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Biofuel obligation act takes effect - International Law Office

International Law Office

Energy & Natural Resources - Ireland

Biofuel obligation act takes effect

September 13 2010

Overview
Provisions
Biofuel certificates
Comment



On June 9 2010 President Mary McAleese signed the Energy (Biofuel Obligation and Miscellaneous Provisions) Act 2010 into law. The act is a significant piece of legislation as it obliges fuel suppliers in Ireland to sell a specified amount of biofuels (ie, fuels derived from sustainable sources) each year. It is hoped that this obligation will aid Ireland in reducing its carbon emissions and developing its biofuel production capacity. The act entered into force on July 1 2010.

Overview

The purpose of the act is to require fuel suppliers in Ireland, from July 2011, to include an average of 4% biofuels in their annual fuel sales. The obligation will be imposed on the companies in question at no cost to the taxpayer.

The biofuels used must produce 35% less greenhouse gases than their fossil fuel comparators (ie, petrol and diesel). Stringent conditions will also be introduced in relation to the source and type of biofuels supplied. In order for biofuels to be counted towards the obligation they must meet the EU sustainability criteria for biofuels. The conditions include provisions aimed at ensuring that biofuels cannot come from carbon sinks (ie, rainforests and savannahs) and impose strict reporting requirements regarding social conditions (eg, water cannot be diverted from indigenous populations).

Provisions

The act amends the National Oil Reserves Agency Act 2007 by inserting a new Section 44. The amended section will require oil companies and oil consumers to ensure that a specified amount of the petroleum product that they dispose of, by sale or otherwise, is biofuel. The specified amount can be set by ministerial order; in the absence of such an order the amount is set at 4.166%.

The National Oil Reserves Agency Act defines 'oil' as "crude oil, intermediate products and petroleum products", where "petroleum products include motor spirit and aviation fuel; gas oil; diesel oil and kerosene; and fuel oils." It is expressly stated that the term 'petroleum products' excludes marine bunkers, aviation fuel and jet fuel of the kerosene type.

An 'oil company' is defined in the National Oil Reserves Agency Act as:

"any person (other than the National Oil Reserves Agency) that, in the preceding calendar year:
(a) imported into the State or acquired, by purchase or otherwise, from another oil company or from an oil refining or oil storage facility in the State, oil for that person's own consumption, for resale or for disposal to a third party, or (b) operated an oil refining or oil storage facility in the State that held in storage, consumed or sold oil.
"

An 'oil consumer' is defined as:

"any person that, in the preceding calendar year: (a) imported into the State, (b) acquired, by purchase or otherwise, from an oil company in the State, or (c) held in storage in the State, 1,000 or more tonnes of petroleum products exclusively for that person's own consumption in the State and not for resale or for disposal to a third party."

The act provides that a "relevant disposal of road transport fuel" includes the volume of road transport fuel consumed by an oil company or an oil consumer in an obligation period. 'Road transport fuel' is defined as "fuel which can power a motor vehicle".

Biofuel certificates

A biofuel obligation certificate is issued to obligated parties in respect of each litre of biofuel disposed of. The certificate is issued by the agency on the application of the biofuel obligation account holder. Each certificate has a value equivalent to one litre of the specified biofuel. An application to the agency must be made in a prescribed form, including prescribed information demonstrating that the production of the biofuel has complied with the sustainability criteria for biofuels set out in the EU Renewables Directive (2009/28/EC).

In addition to knowing how much biofuel an obligated party has disposed of, the agency also has information relating to how much petroleum product an obligated party has disposed of each month. Section 39 of the National Oil Reserves Agency Act stipulates that this information must be communicated to the minister monthly . From this information it is possible to calculate the percentage of fuel disposed of by each obliged party which relates to biofuels.

To monitor compliance during the obligation period (between January 1 and December 31 annually), the agency must set up a biofuel obligation account to record the balance of certificates held to the credit of an obligated party and to note the issuing, transfer, revocation and cancellation of such certificates. Certificates may be transferred from one account holder to another, resulting in a debit in the transferor's account and a credit in the transferee's account. Where biofuel is exported from the state, any certificate issued in respect of that fuel is cancelled. Further, certificates may be revoked, for example, for fraud, misrepresentation or where the obliged party has committed an offence.

Under Section 44J(1), where the biofuel obligation is not met, the obligated party must pay the agency a 'buy-out charge' equal to the amount of the obligation not met multiplied by the price per litre of the biofuel, which is set by ministerial regulation. The agency may recover the buy-out charge as a simple contract debt if it is not paid.

To meet expenses incurred by the agency, each obligated party must pay a monthly levy on their disposals of biofuel in the previous month. The bill defines a relevant disposal as the volume (in litres) of biofuel the obligated party disposes of by sale or otherwise in the state or consumes in the state. The amount of the levy is calculated by the minister on a monthly basis by reference to the obligated party's disposals in the previous month and the rate of the biofuel levy as established by ministerial regulations. Here again the agency can recover the levy as a simple contract debt if it is not paid.

The minister may make regulations concerning the minimum standards to be met by biofuels, having regard to the need to promote the use of biofuels. Different standards may be set for different classes of biofuel.

Comment

It is hoped that the introduction of these obligations will encourage fuel suppliers to move towards low-carbon fuel, at no cost to the taxpayer. The act will also help build up Irish biofuel production capacity by providing a guaranteed market for the bio-energy sector. It is hoped this will reduce Ireland's €6 billion a year expenditure on the import of fossil fuels.

For further information please contact Michael O'Connor at Matheson Ormsby Prentice by telephone (+353 1 232 2000), fax (+353 1 232 3333) or email (michael.oconnor@mop.ie).


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