Pat Rabbitte (Dublin South West, Labour)

I propose to take Questions Nos. 34 and 38 together.

The bio-fuel obligation was enacted and introduced in 2010 to deliver on the mandatory EU target of 10% renewable energy in transport by 2020. The initial penetration rate set was 4%, which represents almost a doubling of size of the previous bio-fuel market in Ireland. I am confident that the obligation will promote the sustainable growth of the Irish bio-fuels market, thus supporting the growth of sustainable indigenous production of bio-fuels. In these first six operational months of the obligation, the 4% market penetration target was achieved, and exceeded. Preliminary figures to date in 2011 suggest this remains the case. The bio-fuel obligation ensures Irish consumers have access to appropriately priced, sustainable and reliable sources of bio-fuel by creating a guaranteed market that will require in excess of 220 million litres of bio-fuel in 2011. The policy of moving to an obligation system was signalled to the market three years before its coming into effect. This obligation will increase over time and by 2020 will require suppliers of road transport fuels to make certain that even higher percentages of the volumes sold are bio-fuel. This will ultimately create a market size of almost 500 million litres of bio-fuel.

Small-scale indigenous bio-fuel manufacturers are facing ongoing commercial challenges. Increases in commodity prices have made their position even more difficult. The price of the feedstocks on which many such producers depend, particularly oilseed rape, has increased substantially. However, the price they receive for their end product has increased by a much smaller amount. This effect has been replicated across the European bio-fuel industry. Temporary plant closures have been announced in the UK market due to the low margins on the product, mainly due to high wheat prices.

The bio-fuel obligation scheme which requires large suppliers of road transport fuels to include a certain percentage of bio-fuel in their general fuel mix works on the basis of tradeable certificates. Suppliers can meet their obligations by placing the bio-fuel on the market or purchasing certificates from companies which sell high blend bio-fuels to the market. Indigenous producers can access this market by a number of means, including by selling bio-fuel directly to obligated parties, selling into local markets or selling certificates earned to obligated parties. The price of certificates is set by the market, which ensures the consumer is only exposed to the actual additional cost of the bio-fuel component at a given moment in time.

Conversely, placing any minimum value on certificates would lock in the cost impact of the obligation for consumers at a set level. A level of 41 cent would have an immediate effect on the price of fuel paid by motorists and hauliers by adding over 1.6 cents to the price of every litre sold. I do not propose to move away from the market approach to certificate pricing. The obligation scheme provides market players with long-term certainty to develop projects which are economically viable and of scale. The scheme is designed to facilitate the development of the industry in Ireland, while minimising the cost impact of bio-fuel use on consumers.

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