Examination of Witnesses (Questions 260-275)
LORD WHITTY
AND MR
ANDREW PERRINS
15 SEPTEMBER 2003
Q260 Mr Wiggin: How long will they
wait?
Lord Whitty: Again you better
address that to Treasury.
Mr Wiggin: Long enough to make their
crop plants. It is not at the click of a finger, as you would
appreciate—
Chairman: In my experience Treasury patience
depends on whether they are buying or selling.
Q261 Alan Simpson: We have now had
a lot of contradictory evidence presented to us about the case
for biofuels and the nature of biofuels, could you just tell me
whether you have got within the departments a basis from which
you yourselves have sought to weigh up the different claims made
by those biofuels, both the economic assessments that you have
done and the environmental impact assessments of what you have
done?
Lord Whitty: Yes, I think we do
now have a fair amount of information, although I doubt if it
is the last word, there was a time not long ago when some of the
industry bodies and government departments were at odds about
the facts. We have narrowed the difference on the facts, the latest
report we have received from CSL ends up with the figures I was
talking about on the economics of it. In relation to the environment,
clearly as far as carbon is concerned there are significant benefits
although with diesel there is a whole life cycle which slightly
reduces the total benefit of the biodiesel compared with conventional
diesel in that you will have to use carbon to convert the crops
more significantly than you would. Of course that calculation
of itself depends on what you would do with the crops. There is
that aspect. There is also an air quality aspect and I think until
quite recently there was a view that biodiesel in particular had
more negative air quality effects. The CSL study makes it clear
that it is pretty much neutral between biofuels and conventional
fuels, if anything a slight advantage to biofuels.
Q262 Alan Simpson: I do not think
there is anybody on the Committee who would not sign up to the
belief that we have to do something and do something seriously.
There are very real questions about doing something sensibly and
what that might be. Let me just run a number of these past you,
we have had suggestions made to us from the oil industry that
there just needs to be a bigger duty rebate; we have been told
conversely, why are we thinking about a domestic biofuels industry
when both the economics and the environmental impact would make
more sense just to import the stuff from Brazil where they can
do so more sustainably and cheaply. We have had the pitch made
that says, actually if you wanted to do this you would be better
producing biofuels from recycled paper. The other is to say if
you were to look at the land take for biofuels you would be better
off using the land for coppicing for the production of biomass.
All of these are quite legitimate claims but I just want to know
where the Department is in terms of the basis of producing an
assessment mechanism that would allow us to make sensible choices
or to understand the choices that we have? How far are you down
that path or are we still in a position where basically we are
chasing the latest good, if half-thought out, idea?
Lord Whitty: I think some of the
basis for assessment exists on a fairly consensual basis. Some
of the questions you raise are not really an either/or. There
is a contribution which biomass can make, which at the point of
consumption maybe gives you more carbon savings per buck than
biofuels would and therefore we would hope to see a significant
contribution to biomass, and that may well involve different crops.
It may involve forestry by-products, it may involve ligno-cellulosic
crops, and it may involve miscanthus and other relatively novel
crops grown specifically and only for biomass. The problem on
the biomass side is that, as distinct from the liquid fuels (although
there is a conversion issue on liquid fuels) where in general
the infrastructure can take liquid fuels as a blend with normal
petrol and normal diesel and so there is not a huge infrastructure
cost, if you are going to do it in any significant way as a contribution
to the National Grid there is quite a big investment involved,
and, as you will know, not all of those projects have succeeded.
My personal view is that it is probable that more smaller-scale
biomass-based community heating and lighting in small industrial
use might make a bigger contribution than large-scale plants at
this stage. The problem is that whereas at the end of the process
you will get more carbon benefit from biomass than you might from
biofuels, the investment up-front and the confidence required
for that investment up-front is greater.
Q263 Alan Simpson: Would you be able
to present the Committee with a summary almost as a template of
how you are weighing those different elements that go into any
calculations that are being made because clearly that is the basis
upon which as a Parliament we need to assess the most sensible
steps to be taken? Would it be possible for you to present the
Committee with that sort of template?
Lord Whitty: I am not sure it
will answer all of your questions but certainly some of the answers
we can answer and much of it is in the CSL report, and that report
we can send out to you.
Q264 Alan Simpson: My final point
on this is that certainly we have had the oil industries presenting
the case for a higher duty derogation if they are to go down the
path of taking biofuels seriously. Could you also supply us with
the figure that would be needed if that were to be tax neutral
as far as the Exchequer was concerned, ie, if the industry was
required itself to pay for the derogation that it was looking
for in respect of biofuels, what the industry would have to pay
in terms of increased petrol or diesel prices in order to make
the derogation for prices on biodiesel and bioethanol a marketable
commodity?
Lord Whitty: I suspect we could
give you a rule of thumb kind of calculation but clearly this
does not have the authority of the Treasury's assessment and therefore
that is probably a question to John Healey.
Q265 Paddy Tipping: Could we talk
about the environmental side of the balance sheet, particularly
in relation to the EU targets on biofuels, which I think you told
us was 5.75 by 2010. Supposing that were to be achieved—and
that might be a supposition in itself—what would be the
carbon saving from that?
Lord Whitty: In the UK if we achieved
5.75 by 2010 it would be two million tonnes equivalent of carbon
saved. I have not got the EU figure here.
Q266 Paddy Tipping: How sensitive
were those figures? Alan Simpson was saying you might do better
using a Brazilian product. A lot will depend for example where
plants are based. Do you see much flexibility in this, much change
in this?
Lord Whitty: Not a dramatic one.
Clearly there is an offset. If you transport what is fairly heavy
fuel across from Rio, it is not going to be the same as if it
is grown in the fields down the road and processed in a factory
ten miles away, but in terms of the total costs it is not going
to be dramatic. One also has to bear in mind that this is an EU
policy. Clearly EU rules and EU Directives do not specify where
the fuel should be coming from. As you will know, there is quite
an interest in this area, for example, in some of the accession
countries.
Q267 Paddy Tipping: You told us earlier
on, and I am not sure whether you were wearing your energy hat
at that time or your farming hat, that you would like to see as
many materials sourced from the UK as possible. Just in environmental
terms it might make sense to source the primary material from
elsewhere.
Lord Whitty: There is a transportation
offset to that. If it were produced in a sustainable way at a
cheaper price elsewhere in resource terms, then it is conceivable
that that is the case. However, given that part of our environmental
policy is to have a sustainable agriculture as well, that is also
an environmental good as far as I am concerned and one that needs
to go into the equation.
Q268 Paddy Tipping: So one of the
drivers from your Department's perspective is it is important
really for UK farming, for the rural economy?
Lord Whitty: Yes, I am not saying
every last litre should be from the UK but we should have a significant
contribution to that. At the moment we have a situation where
some crops are being exported, turned into biofuels and reimported.
That is clearly nonsensical.
Q269 Paddy Tipping: Finally, you
were talking to Mrs Shephard and Mr Wiggin about the cost to the
Exchequer from excise redemptions. What work has been done across
government to say, "We have got this sum, if we were to spend
it, would it be better to spend it on biofuels?" I know one
of the issues that you are interested in is energy conservation,
and particularly how it affects poor people living in the worst
housing. Again, just in environmental terms if that sum of money
were available via the Treasury would it be better using it for
biofuels or would it be better spent on energy conservation?
Lord Whitty: Again I do not think
it is an either/or thing. Clearly the figures show that in general
return on expenditure for energy efficiency measures is higher
than any of these other measures. The return on biofuels is of
the order as for wind farms and slightly less than it is for biomass
but they are within the same ballpark. Part of the energy policy—renewable
energy policy particularly—is to have a diversified supply
as well, for all the obvious reasons.
Q270 Chairman: You mentioned sustainable
farming as one of the objectives. How do you measure the impact
this might have on farmers because obviously sugar is a particular
market under the European regime but in the other markets it is
difficult to tell how you would have a differential placing for
maize grown for energy as opposed to maize grown for a different
product. Would this have an impact on farm incomes or at the end
of the day would this be a rather disappointing process for farmers?
Lord Whitty: The calculations
are usually based on the equivalent price for other purposes of
the crops (for those crops which are grown for other purposes).
It is true that we cannot really foresee the circumstances in
2010 as to whether there is a more profitable crop for farmers.
There is probably a quality control issue in that, for example,
for sugar provided for food we have higher quality standards required
than that for energy, so it may be less waste. But a presumption
here is that production of existing crops of biofuels would be
at the price that you could get for other purposes. Insofar as
there is an advantage to the farmer even in that, these are long-term
contracts, whereas if they are selling their beet fodder or even
beet to only one company and with the uncertainty of the future
of the CAP regime, then this is a greater stability and confidence
of output that they might want.
Q271 Chairman: In terms of who would
benefit most, what we are talking about is the eastern side of
England so it is the Vale of York down through Lincolnshire into
East Anglia, is it not, I would guess?
Lord Whitty: For most of the biofuels,
yes. For the biomass that is not necessarily the case, particularly
on the forestry side.
Q272 Mr Drew: That is where the nub
of the problem is surely, Larry, that farmers so far have been
very unwilling to want to enter into longer-term contracts and
that is where the points are that we have been discussing in the
previous session, which you obviously did not hear but Alan and
others have picked up, as to what are the indicators and how do
you think you can convince farmers that they ought to change that
virtually unique situation where every year could be different
if the signals were different in trying to get them to think in
terms of looking at future arrangements which may lock them in
for seven, eight, ten years or more.
Lord Whitty: I am not sure it
is quite as long a contract as seven or eight years but this is
a problem for farming as a whole that with the rationalisation
of processes and the need for farmers to collaborate in terms
of delivering their goods, then they should be delivering that
into a much more stable market situation and not simply shifting
it if you can get a penny more down the road. There is a problem
over the psychology of farmers of this and some of the supply
of traditional materials into the biomass projects have shown
that they have not always been able to rely on the supply if there
is a shortage, for example, of straw for fodder. I think the farming
sector as a whole is now recognising and working to more stable
contractual arrangements. That is very much part of the Sir Don
Curry agenda and this would fit in with that.
Q273 Mrs Shephard: Could I just say
the fact that farmers sometimes need more straw in certain years
than in others is because of vagaries in the weather. If we look
at what has happened in the past few years, particularly in Europe,
there is a terrific problem for farmers in being able to forecast
that sort of variation in the economic demands for their product.
I think that ought to be built into the considerations in a Department
like Defra.
Lord Whitty: Nobody is saying
that farmers should put all their eggs in one basket. We are talking
about 10% of land, possibly a slightly higher proportion in the
eastern counties.
Q274 Mrs Shephard: If some baskets
become worthless farmers will be perforce encouraged to put their
eggs in fewer of them.
Lord Whitty: This is true and
this is where in a sense the sugar beet sector, with which you
are very familiar, is already based on long-term contracts but
is based on a regime that is unlikely to survive beyond 2008 and
therefore alternative long-term contracts are going to be needed
if we are going to shift at least a higher proportion of the sugar
beet production into provision of fuels.
Mrs Shephard: I am really glad that you
have said that and that you see it.
Q275 Chairman: I think, Lord Whitty,
we have covered most of the ground we wanted to cover. I am conscious
also that because we have run late colleagues have got other things
they need to go to, probably yourself included as a matter of
fact. You have promised us quite a lot of written material—
Lord Whitty: We will do what we
can.
Chairman: —which Mr Perrins has
taken a note of so we look forward to receiving that. We have
the Treasury Minister coming to see us on Wednesday so we will
be able to elaborate this a little bit more. Thank you for coming
and for your customary courtesy and help.
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