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Finance Bill

Finance Bill

Column Number: 41

Standing Committee A

Thursday 6 May 2004

(Afternoon)

[Sir John Butterfill in the Chair]

Finance Bill

Clause 10

Bioethanol

Question proposed [this day], That the clause stand part of the Bill.

2.30 pm

Question again proposed.

Mr. Michael Jack (Fylde) (Con): It is a great pleasure to have you as our Chairman this afternoon, Sir John. You are a veteran of many Finance Bill Committees on which I have had the honour and pleasure of sitting and I know that you will guide our proceedings with distinction.

At the cessation of business at 11.25, I was just about to say that, in the context of justifying the 20p level of reduction in duty on biofuels, Ministers have often argued that because some of the agricultural land that is used to produce crops for biofuels, for example set-aside land, receives a £45 a hectare payment, that, together with the benefit conferred by the Treasury by means of the duty reduction, is in some way sufficient to ''kick-start'' the industry. There is a flaw in that argument. Even if it were to stack up statistically—it does not in my judgment—the problem is that the benefit is conferred on the grower of the crop and the argument automatically implies that the grower of the crop will be prepared to receive a reduced price from the processor, who would say, ''You've had your £45 a hectare. This is the number of litres of fuel I will get out of your crop contribution to my feedstock, and therefore this is the lower price.'' That is not quite how things work in the real world of agriculture. If we are talking about a market mechanism determining the price between the seller of the crop and the processor, I do not see how the argument holds water in the real world. The £45 a hectare is insufficient in itself to make up for the deficiency between the figure of 20p and the 30p that is argued for.

The benefit of having a break at luncheon is that if one chooses to devote it not to the consumption of food, but to following up what the Economic Secretary said in reply to an earlier debate, one comes to some interesting conclusions. When my hon. Friend the Member for Chichester (Mr. Tyrie) challenged the Economic Secretary about where other calculations of duty reduction came from, he uttered the magic words, ''pre-Budget report—go seek and find!'' We were told that we would find the arguments laid out in that report, which was published in November 2003, and so I went back to it and found box 7.1, entitled ''Alternative Fuels Framework''. I thought that this

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was going to be the moment of revelation, but when I came to look in the wonderful box on page 155 for the detailed calculations that set out how the figure of 20p came about, I could not find that information. In fact, the page is completely figureless. There is no calculation.

In fairness to the Economic Secretary, who is a good and straightforward man, he was definitely guiding us, so I went back to the document referred to on page 155: ''Tax and the environment: using economic instruments''. I thought that that would give me the answer that I sought. It is 67 pages long so I did my best to skim-read it during the luncheon interval. I found some reference to biofuels, but no reference whatever to a breakdown of the costs or how the figure of 20p came about. I had gone back to 2002, at the direction of the Economic Secretary, but I could not find that information. I put my hand up and admit to my human frailty, but I look to the Economic Secretary for further guidance.

The Economic Secretary to the Treasury (John Healey): The right hon. Gentleman has obviously had a busy lunch hour. I hope that he does not get too hungry during the proceedings this afternoon. Did he by any chance also go back to the January report of the Environment, Food and Rural Affairs Committee, which he chairs? In that report, the Committee published the memorandum that I submitted that gave the detailed costings and calculations—precisely the sums that he is looking for. He will see the information set out there.

Mr. Jack: I happen to have that document with me, but I would be less than correct if I did not admit that I have not completely refreshed myself with every submission. My recollection is that we did not get the breakdown that we wanted. I found another source. The Economic Secretary made a speech on 4 February 2003, which I am sure, with his assiduousness and memory, he will recall with entire clarity. In that speech he let the cat out of the bag about how the figure of 20p was reached, saying that it was down to the quantification of the environmental benefits. I also checked with British Sugar, representatives of which the Economic Secretary has met. It confronted him with the matter and the impression gained was that when the Treasury calculated the environmental benefits, it got a figure slightly below 20p for bioethanol, but decided that it could not give bioethanol a different deal from biodiesel, so it came up with the figure of 20p.

A Department for Transport consultation document verifies that impression to an extent, and again I apologise if I have misunderstood the information that it contained. On page 15, a table gives an indication of the relationship between fuel usage and the value of the carbon that would be saved by using biofuels. If we take the forecast total fuel sales and divide it into the total annual value of carbon saved, we get a figure of 16.4p per litre. On the other hand, if I have misunderstood that and I divide it by the smaller sum that is supposed to be the direct biofuel, I get a much larger number.

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It would be helpful if someone were to explain how the figure of 20p came about. Is 16.4p the right number? Have I calculated it the right way? If I have not, I apologise, but please explain how the figure came about.

In the Economic Secretary's speech of 4 February 2003, in which he listed the agricultural benefits, the potential increase in security of supply, the new industry and all the economic benefits, why did he not go beyond 20p? He stated a large number of benefits.

I have given more than five plus points so far, and I will give the Economic Secretary a sixth. He, being an assiduous man who reads Select Committee proceedings with care, will no doubt be aware from the evidence presented by the Royal Society for the Protection of Birds to the Select Committee during its inquiry into sugar regime reforms that one key environmental gain from sugar beet crops is the pink-footed goose; and he will know that the tops of sugar beet are the main food source for that remarkable bird, which comes from Iceland to the United Kingdom in the cold season to feed. There is considerable value in producing a sugar beet crop as the feedstock for biofuels alongside the other environmental gains that I have listed.

There are other pieces of evidence to suggest that the Economic Secretary could, even at this late stage and perhaps on Report, be bolder than the Treasury wants to be. In the multi-faceted world of biofuels, where we have the Department for Environment, Food and Rural Affairs, the Treasury, the Department of Trade and Industry and the Department for Transport all in there mixing it, it would be helpful if he were to tell us who is in charge of biofuels policy in the United Kingdom.

In clause 128 of the Energy Bill, as before the House on Monday, there is a clause entitled, ''Renewable transport fuel obligation''. Its contents follow the line of argument that I put forward during last year's Finance Bill when we discussed this very area. I pointed out to the Economic Secretary that he could, if he was really bold and imaginative, have his cake and eat it. He could have a UK biofuels policy at zero cost to the taxpayer. I am sure that he has read clause 128 of that Bill, which effectively requires targets to be set about how industry will blend biofuel and existing hydrocarbon fuel to achieve the EU objectives of which I spoke this morning. He will understand that following the Department of Trade and Industry's line and giving statutory weight to clause 128 in that Bill would mean that there would be an obligation on industry to show how it was going to meet the EU requirements by blending biofuels and hydrocarbon fuels targets. The price of that fuel would be the price of the fuel. The same logic would operate for biofuel as for the renewables obligation on electricity.

If the Department of Trade and Industry has, for the time being, accepted clause 128 of the Energy Bill, why are we discussing clause 10 in this Bill as cast? Clause 128 delivers, at no cost to the taxpayer, the policy objective that the Treasury is following, at cost to the

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taxpayer, in clause 10. If the Treasury decided to blend the duties itself, there would be a modest change in the price of fuel. Blending bioethanol and petrol to meet the 2 per cent. target would require a 0.6p per litre increase in the price of fuel, thereby passing on some of the costs to users and enabling people to pay for the environmental gain. However, we do not have that before us. The Economic Secretary is falling back on clause 10 in a way that does not give sufficient inducement to the industry to make the necessary investments in plant and against a background of the Economic Secretary not justifying the situation properly.

Rob Marris (Wolverhampton, South-West) (Lab): I understand the chemical difference between biodiesel and bioethanol, but why is a 20p per litre differential sufficient to stimulate the biodiesel market, which has grown in the two years since the differential was introduced in July 2002, but not the bioethanol one?

Mr. Jack: That is a fair point. I think that those who seek an oilseed rape-based biodiesel business would argue that 20p is, in its own way, insufficient. What the hon. Gentleman has put his finger on is that there is an embryonic biodiesel industry that uses recycled cooking oils, which is what the Motherwell plant, which has been prayed in aid of the Government's stance on stimulating investment in this area, is all about.

We do not use UK oilseed rape as a feedstock; we send surplus stock to the continent to be reprocessed and returned to the United Kingdom as biodiesel. That goes against the DEFRA pamphlet, which says:

    ''The production of biofuels from arable crops would provide a useful new market for rural Britain.''

If we were following the Government's own line, as outlined by DEFRA, we would want to see an increase above the 20p per litre derogation to encourage a rapeseed oil biodiesel industry not solely dependent on leftovers from cooking processes. So, I think that the line being taken between the two fuel sources is consistent.

I remind the Economic Secretary of what page 7, paragraph 4.1 of the Department for Transport consultation exercise says. I quote:

    ''The Energy White Paper . . . identifies liquid biofuels and hydrogen as the most promising candidates for tomorrow's low carbon transport fuels.''

I checked with British Sugar at lunchtime and we have no bioethanol industry or production in this country now, notwithstanding the fact that the industry has known about the 20p derogation for some time. Not a pound has been invested in achieving the Government's objectives. Against that background, I want the Economic Secretary to tell us how industry is supposed to meet the 2 per cent. target that the EU has set on the biofuels directive, never mind the 5.75 per cent. one.

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2.45 pm

The note from the Department for Transport goes on to say:

    ''Biofuels also have the advantage that, unlike other potential future low-carbon transport fuels such as hydrogen, they can be used as direct substitutes for conventional fuels without the need for new vehicles or refuelling infrastructures.''

Biofuels are clearly a very good buy, which the Government should be encouraging with all their enthusiasm.

This is where the policy stance falls down, however. The Treasury seems to have made its mind up about the approach. Of the DEFRA Ministers, only Lord Whitty thought that 20p was enough, if I recall correctly the evidence that he gave to the Select Committee. On page 14 of the consultation document we have the magic question asked of consultees by the Government:

    ''A key question for this consultation is whether, and if so to what extent, the Government should provide additional support to aid the development of the UK biofuels industry.''

That consultation document is months late. The Department for Transport has asked a question to which the Treasury has already given an answer—''It's 20p and we're not going any further''—but we do not have a bioethanol industry. We have no investment and the industry is saying that it does not have enough money.

The policy is a mess, against a background of the DTI including a clause in the Energy Bill that encourages the development at no cost to the taxpayer of a bioethanol business. Where is that in relation to clause 10? Departments are coming at the problem in four different ways. The Economic Secretary should take the opportunity to explain when we are going to have a coherent policy that will deliver one pound's worth of extra investment in bioethanol.

Throughout all the documents, the environmental, farming, industrial and employment benefits all come shining through. However, at a meeting a year and a quarter ago, the Economic Secretary looked British Sugar in the eye and said, ''Will 20p be sufficient for you to build a bioethanol plant?'' It said no. If he was good enough to listen to the liquefied petroleum gas industry, which has said that it does not mind a reduction in the help it receives, I hope he will do the bioethanol industry the service of listening to it when it argues that 20p is the wrong amount if he wants to pump-prime investment in this country. An amount greater than that is required to trigger our bioethanol industry.

 
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Prepared 6 May 2004