obligation can discharge this by:

  • supplying fuels with a GHG emissions intensity below the 2020 target level and applying for GHG credits
  • acquiring tradeable GHG credits from others
  • a buy-out option at a price of £74 per tonne of CO2 emitted if the cost of compliance would be too much.  This acts as a check on consumer bills.  

There is no carry-over of unused credits to the following year.

GHG credits can be traded, so companies that supply mostly diesel and petrol can offset this by buying GHG credits; and companies which supply low-carbon fuels (including electricity) can sell the GHG credits they have earned.

The obligation only applies to suppliers of 450,000 litres of fuel per annum – the same minimum threshold as the RTFO.  Enforcement of the GHG obligation is the same as for the RTFO.

Obligated fuel suppliers must achieve a reduction in life cycle GHG emissions from the fuel they supply of 4% in 2019 and 6% in 2020, compared to the EU fossil fuel baseline of 94.1gCO2e/MJ.

Why is this good news for electric vehicles?

For the first time, any licensed electricity supplier is now able to claim GHG credits for the electricity used to charge electric vehicles (EVs), as long as that electricity has a lower GHG intensity than the 2020 target level.   They can then trade these with fuel suppliers that need them to fulfil their GHG obligations.  

To claim GHG credits, electricity suppliers need to apply to the scheme administrator (via an online application process which is explained in Chapter 2 of the GHG Reporting Regulations Guidance), report how much electricity is used in EVs, and be able to demonstrate that they have supplied electricity for use in EVs.

The big question is: how will suppliers know how much electricity has been used in EVs?  The Government suggests in its response to the consultation on introducing the new GHG scheme that suppliers could contact their customers to ask if they have an EV charge point; and EV charge point suppliers could contact their customers to ask who their electricity supplier is.  The consultation response envisages EV charge point operators getting some reward for providing usage data to electricity suppliers, but how that might work will be set out in guidance (to follow).

The electricity used in EVs might not be generated in a low-carbon way.  Electricity suppliers to EVs will therefore have to make their own GHG intensity calculation based on Fuel Mix Disclosure data and claim GHG credits accordingly.  This will obviously benefit suppliers who supply low-carbon electricity to EVs.  Suppliers of 100% renewable electricity can report a GHG intensity of zero.  As an added bonus, suppliers can multiply the GHG intensity by 0.4 (i.e. apply a 40% discount) to reflect the fact that a battery electric power train is more efficient than an internal combustion engine.

How long will the scheme last?

Legislation (the Renewable Transport Fuels and Greenhouse Gas Emissions Regulations 2018) amending the GHG Reporting Regulations 2012 and the Renewable Transport Fuels Obligations Order 2007 was brought in (with minimal fanfare) in April 2018 and the GHG obligation began in earnest in 2019.  The Government has published guidance but it does not really give enough information for electricity suppliers on how they can prove how much electricity has been supplied to EVs where there is no metered data.  The Government has said it will provide further guidance on how this should be done in due course.

The new GHC obligation will continue only up to the end of 2020 but the Government will see how it is working and might continue it after that.  They might include electricity for EVs in the RTFO in future, and might move from a renewable volume based scheme (RTFO) to a scheme based on GHG emissions post 2020.

The exact route may not be clear but the overall direction is clear, i.e. the Government remains committed to reducing transport emissions even after Brexit.

 

Key contacts

Paul Minto

Paul Minto

Partner, Energy and Utilities
Edinburgh

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Paul Hirst

Paul Hirst

Partner, Head of Transport
United Kingdom

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Richard Goodfellow

Richard Goodfellow

Partner, Head of Infrastructure, Projects & Energy Group
United Kingdom

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