Background to the inquiry
1. Biofuels are transport fuels that are produced
from plant material.[1]
Bio-ethanol, mainly made from starch and sugar crops, is used
in petrol engines. Biodiesel, made from plant oils, is used in
diesel engines. Biofuels can be either wholly or partially substituted
for petrol and diesel. Up to five per cent of the volume of petrol
or diesel can be replaced with biofuel without needing any modification
to the vehicle.[2] Petrol
engines need only minor adjustments to work when up to 10% of
the volume of the fuel is replaced by ethanol. Higher proportions
of biofuels in transport fuels require specially designed components
or vehicles designed to use them.[3]
2. Throughout this text we refer to the proportion
of conventional fuel that has been substituted with biofuels as
the level of "inclusion" of biofuels. Inclusion levels
can either refer to the volume of conventional fuel that is replaced
biofuels or to the proportion of the energy of the fuel that is
provided by biofuels. Biofuels contain less energy than the same
volume of conventional fuels, which means, for example, that to
achieve a 5.75% inclusion by energy content would require something
close to 9% inclusion by volume.[4]
3. A number of environmental and economic benefits
are claimed for biofuels. These include reductions in emissions
of the greenhouse gas carbon dioxide of as much as 70%, reduced
reliance on fossil fuels and greater security of fuel supply,
and improvement of the rural economy by stimulation of the markets
for certain crops and by the creation of new jobs in the processing
of the fuels.
4. In order to encourage greater use of biofuels,
the EU has adopted a Directive which requires Member States to
set targets for the substitution of petrol and diesel with biofuels
to be reached by 2005 and 2010 (see section three). [5]
5. Biofuels are more expensive to produce than conventional
transport fuels and evidence suggests that consumers may not be
willing to pay more for them. In recognition of this and of the
reduction in carbon dioxide emissions that biofuels can offer,
in the 2002 Budget the Government announced a 20 pence per litre
(ppl) reduction in the amount of duty payable on biodiesel, compared
with ultra-low sulphur diesel. The cut came into effect on 26
July 2002.
6. In the 2003 Budget the Chancellor announced that
the Government would reduce the duty rate for bioethanol by 20
ppl compared with ultra-low sulphur petrol with effect from 1
January 2005. Despite these actual and pending duty derogations,
domestic production and consumption of biofuels has remained at
very low levels.[6]
7. Because of this, we decided to conduct an inquiry
into alternative uses for crops, focussed on biofuels, which we
announced on 27 February 2003.[7]
The terms of reference for our inquiry were:
"Taking account of the Energy White Paper (Our
energy future - creating a low carbon economy), as well as any
announcements to be made in the Budget, the Committee will consider
crops used for purposes other than for providing food and feed.
In particular it will look at their use as sources of fuel. The
Committee will examine: the extent to which crops are already
grown for alternative uses in the United Kingdom; what benefits
(or costs) would result from expanding their production, and in
particular what contribution the use of biofuels might make to
sustainable development; what should be done to encourage production;
and what examples there are of best practice in other countries
from which we can learn."
8. In response to our invitation to submit written
evidence, we received memoranda from 32 organisations and individuals.
We took oral evidence in July and in September 2003. In addition,
we visited Brazil in connection with this inquiry and several
of our other inquiries, where we met bioethanol industry and government
representatives. We wish to thank all those who gave evidence
or otherwise assisted in our inquiry.
What is the problem?
9. At first glance, the biofuels issue looks straightforward:
biofuels offer advantages over conventional fuels, but the current
level of Government support does not appear to have been enough
to realise those advantages, so a greater level of support would
be desirable. However, a closer analysis of the costs and benefits
is needed before we could recommend such a policy.
10. It is important to clarify what the impacts of
increasing the use of biofuels would be and what strategic policy
goal or goals would be met by doing so. Is the Government's goal
to reduce emissions of greenhouse gases? Is it to boost the rural
economy? Is it to improve fuel security? To what extent is it
possible to achieve more than one of these goals at once? It is
also necessary to consider whether the benefits offered by biofuels
can be more efficiently or cheaply gained by other means. If not,
then what is the best means of increasing the use of biofuels?
11. Underpinning this report is the consideration
of three options: manufacturing biofuels in the UK using domestically
produced feedstocks; manufacturing biofuels in the UK using imported
feedstocks; and using imported biofuels. We also consider what
mechanisms the Government has at its disposal to encourage the
use of biofuels.
12. Decisions about whether or not to increase support
for biofuels, about the way in which any further support is provided,
and about the balance to be struck between importing fuels and
producing them domestically require detailed analysis of their
costs and benefits in economic, social and environmental terms.
As the table below indicates, there are no easy answers: whilst
one option might be most beneficial to the environment it might
not generate the largest number of new jobs in this country.Table
1 Examples of questions raised as part of the decisions to be
made about sourcing biofuels
