Promotion of the Use of Biofuelsin Road Transport

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I agree with the hon. Gentleman that matters have not progressed as fast as we should have liked in terms of natural gas. He asked a specific question about LPG, and I shall associate it with natural gas. As he will appreciate, the setting up of the infrastructure was important. It is a chicken and egg situation; one cannot have vehicles running on the fuel until the infrastructure is in place. We realised

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that there was a considerably greater need to incentivise the infrastructure to provide gas fuels, and felt that the level of duty that we had placed on them reflected the difficulties in taking that technology forward. I am pleased to say that LPG has moved forward, although compressed natural gas has not.

The hon. Gentleman referred to the Curry report. In terms of LPG and especially compressed natural gas, the tailpipe emissions are substantially better. Gas has the added advantage of being extremely quiet. It is appropriate for use at unsocial times, especially for heavy goods vehicles in centres of population such as cities. He will know that biofuels do not have that tailpipe advantage. There may be a slight advantage in terms of particulates, and more NOx is probably emitted.

We could argue that the CO2 needed to produce that fuel was neutral given the level of emissions, but another part of the equation—how the biofuel is produced—complicates matters. Production may require fertiliser, which may cause emissions to take place. As the hon. Gentleman knows from his area, a lot of processing is involved, which may create CO2 or other emissions. We have to consider the whole environmental footprint of how a fuel is produced, and use the appropriate incentives.

We think that we have got the level right. We shall have to revisit the subject from time to time, probably fairly regularly, just as we have revisited how we help the LPG industry convert vehicles. Improvements to the fuels and the technology in the engines have moved forward rapidly and caught up with some of the cleaner fuels, so we shall have to consider carefully how we provide fiscal incentives.

I am sorry that that was a rather long answer, but the hon. Gentleman raised an important strategic point.

Lawrie Quinn (Scarborough and Whitby): It is a pleasure, Mr. Benton, to see you in the Chair once again. You regularly look after this Committee.

As I prepared for this morning's sitting, I was pleased to receive from the Secretary of State for Environment, Food and Rural Affairs a document entitled "Climate Change Scenarios for the United Kingdom", which anyone who ever doubted the evidence on the effects of climate change should read. I am an east coast Member of Parliament, and I was hit rather hard by the report's prediction for my region. The document states that water level increases that currently take 120 years will take only seven years by 2080, unless we deal with this important issue. We face a global environmental problem. I do not know who the appropriate Minister is, but will one of them tell us what discussions are taking place with potential entrants to the European Union—particularly those from the Baltic, which will, unfortunately, be affected by the same phenomenon as places such as Scarborough and Whitby?

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Dawn Primarolo: I can deal with the tax issues for which directives have been agreed. Negotiations with countries that apply to join the European Union are conducted through the acquis, which contains all the EU's currently applicable directives and gives due regard to those being negotiated. Negotiations on directives that are in force are conducted at the Foreign Affairs Council, not by Finance Ministers. Accession countries that do not already comply with the directives must negotiate the period over which they will become compliant. The relevant provisions are called the tax chapters, which are currently being discussed. Where directives such as that before us are still being discussed, accession countries are made aware of the discussions, but the acquis cannot force on them provisions that do not already apply throughout the EU.

My hon. Friend is right to suggest that such discussions play an important role in establishing how accession countries can reach the necessary levels. To return to my point about setting the level of duty on biodiesels at 50 per cent. of that for diesel, difficult competition issues could arise across the European Union given that the rates in the accession countries are already much lower than those of any member state. Hon. Members are rightly concerned that we should facilitate tax changes and legislative changes to encourage the development of the associated industries in the United Kingdom. A delicate balance must be struck, and my hon. Friend is right to touch on the issue. I know from the tax directive discussions—I am sure that this is true of other issues—that the negotiating package reflects such concerns. To become a member of the European Union, accession states must comply with current legislation.

Matthew Green (Ludlow): Following on from the question from my hon. Friend the Member for North Norfolk (Norman Lamb), I should mention that emissions from biofuels may not be as clean as those from LPG. Presumably, the Department for Transport, Local Government and the Regions has been giving research and development support to companies that want to develop the technology to enable them to reduce those emissions, because if the emissions could be cleaned up, biofuels would be the fuel of the future. Perhaps the Minister could say exactly how much the Department has spent in the past few years on research and development in relation to biofuel engines for motor vehicles.

Mr. Jamieson: Two things are happening. First, in relation to the development of novel fuels, we introduced the green fuels challenge, which is in the remit of my hon. Friend the Paymaster General. In that initiative, we have given substantial tax and other incentives to develop some of those novel ideas, and we are assisting some interesting projects.

Secondly, the Department has carried out a certain amount of research, but the hon. Gentleman will appreciate that the companies involved, such as oil companies and car manufacturers, are highly profitable. The democratic Governments of Europe

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have set out the standards that we want for the people of Europe, and we have a view about the standards that are required in the United Kingdom. We have set the standard, but most of the research has been done by the oil companies and motor manufacturers, and they have done it very well. They complain when we introduce such ideas and often argue that things cannot be done, but it is pleasing to see that we have surpassed our expectations in terms of technology and oil production. Our job is setting the targets and the standards, and it is very much up to the industry to develop cleaner fuels.

Dawn Primarolo: The research and development tax credits for both large and small companies would provide—I was going to say "the vehicle", but I saw it coming—the mechanism for an additional form of support and would complement the green fuels challenge objectives and the points made by my hon. Friend.

Dr. Ian Gibson (Norwich, North): Can the Under-Secretary give an estimate of job creation, both in Europe and in the United Kingdom, or tell us whether he has commissioned any work on that? Furthermore, if jobs are created, will they be in rural, urban or suburban areas?

Mr. Jamieson: My hon. Friend raises an important point. The simple answer is we do not know, and it is difficult to assess. If the targets directive were introduced, it would have a different impact on different countries in the European Union. We can see why some of the southern states are keener on the directive than northern states as they have a greater capacity than northern states for growing the crops, but it is difficult to assess how much of the crop would develop in the United Kingdom, thereby creating jobs. Market forces would come into play, and if the fiscal incentives were uniformly spread across the European Union, it would probably be difficult for the UK to produce sufficient biofuels to meet the targets. Of course, there would be a strong environmental argument about the development of a monoculture, and about us having fields covered in rapeseed or beet. In addition, land costs are much greater here than in some southern and central European states, so there are many variables within the equation.

If the two directives went through, we would be obliged to provide a substantial amount of the biofuel that would be used in the United Kingdom but we could not produce it all. We would have to import it from other member states—or, more probably, from other parts of the world. In the latter case, those fuels may be produced in an unclean way, and the environmental benefit could be entirely lost. The widespread production of biofuels in this country would create very welcome jobs in rural areas. Some of the processing could be done in rural areas or in urban and city areas, but that would depend largely on where the industry wanted to do the processing.

Mrs. Janet Dean (Burton): The National Farmers Union welcomes the proposals. It believes that it

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would help create jobs, and that 75,000 jobs would created Europe-wide. It is important that we compete properly, and that we are not left behind, as sometimes we are, on agricultural production.

The NFU is concerned that the two years' grace on meeting the targets could be extended. Can the Under-Secretary reassure me that that will not be the case?

Mr. Jamieson: My hon. Friend raises the important point of job creation. We are minded of the potential to create jobs, which is why we are generally supportive of biodiesel. It is one way to reduce the amount of carbon produced by transport, but plenty of other ways need to be incentivised. I shall answer the final point raised by my hon. Friend in a moment.

Mr. Pickles: My question follows that asked by the hon. Member for Burton (Mrs. Dean). The Under-Secretary will be aware of certain problems with the viscosity of biofuels—for instance, they can damage engines. We are not talking only about plant life being used to make them. Biofuels can be produced from rendered cattle, chicken manure and various other things. However, I am surprised that we do not have a UK or European standard on biofuels, and I should be grateful if the Under-Secretary would give his considered opinion on that. We have a standard for diesel, but not for biodiesel. Given the various components that can be used to make biodiesel, will he tell us of his thinking on when we are likely to have such a standard?

Mr. Jamieson: I am not quite sure what the hon. Gentleman means by a standard. I take it that he means an indicative figure of how much should be produced and used.

Mr. Pickles: I mean a standard on the component parts. It is not a question of the quality of the fuel and what it should contain, but also—the Paymaster General may be interested in this—of taxation. It is a question of whether the fuel should conform to a quality, and what it might be, given that it can be made from various things.

Mr. Jamieson: That is an important point. We are now consulting on a fiscal standard based on the international fuel quality standard. The hon. Gentleman rightly said that there are different ways of producing biofuels. It may be more appropriate for us to use cooking oils and fats rather than producing them from farmed material, because as much as 100,000 tonnes of that is produced a year and it can be recycled. I assure him that we are consulting on the matter.

Norman Lamb: I appreciate the seriousness with which the Under-Secretary responded to my question, but could I press him further on the disparity in duty reduction compared with that for LPG?

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The Government clearly accept that there is a strong case for promoting biodiesel, or they would not have introduced the 20p reduction in duty. In an earlier answer, he accepted that the Government regard biodiesel as one as a range of alternative fuels with potential for use. However, people representing that embryonic industry tell me that they need a bigger duty reduction to kickstart the industry and get production under way. Given that many of the crops are already being grown in this country, using the pesticides to which the Under-Secretary referred, and given that the Government accept that biodiesel is one of the answers for the future, should there not be a bigger duty reduction to kickstart the industry?

Dawn Primarolo: I shall give a quick answer to the hon. Gentleman's question, as it links in with the previous question about definition.

The balance that we must strike relates to the need to ensure that all environmental concerns in the production of the fuel as well as the fuel itself are taken into consideration, as my hon. Friend the Under-Secretary said. Secondly, if the subsidy—for want of a better word—is excessive vis-aĻ-vis production, it would fall within state aid rules and be considered unfair competition, which would cause problems in terms of specific assistance.

As my hon. Friend said, the Government are approaching the green fuel challenge by adopting specific projects that will enable us to see more clearly the viability of the fuel. The second round for applications was announced by the Financial Secretary, so that we might make progress in that regard.

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