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Renewable Transport Fuels

1 pm

Norman Lamb (North Norfolk) (LD): This is a timely debate; I have even heard a suggestion that the Prime Minister might make some sort of announcement on the issue soon, and I will be interested to hear the Minister's response to what I say. Many of us have been pursuing the issue of renewable transport fuels for a long time—and I am pleased to see that Baroness Shephard has just arrived in the Gallery to hear the debate. She has been active in pursuing the subject, alongside others from across the political divide.

This debate comes at a time when it is clear that the Government's domestic target for reducing carbon emissions—a 20 per cent. reduction by 2010, from a 1990 baseline—will not be met. I understand that we have achieved a reduction of only 4 per cent. so far, so the chances of meeting the domestic target seem low, if not non-existent.

In the transport sector, carbon emissions are actually increasing, when all the emphasis should be on reducing them. There was an 8.8 per cent. increase between 1990 and 2005. Among those of us who have been campaigning for effective action to kick-start a domestic biofuels industry, there is great frustration that so far nothing effective has happened. It is interesting to look back, and soon after I was elected in 2001, I took a delegation of North Norfolk farmers to see Lord Whitty at the Department for Environment, Food and Rural Affairs. At that stage, the subject was very much a minority pursuit. Farmers were starting to talk about biofuels as a possible new income stream, but there were many sceptics—including some on the environmental side.

Since then, there has been growing momentum. Indeed, when one talks to Ministers privately, it is clear that on the Government side there is growing acceptance of the need for action. The frustration is that that has not yet been backed up by anything that will effectively kick-start a biofuels industry.

I was struck by an article in The Observer last Sunday, written by the Prime Minister. He says—this demonstrates the change that has occurred since those early days:

I do not think that he has ever said anything like that before.

Mark Williams (Ceredigion) (LD): Does my hon. Friend acknowledge that there is provision in the Energy Act 2004 for the Minister to introduce a renewable transport fuel obligation? I am sure that my hon. Friend will press the Minister to give some assurance as to the outcome of the feasibility study that the Government are undertaking on the introduction of such an obligation.

Norman Lamb : My hon. Friend pre-empts me; I was going to come to that later. Many of us campaigned for that provision in the 2004 Act, and as my hon. Friend suggests, it is essential that the Minister responds to that idea.
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To complete my quotation, the Prime Minister says that the increased use of biofuels is

Actually, it is already well developed in Europe, too, as I shall explain. He goes on:

That means that it could take away more than one megatonne of carbon emissions. So the Prime Minister is now making the case for biofuels.

I will focus on the renewable transport fuel obligation proposal, which, as my hon. Friend said, was facilitated by the Energy Act 2004. However, first I want to say a word or two about what is happening elsewhere, because there has been some dramatic progress in the United States. In May this year, a fascinating article in The Economist highlighted the progress that has been made elsewhere, and maize-based ethanol production in the United States is increasing each year by 30 per cent. Brazil has long been the world leader; it has produced vast quantities of bioethanol, in particular. China has built the world's largest ethanol plant, so we must think again about our assumptions that that country is a big polluter, as it is looking at how to produce renewable energy. Germany is focusing on biodiesel; it is raising production by 40 to 50 per cent. a year. France's aim is to triple output of biodiesel and bioethanol by 2007. The article then referred to "backward Britain". That is depressing.

Fascinating developments are taking place in the mix of fuel. We have assumed so far that we can have only a low mix of bioethanol, in particular, with ordinary carbon fuels. However, the picture is changing. Europe has a typical 5 per cent. of biodiesel mix but, unbeknown to them, many drivers in the United States are already using a 10 per cent. ethanol mix with standard gasoline—and that can be higher. In both the United States and Canada, public sector vehicles are running on a 20 per cent. mix. In California, 100 per cent. biodiesel is used regularly. Some companies in this country are doing the same, with the limited amount of biodiesel that is already in production. Much work has been done to include additives that make the fuel usable at low temperatures, which has until now been a problem.

In the United States and Brazil, flex-fuel engines have been developed; they allow the use of a high mix of bioethanol—up to 75 per cent.—with petrol. The driver behind the increase in the development of biofuels in the United States has been the price of mineral fuels, although that is still low by our standards.

As we know, the United States Government have not been particularly interested in the imperative of tackling climate change, but the case for action is threefold, the first and most important reason being the imperative of tackling climate change. I quoted the Prime Minister earlier, and I wish to stress that if every private car used 5 per cent. biofuels, it would lead to a reduction in transport sector emissions of 1 megatonne of carbon, That is a substantial contribution to the objective of cutting carbon emissions.

The second case for action concerns fuel security and price. There is a strong argument for breaking the reliance on what are ultimately unstable regions of the world. Over the years, that has had a distorting effect on
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foreign policy. We can argue about the impact of the pursuit of oil in respect of the war in Iraq, but whatever our view on that subject, there is clear evidence that it has distorted foreign policy objectives over the years.

The third objective is to produce a new income stream for rural communities and farmers, in particular. Farmers—certainly in Norfolk, as well as elsewhere in the country—face a massive loss of income as a result of the sugar regime reforms, together with other reforms of the common agricultural policy. We can argue about the extent of the sugar regime reform, but there is a broad consensus that it has to change, and the impact of lost income could be significant for farmers. This provides the potential for a new income stream and a boost to the rural economy. A study commissioned by the East of England Development Agency two or three years ago showed that we could generate about 20,000 new jobs, mostly in rural areas, if we developed a significant biofuels industry.

I have outlined three objectives that the Government can achieve: real impact on climate change, impact on fuel security and a boost for the rural economy. That is win, win, win for the Government and I hope that they will take the chance to achieve those objectives. The great fear of many of us is that if they delay even longer, all we will see is imports of biofuels sucked in from overseas, and a failure to take advantage of the great opportunity that is before us.

Dr. Alan Whitehead (Southampton, Test) (Lab): The hon. Gentleman is making a case that I have fully and strongly supported for a long time. Does he consider that the best way to introduce a renewable fuel obligation would be alongside the present fuel duty reduction provision, rather than as a replacement for it, and also that the biofuel specified in the obligation should be sustainably sourced? Will he join me in welcoming the commitment of the biofuels industry to work alongside producers and non-governmental organisations to achieve the highest standard of sustainability?

Norman Lamb : I have been pre-empted again. Let me take this opportunity to pay tribute to the hon. Member for Southampton, Test (Dr. Whitehead); he has long campaigned for biofuels, and what he has said today is consistent with the case he has been arguing for many years. I agree with the important points that he has made.

What do we need to do now? The Government must make a commitment before the end of the year—perhaps in the pre-Budget report or the report on the climate change review—to introduce a renewable transport fuel obligation, and they must also commit to having that in place by 2007, so that the industry can start to gear up to produce the fuel by the time the commitment is in force.

The European Union biofuels directive which came into force in 2003 sets indicative targets; it gives targets for member states on the percentage of fuel sales coming from biofuels. The indicative target for 2005 was 2 per cent. However, the target that the Government actually committed to was 0.3 per cent.—far below the directive's indicative target. The target in the directive for 2010 is 5.75 per cent. Can we have a commitment,
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alongside the commitment to introduce an obligation, that we will achieve that target by 2010? That will have an impact; it will stimulate investment in plant to produce the amount of biofuels required.

It is also necessary for the Government to give a commitment to keep the obligation in place for a reasonable period. It has been suggested to me that it should be in place until at least 2015, so that there will be certainty that the investment will take place. That would be in line with the electricity renewables obligation already in place.

Will the Government also undertake to increase the target level beyond 2010? We have said that we would like the target of 5.75 per cent.—the indicative target in the directive—to be achieved by 2010, but it is not good enough to leave that as the final objective. With the capacity to adapt engines to take a higher percentage of biofuels, it should be possible to have significantly higher targets for the mix in the years beyond 2010.

To pick up a point made by the hon. Member for Southampton, Test, further work must be done on carbon accreditation, with a certification scheme to prove carbon savings, and on environmental and social standards. That will help to give investor confidence. However, it is also important to give confidence to the wider community that the move towards biofuels will not have adverse consequences. The law of unintended consequences often applies in respect of new legislation and new commitments, and we must make sure that we have the arrangements in place now to avoid those unintended and unattractive consequences.

There is a particular sustainability concern regarding the production of palm oil, with fears of deforestation as well as concerns about labour practices in south-east Asia. That concern must be addressed, and Friends of    the Earth has come forward with sensible recommendations to ensure that the development does not have those adverse impacts. Taking those recommendations on board would seem sensible, to me, in moving to introduce a commitment.

Industry has also repeated its call for enhanced capital allowances. A reply that I received from a Treasury Minister in July showed encouraging indications of a willingness to consider capital allowances, but it also confirmed that no decision had been taken—as appears to be the case with so much else in this connection. Can the Minister indicate whether there has been any move on that front?

Finally, there is the importance of what the hon. Member for Southampton, Test, said about maintaining the duty differential alongside the obligation. We should not just replace one with the other. That would not give the stimulus needed for investment.

Mr. Keith Simpson (Mid-Norfolk) (Con): rose—

Norman Lamb : Just before I finish, Mr. Hood, I see that the hon. Gentleman wants to intervene.

Mr. Simpson : I congratulate the hon. Gentleman on introducing this debate. I did not intervene before because I did not want to eat his sandwiches, so to
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speak—but there is one crucial matter for which I am   sure he will agree the Minister here today is not   responsible. Going back over 10 years, more or less every Government Department but the Treasury has   signed up to this idea. Zero-rating on biofuels is   the crucial question. I am encouraged by the Prime Minister's comments in The Observer; does the hon. Gentleman think that he might perhaps have some influence over the Chancellor?

Norman Lamb : That is indeed the $6 million question. The frustration goes even further than that, for if one talks to Treasury ministers privately, there seems to be a growing acceptance among them as well. It is probably just the Chancellor whom we are pursuing here, and I appreciate the hon. Gentleman's intervention.

The time for action has come; in fact, it is long overdue. Can the Minister respond positively, and say whether the Prime Minister has already spoken today to confirm that that action will be taken?

1.17 pm

The Parliamentary Under-Secretary of State for Transport (Derek Twigg) : I congratulate the hon. Member for North Norfolk (Norman Lamb) on securing the debate today on an important subject, and I thank hon. Members who have taken the time and trouble to attend. I am sure many people are watching the debate, but as the hon. Gentleman will probably guess, there is some focus elsewhere on this particular issue today. We shall see what happens there.

This is an important and timely debate. Climate change is rising up the agenda of Governments around the world. Today, the UK hosts the first meeting under the new Gleneagles dialogue, between the G8 and China, India, Brazil, Mexico and South Africa. That will focus on what is needed to make the transition to a low-carbon economy, and consider how existing and future energy technologies can generate the low-carbon power that the world needs. In the UK we have been   doing precisely that in reviewing our climate change programme—thinking about measures to reduce emissions across the economy, including from transport.

Public interest in the environmental impact of transport has never been higher. Recent events such as the flooding in New Orleans and hurricanes in the gulf of Mexico have raised awareness still further. As we made clear in our White Paper "The Future of Transport" in 2004, the challenge that we face is to balance the increasing demand for travel against the goal of protecting the environment. As a society we are travelling further than we used to, for both work and leisure. Transport-related CO 2 emissions are rising, both in absolute terms and as a percentage of overall emissions. Road transport alone accounts for 20 per cent of the CO 2 emissions in Britain, so it is vital that we promote a shift towards cleaner low-carbon road transport where it is feasible and affordable.

Improving the efficiency of our vehicles, and offering better and more reliable public transport, are important aspects of our strategy. However, renewable transport fuels have a key role to play too. In the longer term, that could mean renewable hydrogen, offering the prospect of zero tailpipe emissions. In the short term at least,
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renewable transport fuels means biofuels. As we have heard, biofuels offer significant carbon savings compared to fossil fuels, and other advantages too—economic opportunities for rural areas, and diversity of energy supply benefits, to mention but two.

There are excellent prospects for technological advances with biofuels too. Today they are made from crops such as wheat and oilseed rape, but tomorrow could see fuels made from the organic parts of our household waste. Biofuels tick so many of the boxes when it comes to finding a greener alternative to petrol and diesel. Among the

advantages, they are potentially easy to source, they work with modern engines and they are potentially carbon-neutral.

We recognise those benefits, and that is why biofuels already enjoy a 20p a litre fuel duty incentive over conventional fuels. This year's Budget announced that the fuel duty differentials of 20p a litre on biodiesel and bioethanol would continue until 2008.

Norman Lamb : Does the Minister accept that the duty differential has not yet given the kick-start needed to get the biofuels industry going in this country?

Derek Twigg : I can understand the hon. Gentleman's enthusiasm and his concern to move things on as quickly as possible. We have made a start, and I hope that the rest of my speech will give him more comfort on that issue.

The differentials are making an important difference to sales. Biofuels are now available at well over 150 sites across the country, and 10 million litres were sold in September alone. We are currently well on track to meet a biofuels sales target of 12 million litres a month by the end of this year, which would account for 0.3 per cent. of overall fuel sales. We are aware that 0.3 per cent. may not seem like a huge amount, but it is important to realise that we are building sales quickly and that we are still at an early stage in the development of a sustainable biofuels industry in Britain.

Sales have risen rapidly since 2004, thanks to the 20p a litre price differential for bioethanol introduced in January. In fact, 12 million litres a month would represent a tenfold increase in sales over 2004. It is also important to understand why we cannot support a much more dramatic increase in biofuel sales over night. There is still a huge variation in carbon savings between the best biofuels and the worst.

There are also questions over the sustainability of supplies, especially, as the hon. Member for North Norfolk mentioned, in view of the threat of deforestation abroad. It is vital that we get the long-term policy right. There is the possibility that vegetable oils can be refined directly with conventional hydrocarbons in major oil refineries, although the process has yet to be proven on a large scale. That could give us cheaper and higher-quality biofuels at lower cost. We are very interested in examining that process, as it could allow a significant shift in the scale of biofuel production. We are about to undertake a pilot project to examine how such a scheme could work. The tendering process is under way, and the Government are expecting the project to begin from 2006, subject to European approval.
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We have also taken advantage of the regional selective assistance grant system to fund the development of a biofuels processing plant in Scotland. The Argent plant in Motherwell benefited from a grant of £1.2 million from the Scottish Executive, and is now up and running, producing high quality biodiesel from a variety of sources, including used cooking oil and tallow.

We have also been looking at capital allowances to support biodiesel production, and have been talking to the industry about the merits of an enhanced capital allowance scheme for the cleanest plants. Of course, we   have also been closely examining the possibility of   introducing a renewable transport fuel obligation, which hon. Members have mentioned. Such an obligation would place a legal obligation on transport fuel suppliers to ensure that a proportion of their road fuel supplies were from renewable energy resources.

As we have heard, an RTFO could have a number of advantages as a policy mechanism. A successful policy would provide certainty for industry by setting out targets over the longer term. It would encourage efficiencies and economies of scale by mainstreaming the market, and it would promote investment in production facilities and advances in technology.

We have been carrying out a detailed study over the past 10 months or so to examine how an obligation in the transport sector might work. The study set out to establish the cost-effectiveness, administrative feasibility and legal acceptability of an obligation. It also examined how concerns over sustainability and carbon savings might be taken into account, to ensure that the right kinds of biofuels are incentivised, and to avoid the promotion of fuels that would, for example, lead to deforestation in areas such as south-east Asia.

We held a series of stakeholder workshops in spring to discuss in detail how such a scheme might operate,   and we have had informal discussions with the European Commission and others about it. We are now considering the findings of the feasibility study in the context of our revised climate change programme, which is due to be published shortly. We have already said that we will set an ambitious and realistic target for biofuels sales in 2010, once the right policy measures have been decided. That should give industry the longer-term certainty that it is asking for, and a clear policy framework to ensure that targets are delivered.

Meanwhile, we continue to build up valuable experience of biofuels through pilot studies and test projects—funded, for example, by our new and    renewable energy research and development programme. The Government Car and Dispatch Agency uses a 5 per cent. biodiesel blend in its London-based delivery fleet. At local government level, many local authorities and police forces are using biofuels. For example, Somerset county council has announced a joint initiative with several partners to introduce fleets of Ford flexi-fuel vehicles. The cars will use a fuel blend containing up to 85 per cent. bioethanol, which will be produced locally from sugar or starch crops such as sugar beet and cereals. Avon and Somerset police and Wessex Water are also committed to using the flexi-fuel vehicles as part of their fleets.

Renewable fuels are high up our list of priorities as we seek to balance the need for mobility against the need to protect the environment. Governments across the world
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increasingly recognise that our reliance on fossil fuels will not last for ever and that we have to find cleaner and better solutions to our transport needs. Every week that passes, we get slightly closer to finding those solutions—solutions that are environmentally friendly, efficient and cost-effective. Among them, biofuels have enormous potential, and the Government remain committed to developing a future transport system in which they can play a significant role.

We want to give biofuels their best chance of succeeding as a major contributor to a greener future. The strategy has to be long-term, with sustainable supplies from the right production facilities. As I said at the beginning, the Government have been considering biofuels in the broader context of our revised climate change programme, which is due to be published shortly, and will set out new measures to take us towards our climate change goals. I sincerely hope that hon. Members will have every reason to welcome the publication of the new programme.

1.27 pm

Sitting suspended.

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