Hydrotreated Vegetable Oil – Current State of Play

Technical Position

Hydrotreated Vegetable Oil, HVO, is a biofuel derived from waste materials. Its use results in around a 90% reduction in CO2 emissions, and significant reductions in NOx and particulate emissions as well.

HVO does not suffer from the same problems as FAME, or first generation, biodiesel such as diesel bug or limited shelf life. It is a true drop-in replacement for mineral diesel and can be stored for long periods without degradation.

The IWA has undertaken extensive testing of HVO in a range of engines This has raised no concerns regardless of the age of the engine. Their work confirms that HVO is a true drop-in replacement for mineral diesel.

Duty

Fuel duty is charged on all fuel used for propulsion, whether red or white. Any fuel put into a tank used solely for propulsion must pay full duty. If a separate tank is used for domestic purposes, the reduced duty rate is payable on fuel put into that tank. If only one tank is used, the boater should declare the % used for propulsion. HMRC accepts a 60-40 propulsion-domestic split and, in practice, this is the split that is applied universally. (Note: in Northern Ireland, the 60-40 split is standard as it is enshrined in the regulations. Also in Northern Ireland, the split can be applied to white diesel provided to leisure craft).

Standard duty is applied at 57.95p per litre, plus VAT at 20% on the total cost. This is the rate applied to diesel for propulsion.

Rebated diesel is entitled to a rebate of 46.81p per litre, giving it an effective duty rate of 11.14p per litre, plus VAT at 5% on the total cost. This is the rate applied to diesel for domestic use.

These rates of duty apply regardless of the location of the vessel – i.e., inland or coastal.

Inland Waterways and the RTFO

Under the Renewable Transport Fuels Obligation (RTFO) legislation, suppliers must include a minimum percentage of Renewable Transport Fuel (RTF) once their total supply exceeds 450,000l per year. These are Obligated Suppliers. To avoid unsustainable use of land for biofuels, a “crop cap” is set, i.e. there is a maximum % of crop derived fuel within the RTF element of supply.

Suppliers gain Renewable Transport Fuel Certificates (RTFCs) for each litre of RTF supplied. Suppliers that provide pure biofuels, such as HVO, claim RTFCs. In the case of HVO, a double certificate is issued as it is derived from waste. An obligated supplier that doesn’t meet its RTFO obligation pays a buy-out price per litre, currently 50p. This creates a market in RTFCs, which in theory reduces the cost of fuels such as HVO as suppliers can sell their excess certificates.

“Inland waterways vessels that do not normally operate at sea” are classified as “non-road mobile machinery”, NRMM. Thus they fall within the RTFO for propulsion. A further class of vessels that fall under the scheme is defined as “Recreational craft that do not normally operate at sea”.

However, domestic use for inland vessels is not included in the RTFO. As for duty, HMRC allows a typical 60-40 split between propulsion and domestic use.

Fuel used in coastal vessels is not included in the RTFO.

The RYA’s response to the recent consultation on the RTFO supported the use of HVO (and other biofuels) for recreational boating. However, the UK Government decided that biofuels were not to be considered for “the marine sector”, which does not account for the different duty cycles, scale, and longevity of vessels in the recreational sector. Instead, the UK Government’s focus appears to be on ammonia, which is not suited to smaller recreational boats, and hydrogen, which is still some way from commercial viability.

Key Issues

Government policy is clearly attempting to decarbonise, which is strongly supported by boaters.

However, official responses to queries about the issues identified below tend to be technical, along the lines of “these are the rules”. Such responses may be technically correct, but they do not contribute to achieving the policy objectives.

There are contradictions within the regulatory framework, such that inland boats and coastal boats are treated differently:

• For all boaters, there is a theoretical incentive to declare a high proportion of fuel as for domestic use, to maximise the proportion subject to the lower duty rate for heating fuel
• For inland boaters using HVO, there may be a counter-incentive to declare a high proportion of fuel as used for propulsion, to maximise eligibility under the RTFO. The advantage of this depends on the premium paid for HVO pre-duty and VAT, the value of the RTFCs (around 50p each at present, so £1 per litre) and the duty rate.
• In practice, the 60:40 split is used at fuel pontoons, and many (perhaps most) boaters will not even be aware of the requirement to declare actual percentages.

  At present, HVO is more expensive to produce than mineral diesel due to low volumes and the processing required. Cost therefore prevents uptake due to the following:

• The RTFO mechanism requires suppliers to claim the RTFCs post sale. They therefore take the risk that their claim will be accepted.
• Some key companies in this market are not prepared to take that risk, so the price for HVO is significantly higher and marinas / boatyards will therefore not supply it.
• The RTFO mechanism does not apply to coastal vessels, so there is no means of reducing the cost to align with mineral diesel.

Wider decarbonisation issues for the recreational boating sector

Longevity of vessels

• Lifespan of a narrowboat, sailing yacht or motor yacht ranges from 30 years to 50 years plus
• This takes ownership well beyond any credible net zero deadlines
• There is a tendency for ministers and officials to include recreational boating within the wider marine industry, particularly for coastal vessels. The use case and duty cycles of recreational vessels are entirely different from commercial vessels and the solutions need to be different.

Low duty cycles, particularly for auxiliary engines which are typically used for only 50-100 hours per year. This leads to exceptionally long life for the propulsion unit, and a high impact of the embodied carbon

Recommendations

Continue to lobby Government emphasising:

• The key differences between recreational boating and other water users
  • Longevity of boats
  • Intermittent use
  • With notable exceptions such as the south coast of England, the widely scattered users of any services
  • Widely varying duty cycles of propulsion
• The need to encourage the transition to zero carbon by supporting biofuels (HVO) in the short term (5 years) and re-powering in the medium term (5-10 years)
• The critical need to set international standards for alternatives such as hydrogen

Continue to educate and support members:

• Advise on the significant environmental benefits of a switch to HVO.
• Emphasise the difference between HVO and first generation biofuels, the latter of which have caused biodiesel to gain a poor reputation for reliability.
• Advise on the need to decarbonise, to recognise that older engines will not meet air pollution targets, and that fossil fuels will be phased out during the lifetime of many vessels already in use.
• Advise new boat owners to ask manufacturers how they are going to be converted to zero carbon during their vessel’s lifetime.

Potential areas of research:

• Duty cycles in various use cases
• When do we reach the environmental “tipping point” for auxiliary engines where the positive benefits of a switch to electric drive outweigh the embodied carbon of the change? I.e., as manufacturing decarbonises, what is the optimum time to switch?
• Further work on energy density of alternative energy storage solutions vs. energy conversion efficiencies. I.e., how much space and weight of batteries or hydrogen do we need to replace a given volume of fossil fuel or biofuel when the former has an energy conversion efficiency of >85% and the latter as low as 10% when under part load and a maximum of around 40% at optimum load?