Moving Towards 100% HVO from Red Diesel

James Maclean, CEO of wet civil engineering firm Land & Water, has positioned himself as a spokesperson for the civil engineering and construction industries discussing what the sectors need to have in place to be able to make the switch from red diesel, including a process to be able to drain and re-fuel machinery. Here he writes about red diesel and what the UK Government needs to do to provide support organisations making the switch.

The end of the red diesel rebate in April 2022 has been the source of much discussion since it was first announced. However as the deadline for subsidised fuel gets closer and closer there is still much to resolve about this particular aspect of the Government’s plan to become net carbon neutral by 2030. As with all changes there are hurdles that not just the construction industry, but other sectors of the UK economy, must overcome whilst taking the opportunity for improvement and innovation.

Red diesel, which accounts for 15% of the UK’s total diesel consumption, producing 14 million tonnes of CO2 annually has become part and parcel of the UK construction sector. Whilst the civil engineering and construction industries welcome the move towards cleaner fuels with open arms, there needs to be guidance on how to manage the switch from diesel to other fuels such as HVO. Our aim at Land & Water is to move quickly towards using only HVO on our projects. This straightforward swap could help reduce CO2 emissions by up to 90% when compared to traditional diesel. So why is it being taxed so heavily if the Government is striving to become net carbon neutral?

As it stands the rebate on red diesel will end in April 2022 and despite the rationale for this being to encourage the decarbonisation of the sector, more environmentally sound biofuels are also having their subsidies removed.

For many of the SMEs working within our sector this will simply add pressure to an industry that has experienced unprecedented price hikes and material shortages since the beginning of the pandemic. The lack of clear direction on how to manage the switch to lower carbon alternatives, coupled with the absence of financial incentive, creates the possibility that businesses already feeling the pinch will simply make price driven decisions.

It is estimated that ending the rebate could cost the construction sector between £280m and £490m per year, with a recent members survey carried out by the Civil Engineering Contractors Association (CECA) highlighting that SMEs will face a cost of between £250,000 and £600,000 annually. However, as recently illustrated by the HS2 project, finding extra budget to cover this cost appears unlikely. Despite contractors no longer being able to claim a rebate on the fuel used for large infrastructure projects, such as HS2, no additional budget is being made available to cover these costs.

The squeeze that this creates on businesses within our sector should not be underestimated. On the one hand they can no longer use subsidised fuel from April 2022, yet some of those paying for projects, the Government included, seem not to value the importance of decarbonisation and will not set aside additional budget. If extra budget cannot be found for the increased cost of switching to biofuel alternatives then the viability of projects will be called into question. Put simply, this means that the SMEs on which the construction sector relies will be left with little choice but to absorb the costs.

What we need is a solution that puts decarbonisation front and centre, that makes clear its importance and therefore value to future generations whilst ensuring additional costs that might be incurred are accepted or even welcomed by those paying.

There are numerous ways in which this might be achieved.

In the short term the Government could look to migrate the current fuel rebate from red diesel to more environmentally friendly bio diesels such as HVO. This will ensure that there is a fuel option which meets the industry’s current pricing expectations. This approach could also serve to highlight that bio fuels have come a long way, they are reliable, efficient and can be used in modern machinery without any modifications in the case of HVO.

The Government has introduced a competition to drive innovation into environmentally friendly fuels. The fund, valued at £40m, comes as a result of the Government recognising that private investment into white diesel alternatives will not reach the level needed to meet its net carbon neutral goal by 2030. Whilst this is a start, many industries that currently use red diesel, including waste management, have been excluded from accessing the competition.

Driving down carbon must be a collective effort. From household recycling to those at the forefront of fuel innovation, we must ensure that as many people as possible can play their part. Excluding sectors from accessing the competition will exclude some of the best minds in our country working collectively on this vital endeavour.

By our very nature the SMEs within the construction sector are innovators. Our size is advantageous, allowing us to be nimble. With this in mind I feel strongly that the SME sector must lead the charge to normalise the use of fuels such as HVO. If greener alternatives are going to be taxed at the same level as traditional fuels, we should embrace them whole heartedly, pricing and delivering work using biofuels as standard. By normalising biofuels we can demonstrate their effectiveness, increase their use and reduce the CO2 from our industry.

At Land & Water we aim to deliver, maintain and sustain the UK’s natural capital. We are involved in numerous projects, trials and innovations aimed at decarbonising our industry. We have demonstrated the success of more environmentally friendly fuel options through our use of HVO fuel and now our aim is to play an active role in normalising such alternatives.

As result we are excited to announce that we will be switching to using HVO on all our sites from the first of November 2021. What we would encourage now is a government subsidy to encourage HVO to become the norm throughout our industry.

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