Nigel Keen, Director of the John Lewis Partnership's Carbon Plan

Bio fuels: the environmental and economic rationale.

New Statesman

Imagine an attractive and genuinely viable alternative to using fossil fuels; a source of power for vehicles, businesses and homes that is truly sustainable, less carbon intensive, more economical and brings with it the added benefits of job creation and an injection of capital into British industry. With a supportive fiscal and regulatory framework, we believe there is huge potential for bio fuels to fulfil this aspiration.

The "green" arguments for making greater use of bio fuels are highly persuasive and the economics, compelling. The primary argument for replacing fossil fuels with bio fuels is of course the significant reduction in carbon emissions.

Dual fuel vehicles - those that use diesel and an alternative fuel such as natural gas - emit far less carbon than their solely diesel-fuelled counterparts. A standard heavy truck that uses £50,000 of fuel in a year and emits 100 tonnes of CO2 can see a reduction in CO2 emissions of between 10 and 15 per cent through conversion to dual fuel. Using bio-methane as a road fuel has the potential to reduce CO2 emissions even further. Taken from the national gas grid, compressed and used in "dual-fuel" heavy vehicles, bio-methane can boost the carbon reducing effect of dual fuel to around 60 per cent, and that's without counting the other environmental benefits.

It's not just their low carbon intensity that makes bio fuels attractive. Grown or sourced sustainably, they are far less environmentally damaging than the extractive oil industry. With enhanced technology enabling waste to be diverted from landfill and turned into bio fuels, the benefits are multiplied. Anaerobic digestion plants are increasingly being used to convert food waste into bio-methane which can be injected into the gas grid. This works because bio methane and natural gas have identical properties; the key difference being natural gas is a fossil fuel whereas bio-methane is created during the anaerobic digestion process. Anaerobic digestion is a growing industry already supported by the government's Green Gas Certification scheme which provides incentives for producers and certainty for consumers.

The environmental and economic rationale for more widespread use of bio fuels goes well beyond their use as an alternative fuel for transport. Several major retailers, including the John Lewis Partnership, are developing energy centres which use sustainably sourced wood chip to provide the electricity, heating and cooling needs for shops, taking them almost entirely off the national electricity grid. This reduces energy costs for businesses. In our case our energy centres have a payback period of around ten years. Importantly, this also begins to address concerns about the future security of energy supplies.

At a time of slow growth and high unemployment, increased investment in bio fuels provides an opportunity to stimulate jobs and "green growth", making the much lauded transition to a greener economy a reality. The UK is a world leader in dual fuel conversion of heavy trucks and there is already a demand for further capital investment to fund the construction of anaerobic digestion plants, conversion of trucks to alternative fuels and develop the UK's gas infrastructure network.

With such clear cases for the greater use of bio fuels, what is holding us back from a greater investment in and commitment to this new energy?

In our view there are a number of surmountable barriers currently undermining the persuasive economic and environmental rationale. These barriers stem largely from a lack of supportive regulatory and fiscal measures. This is affecting industry confidence, resulting in unwillingness by business to bear the risks of investment in bio fuel technologies and infrastructure beyond anything more than small scale trials. If we can get the underpinning regulatory framework right, by establishing standards, incentives and long term policy direction, this could provide the catalyst that is needed to kick start investment and growth of the bio fuels sector.

One of the key concerns around bio fuels relates to their sustainability, including fears that growing crops for fuels will replace crops for food, as well as concerns about the sustainable management of bio fuel sources to ensure their continued availability. One way to address these concerns is to develop a national standard based on an independent assessment of a bio fuels' carbon reduction potential, its availability and importantly, any effect it has on bio diversity and land use changes.

This proposal would enable bio fuels to be graded according to their sustainability and for a bio fuels index to be established. With academic experts we're already starting to look in depth at whether bio fuels can be sustainable if growing them means changing the land use. The expertise exists for developing the complex field of bio fuels into a set of agreed standards. The challenge is getting this science into policy and legislation.

There is also potential for making the economic rationale for switching to bio fuels more robust by creating more certainty around the fuel duty regime for methane (either as natural gas or bio-methane). Diesel fuel duty currently stands at 57.95p per litre, for methane gas used as a road fuel it is 24.7p per kg. However this fuel duty differential is only guaranteed until 2013. Post 2013, any significant reduction in the fuel duty differential could all but destroy the economic case for using methane. This economic uncertainty is making it hard to make a strong investment case for bio methane so businesses are reluctant to make longer term or more significant commitments.

Establishing a longer term fuel duty differential, for rolling ten year periods, would create the predictability needed for investment and give confidence that the economic case would not drastically change during the life of a vehicle. The added benefits are that businesses would have a more realistic amortisation period for the bio fuel infrastructure and vehicle conversions, and the unfair advantage gained by foreign hauliers, who purchase cheaper bio fuel abroad before driving on UK roads, would be eliminated. Any fuel duty differential could be based on the bio fuels index we believe needs to be established.

Only a robust policy framework will give industry the confidence to invest in bio fuels and wide stakeholder support will be critical. A collaborative, cross sector approach is therefore key to establishing the right political, legislative and fiscal environment for the bio fuels sector to flourish.

Nigel Keen is Property & Development Director of Waitrose and Director of the John Lewis Partnership's Carbon Plan