Path to Net Zero: Incentivising Low Carbon Fuel for Transport

The transition to renewable fuels in the UK is challenging. We have previously commented on the hurdles large scale hydrogen deployment faces and note the various policies and initiatives aimed at stimulating a burgeoning hydrogen market including the Renewable Transport Fuel Obligation (RTFO) scheme.

The RTFO is instrumental in driving the use of renewable fuels in the transport sector.  The transport sector remains one of the UK’s highest greenhouse gas (GHG) emitting sectors: in 2022 it was responsible for 28% of domestic UK emissions (rising to 34% when accounting for emissions from international aviation and shipping).  Heavy transport is also far harder to electrify, therefore decarbonisation via the use of renewable fuels is critical. 

Under the RTFO, suppliers of relevant transport fuel (petrol, diesel, gas oil or renewable (i.e. hydrogen) fuel) must meet an annual obligation using tradeable certificates which are awarded for the supply of sustainable renewable fuel.  The renewable fuel statistics final report for 2023 (published in November 2024) found:

• 3,700 million litres equivalent of renewable fuel have been supplied, which constitutes 7.5% of total road and non-road mobile machinery fuel for the year in the UK;
• certificates have been issued to 3,689 million litres eq. (99.7% of all renewable fuel) under the RTFO; and 
• for the 3,689 million litres eq., an average GHG saving of 82% was achieved when compared to fossil fuel use (excluding indirect land-use change).

Call for evidence

On 25 November 2024 the government issued a call for evidence on the RTFO, aimed at assessing the scheme's effectiveness and considering its future direction.  In particular, it sought input on several key areas, including the overall impact of the RTFO on GHG emissions, the costs and benefits of the scheme, its administrative aspects, and the degree to which it supports the production of renewable fuels. Stakeholders were invited to provide evidence on the RTFO's performance and to suggest improvements that could enhance its effectiveness.

With a particular emphasis on hydrogen and other low carbon fuels, the call for evidence explores how the scheme can better incentivise the production and use of such fuels. One of the key considerations is how low carbon fuels are rewarded under the RTFO.  Presently this is done on a volume-based approach (i.e. certificates are awarded based on the volume of low carbon fuel supplied) rather than on the specific GHG savings those fuels provide).  Accordingly, changes under consideration could include modifications to the RTFO targets, the introduction of new sub-targets or mandates specifically for hydrogen and other low carbon fuels, and adjustments to the certification and reporting requirements to better reflect the environmental benefits of these fuels.

The call for evidence closed on 27 January 2025 and a summary of responses and next steps are expected to follow later this year. 

Click here to read our thoughts on the role of hydrogen fuel in the UK's net zero transition.