Promotion of the Use of Biofuelsin Road Transport

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Dawn Primarolo: I am extremely tempted to go way outside today's debate, but I merely remind the hon. Gentleman that his party made the commitment to the single market and a Conservative Government signed up to the treaty obligations of which the state aid provisions are part. The state aid provisions are intended to buttress and help pave the way for the efficient operation of the single market, which his party championed.

The Chairman: Order. That brings us to the end of the time allotted for questions.

Motion made, and Question proposed,

    That the Committee takes note of European Union Document No. 15500/01, Commission Communication and two draft Directives on the promotion of the use of biofuels for transport, and provision for Member States to apply differentiated rates of excise duty in favour of biofuels; considers that the objectives of security of supply and climate change abatement can best be achieved by an approach which promotes renewable transport fuels as a whole, and reflects the individual circumstances of Member States and EU renewable energy policy through the setting of indicative, flexible targets; welcomes the principles of making it easier for Member States to set a lower rate of duty on cleaner fuels such as biofuels; but considers that the detail of the Commission's approach (in particular, the links with current duty rates for conventional fuels and with oil prices) should be questioned.—[Mr. Jamieson.]

11.30 am

Mr. Pickles: I think it was the hon. Member for Ludlow who said that perhaps three, five, six, seven or even eight Ministers should be present today. That would have been nice, although I am pleased that we have two Ministers here to debate such an important subject. It may surprise you, Mr. Benton, because I know that you take an interest in these matters, but my experience on the European Scrutiny Committee is that some debates are less interesting than others. It could be my age, but I have quite enjoyed today's. I thank the Ministers for their courteous, straightforward and helpful answers. If they did not know an answer, they made it clear, which is pretty refreshing.

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It all comes down to cost. The Under-Secretary—or perhaps the Paymaster General—said the Budget provides a 20 per cent. reduction per litre for biofuels. I remember listening to that announcement and thinking that it was quite good, but I did not hear the words "or proportion thereof". As the Under-Secretary rightly says, nothing can run on poor biodiesel, and it is dangerous even to contemplate mixing more than about 5 per cent. into the fuel. A 20 per cent. reduction is one of 20p for every £1, but if only 5 per cent. of biodiesel is used, the reduction is only 1p. That was admitted—again, I am grateful for that—but the cost of producing a litre of biodiesel is roughly twice that of producing fossil diesel. The difference in cost is 2p per litre, so a standard litre of biodiesel now costs 1p more than fossil fuel.

The debate on LPG was interesting. The Liberal Democrats suggest that it is undesirable because it is a fossil fuel, and that we should therefore consider increasing the rate charged for it.

Matthew Green: Will the hon. Gentleman give way?

Mr. Pickles: I shall be keen as mustard to give way when I have developed the point.

If we decide to increase LPG duty, we shall kill biodiesel in its tracks. The Under-Secretary rightly says that we must provide incentives to create an infrastructure and change the way in which engines are developed. Several fleets have made big investments in LPG, and if we say that we are going to tax them pretty damn hard, we shall be sending the wrong message. Matthew Green rose—

Mr. Pickles: I shall give way to the hon. Gentleman—who will, I suspect, tell me that that was not what the Liberal Democrats said.

Matthew Green: That is absolutely not what was said, or implied. We are pushing for duty on biofuels to be reduced to the level of that on LPG, not for duty on LPG to go back up to the level of the duty on biofuels.

Mr. Pickles: The Liberal Democrats will have to be a lot clearer in future. I am a very suspicious type, and all their sneering comments about fossil fuels made me think that they wanted to increase LPG duty. However, they have now made an interesting point.

The Paymaster General must have won the Golden Rose award for her convoluted argument on state subsidy. As answers go, it was a model of—

Dawn Primarolo: It was a good Treasury answer.

Mr. Pickles: Indeed—and the hon. Lady is a good Treasury Minister. However, her argument on accession was convoluted. I agree that we face competition from the continent over fuel prices, but it is from the near continent. I think that Poland is the nearest country seeking accession, but the marginal

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cost of using Polish fuel in this country does not exist, even given Polish levels of excise duty. I asked the hon. Lady when she thought the regulations would be introduced and when the changes would take place, but she said that she could not be precise. However, I—with the aid of Conservative central office—have done some arithmetic. The average tax rate for biodiesel is 54p in continental Europe and 49p in this country, even given the changes. Enforcing the measures suggested by the Commission would mean changes of 30p or more, so I am not surprised that the hon. Lady does not want them introduced.

Given that biodiesels can be made from various and variable ingredients, we need a fuel standard for taxation purposes and to ensure quality at the pub—[Laughter.] I beg your pardon, Mr. Benton. I meant at the pump.

Dr. Gibson: Keep going.

Mr. Pickles: I do not think that things are so bad that pubs are selling our petrol.

Motorists and hauliers need an assurance that filling up with biodiesel will not put their engines at risk. It is interesting that, even with a 5 per cent. mix of diesel, some fuel injectors will still be at risk. The Under-Secretary made a telling point about the move to 5.75 per cent., which is heck of a difference from 5 per cent. That means that we will have to ensure that the amount that is biodiesel is of an assured quality.

Even though biofuels are twice as expensive to produce as fossil fuels, it is important that we use more of them, to reduce dependency on oil from unstable parts of the world. I am slightly at variance with the two Ministers, because I think that that is important. After all, 13 per cent. of our farmland, 800,000 hectares, is now set-aside. That can properly be used for the production of biofuels. I have mentioned the importance of standards, and I am aware that we often consider the United States to be negligent in its conservation of oil resources. However, I have here a document from the US Office of Transportation Technologies, dated March 2001, and I am surprised to see that the US already blends 10 per cent. of its gasoline with biofuels, principally ethanol from crops, and has been able to exceed the European Union targets because it took the decision to put fuel standards before anything else.

The United Kingdom has the lowest level of consumption in the European Union—less than 0.3 per cent. Austria is the highest with 5 per cent. However, people are not necessarily looking towards subsidies. Change will only be achieved if there is a substantial tax break. The arguments about the environment, LPG and various alternatives meant nothing until we had a serious look at the level of duty—so long as that on biodiesel is roughly at parity

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with that on fossil diesel, change is not going to be made.

Because the production of biodiesel is so labour-intensive, we have an opportunity to revive some of our rural areas. However, I have a number of worries. First, I do not believe that the two-year targets are realistic. If we do not seek some changes and aim for greater flexibility, we shall put the country at risk of considerable fluctuations in market prices and a check on imports. It would take only one bad harvest for things to get out of kilter.

Norman Lamb: The hon. Gentleman talks about price fluctuations. Is that not already our experience with crude oil? This country, like the whole of the developed world, has been under enormous pressure because of the power of the middle east, in particular, to change the price of oil, which causes all sorts of problems for the economy.

Mr. Pickles: I do not fundamentally disagree with that point, but we need a degree of realism. There has been fluctuation in the oil price, but it remains relatively low compared with that of a few years ago. We are working towards two-year targets. If we were to extend the period to, say, six years—or four years, or seven years—we might have a better chance of creating the infrastructure and making the changes necessary to ensure that we could meet the targets by a natural process, which I think is what the Ministers were suggesting. However, if we try to reach the targets within two years from such a low base, we shall be dependent on substantial imports. One bad harvest in that two-year period could make it very difficult.

The Under-Secretary will be aware that there was some discussion in the press about his views on hydrogen cars. I refer specifically to an article that appeared in The Times on 22 April, in which he seems to have got himself embroiled in an argument about the viability of such cars. That seems at variance with what he said in his speech about the need not to plump early for a particular amount. I would be grateful if the Under-Secretary were to say how important he thinks hydrogen cars are likely to be. I understand that by 2025 we should have 22 per cent. availability in terms of meeting our energy needs through hydrogen. Why does he seem to be closing off the option so early?

Finally, we have sympathy with what the Government say about seeking greater flexibility, and not closing our options off too early with regard to hydrogen cars—but ultimately the issue comes down to taxation. Without some kind of incentive to use biofuels, they will be unobtainable.

11.46 am

Norman Lamb: I shall start by talking about the two prime drivers, as the Under-Secretary described them, for the proposals—security of energy supply and the reduction of the environmental impact of fuel used in transport. The hon. Member for Brentwood and Ongar (Mr. Pickles) referred to the United

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States, which is now making a considerable commitment to increasing energy crops for the production of biodiesel and other fuels. It is doing so not out of any great commitment to the environment—we have yet to notice that from President Bush—but from a recognition of the importance of improving security of energy supply and reducing reliance on the middle east's crude oil. We must remember that those are both key objectives in the development of policy in the UK and across Europe.

In response to my first question, the Under-Secretary rightly drew attention to the considerable progress that has been made in improving existing uses of fossil fuels. Vehicles are much cleaner than they used to be and that has produced considerable dividends in moving towards Kyoto targets. However there has been slow progress in the replacement of fossil fuels to any degree with other sources of fuel. The Government accept in principle the case for a mix of different fuels. Indeed, not only has the duty on LPG—a fossil fuel—been reduced, but a 20p differential for biodiesel has been introduced.

However, a much greater reduction in duty is necessary to kick-start this embryonic industry. I listened carefully to the points made by the Treasury Minister about ensuring that we complied with tax rules. I am unsure whether I fully understood why it is possible for Germany and Austria to apply a nil tax rate but not possible for us to do likewise, or simply to reduce the rate to the same level as that for LPG.

The Under-Secretary invited me to continue pressing the Government to achieve further reductions. I will meet that challenge, and continue to present the case. Everything that I have heard from those involved in agriculture and those trying to get this industry going tells me that there needs to be a bigger duty reduction before the industry can begin to succeed. Unless we grasp that nettle, we shall continue with a desperately low level of biodiesel as a percentage of the overall fuel mix.

A lot of store has been set by the Curry report, which specifically recommends to Government that there should be parity in duty between biodiesel and LPG—a clean fossil fuel, if I may so describe it. There is massive potential for the development of biofuels, as we have 800,000 hectares of set-aside in this country, which is 13 per cent. of our farmland. On the basis of best practice in Germany, two tonnes of biodiesel oil could be produced per hectare. Merely by using its set-aside land, this country could produce more than 1 million tonnes of biodiesel oil, which could make a substantial contribution to achieving the targets in the proposals.

The agricultural sector has suffered years of falling incomes and faces an uncertain future. There is pressure from the WTO, which will only increase, to reduce the subsidy on production in agriculture, affecting crops such as sugar beet. Farmers face an even more uncertain future than under the existing regime, and a potential new source of income for

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arable farmers is an attractive idea. In Norfolk especially, as it is an arable county, such a crop could make a real difference.

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