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I confess that I am slightly less generous than the right hon. Gentleman in my view of the Government's motives. I suspect that at some stage in drafting the Budget, the Chancellor said, "I had better put something green in the Budget, especially if it will not actually cost anything. What can I do?" On the face of it, the Government's proposal looks extremely green, but it is not going to cost anything because it is not sufficient to create the desired result. My cynical belief is that the Chancellor will get away with it, at least for a time, like everything else he does, until people see what is underneath. The 20p reduction, as the right hon. Gentleman said, will not change the economics sufficiently to encourage a massive increase in production and use of biofuels.
The right hon. Gentleman spoke about America and one or two other countries. Unusually for a Liberal Democrat, he did not mention Europe much, yet there are some good examples on our doorstep. Other European Union countries have already seen the benefit of such a measure. France provides a total exemption to its duties which equates roughly to 35p a litre, which is in the same ball park as the right hon. Gentleman's proposal. France has done that because it wants the use of biofuels to increase.
The energy technology support unit, the body that advises the Department of the Environment, Transport and the Regions on biofuels, told the Science and Technology Committee two years ago that the problem with biodiesel is its poor energy balance: it produces only twice as much energy as is used in its production. ETSU also said that every litre of biodiesel used reduces carbon dioxide emissions by approximately 1.5 kg. That is a major reduction. Even if we accept that first statement at face value, it is only half the story, because what also matters is the source of that energy in the energy balance.
Biofuels cannot emit more carbon dioxide than was taken up in the growing process in the first place--that is basic chemistry. In the simplest comparison, they are energy neutral. They are not, of course, because one must include the energy that was used in growing the crop, producing the fertilisers and the subsequent use of energy in processing it into biodiesel or ethanol. Even allowing for that, we are faced with a major net gain of energy balance. Even if the energy sources used for production and processing are from fossil fuels, as the majority of our energy is, there is still a gain. However, they do not have to come from fossil fuels. There is no reason why other forms of biofuel, such as miscanthus for producing energy at power stations, could not be used to create the first energy and produce a double benefit.
Amazingly, the policy on this issue in Europe has not had much coverage. European Union rules allow up to 15 per cent. by volume substitution of ETBE, an ethanol derivative, in our petrol. It is already there. In answer to the hon. Member for Banff and Buchan (Mr. Salmond), who is no longer in his place, the Farmers Weekly article to which the right hon. Member for Berwick-upon-Tweed referred gave some statistics. Europe currently produces 700,000 tonnes a year of biodiesel and has set production targets of 2.3 million tonnes by 2003 and 8.3 million tonnes by 2010. Germany is on course, as are Austria, Italy, Spain and France. Britain, at the moment, will produce almost zero towards that very sensible target.
Some people claim that biofuels are not sufficiently positive in energy use terms to justify the effective subsidy that is required, which is the subject of the amendment. Much of that opinion is based on historical studies carried out in 1991. Conversion technologies have improved considerably and, as we have heard, the husbandry and every other aspect of the scientific production side is fully covered. In addition, the price of crude oil--the main comparator--has increased dramatically. Although less than it was a few months ago, it is still much higher than it once was. At the same time, prices for grain and oilseed rape, the two major sources of biofuels, have collapsed to little more than half of what they were when these studies were carried out in 1991.
All those arguments about energy balance could be significantly damaged if it were not for the fact that both my party and the Government have already conceded the principle of using a taxation instrument to encourage environmentally friendly fuels. As the right hon. Gentleman said, road fuel gases will be taxed at 6p a litre to encourage their use. They are inevitably much cleaner than conventional petrol or diesel, but they are still fossil fuels. All the carbon dioxide that is emitted when road fuel gas is burned contributes to global warming and carbon dioxide levels. In reducing duty for environmental benefit, I think that we must go considerably further than the 20p proposed by the Government.
The right hon. Gentleman referred to the article and critical editorial in Farmers Weekly. I will not go through it again because he demonstrated clearly how daft the comments of the Ministry of Agriculture, Fisheries and Food are. The Ministry has not exactly covered itself with glory in recent months, and this adds to the pile of criticisms.
No one envisages that the development of the biofuels market will manifestly change the face of agriculture. As the right hon. Gentleman said, British agriculture is in serious difficulties, even without the foot and mouth crisis. However, the reduction would provide an alternative market for oilseed rape and cereals. The price of rape or grain would not rise dramatically because the market would set its own levels. If the reduction on fuel duty were fixed at the 33p that we are discussing, that would feed back to a maximum price that people could afford to pay for the raw materials. The market would therefore limit the acreage of grain or oilseed rape being produced, commensurate with that price. If the price of rape went up too much, the economics would go out of the window yet again. So it would be a self-levelling device. It would, as the right hon. Gentleman said, help agriculture at a time of desperate need.
If the reductions in the Budget for next year are a genuine and serious attempt to encourage the production of biofuels, I hope that the Government will listen to those who say that a cut of 20p will not produce the result that they want. I can understand that the Government would look cynically on anything said from the Conservative, and perhaps, occasionally, the Liberal Democrat, Benches, but they should listen to people such as Peter Clery, to whom the right hon. Gentleman referred, who have spent the past 20 years working to develop biofuels.
In the late 1980s, for some unknown reason, the bus company in Reading tried running buses on biodiesel. The only environmental result was that the whole of Reading smelled like a fish and chip shop because the buses were burning vegetable oil, but the technology proved its worth.
Mr. David Heath: In case the House has the impression that buses necessarily smell of fish and chips when they run on biodiesel, can the hon. Gentleman confirm that the entire Stockholm bus fleet runs on that fuel without any such problem?
Mr. Paice: The hon. Gentleman is entirely right and my comment was a bit flippant, even if, since I was talking about the mid-1980s, it was true. I use that example to demonstrate that the technology was not developed in the 21st century but has been around for close on 20 years. It is time that this country gave it the promotion that it deserves. I hope that the Government will take heed of those who have studied it for many years and will realise that 20p is insufficient to bring the result that we all want. I hope that they will look favourably on the amendment.
Mr. Simon Thomas: I support the amendment and what has been said about the inadequacy of the Government's proposals. The hon. Member for South-East Cambridgeshire (Mr. Paice) said that the technology, far from being new, had been around for at least 20 years. In fact, it is as old as the diesel engine itself, since the first of them were designed to run on
The Treasury team would have done well to study in more detail the Environmental Audit Committee pre-Budget report 2000, "Fuelling the Debate" before they produced the Finance Bill. Several of our debates tonight have revealed a lack of clear thought about real environmental benefits in Government proposals that purport to bring them. Paragraph 97 of the report states:
I chair a biomass working group in my constituency, which is trying to promote biomass in terms of heat production. We have also considered opportunities for farmers in Ceredigion and west Wales to produce biofuels. For the future of farming, in addition to value added products that we have advocated for years and increasing organic production, we should consider energy production. It is disappointing that we have had so many mixed signals from the Government on that.
The hon. Member for South-East Cambridgeshire and I participated in a debate in Westminster Hall a month ago at which the Ministry of Agriculture, Fisheries and Food seemed to give encouraging signals about support for energy crops. Yet the Finance Bill offers only a sop, not a measure sufficient to take matters forward. The 20p reduction in biofuels barely brings the cost of production down to that of conventional petrol and diesel. We need a greater impetus and stronger long-term signals if the industry is to take off. The amendment provides those signals, and I support it.