Examination of Witnesses (Questions (128-139)
8 MARCH 2006
MR CHRIS
HUNT, MR
MALCOLM WATSON,
MR SIMON
BARNES, MR
PETER STOKES
AND MR
ALEX BRUCE
Q120 Chairman: I want to raise a
point particularly with the PIA. Bluntly, you are at the liquid
end of the market. In paragraph 1.7 of your evidence, there is
a very interesting table in which the carbon dioxide reductions
per hectare of land cultivated for a variety of biocrops indicate
that the use of biofuels gives a poor return in terms of carbon
dioxide saved compared with the use of biomass. I suppose I might
say, if I was the government looking for an easy hit, I have an
eight to one or seven or six to one ratio of saving of carbon.
I might be more interested in encouraging the use of biomass than
of biofuels. How do you respond to the findings of paragraph 1.7?
Mr Hunt: It is very indicative
of the statement we have put out in our response. Firstly, we
fully recognise that road transport has to take its part in the
reduction of CO2 and we are doing so through the RTFO.
On the very simple sums, it is fairly clear that if you take biomass
and use it for the generation of heat or displacing inefficient
power generation, in CO2 terms, you get a far bigger
bang for your buck than transferring that all the way down the
supply chain to biofuel. That is a fact.
Q121 Chairman: What does the SMMT
think of that, because we are all getting terribly excited about
the road transport fuel obligation and yet this table tells us
we perhaps ought to be looking somewhere else?
Mr Barnes: We are in a learning
process here in the development of these fuels, particularly with
reference to second generation biofuels where we know that the
yields can potentially be significantly higher. First generation
plays a role towards second generation biofuels, so we acknowledge
the difference. However, we would not want that to mean that the
opportunity for the industry to move forward in fuel technology
is taken away from it to some extent, if that is not too strong
a way to put it.
Q122 Chairman: Is there a reason
why we have not missed out stage one and gone to the second generation
straight away, because if the returns are so much better why haven't
we gone there now?
Mr Barnes: The cost of developing
that technology is still largely unknown and there is still work
to be done on that. We are talking really about 2010 being an
important time period for when that technology may well come along.
There will always be a role ongoing, we believe, for first generation
within the mix and the strategy. We see this very much as part
of a strategic move to looking at how fuels are used in the road
transport sector, moving forward to 2010, 2015 and ultimately
towards hydrogen.
Q123 Lynne Jones: Mr Hilton told
us that, in terms of first generation fuel production, if you
used waste agricultural products so you had part used for the
biofuel and part for biomass, the implication was that would be
as efficient as using the whole of the agricultural production
for biomass. Would you care to comment on that and also what is
the comparison between second generation biofuels and using the
production just for heat and power?
Mr Barnes: On your first point,
it seems logical if you are harvesting the grain that you then
have the opportunity to use the straw in another way.
Q124 Lynne Jones: If you use the
whole of it, so long as you are using both bits—
Mr Barnes: Exactly. We would fully
recognise that would be a sensible thing to do.
Q125 Lynne Jones: But you would be
for biomass production?
Mr Barnes: Yes. I understand what
you are saying. Growing the right crop in the right context has
to be the start of this process. Moving on to second generation
biofuels, we are talking about potential yields being three or
four times higher, if not more, than first generations. The use
of the whole crop becomes much more pertinent in the biomass to
liquid process and you have the opportunity to do that.
Lynne Jones: Would Mr Hunt care
to comment?
Q126 Chairman: Mr Watson wants to
volunteer.
Mr Watson: On the well-to-wheels
basis that we have used, which is the equivalent of lifecycle
analysis, we have looked at these options. If we take conventional
wheat, we have the possibility of generating it using a variety
of processes. There is a large energy demand in the process. If
you meet that from burning straw, you get up to about 70/75% efficiency.
If you take Brazil at the moment, they get up to about 85% efficiency.
That is on a carbon saving basis. Those are both first generation
processes and these would be the best examples. If you go to second
generation processes, we are talking of 95%. You go that little
further because you save a bit more carbon, which is the aim of
this exercise. The second generation processes also give you a
better yield per hectare so they have two advantages: more yield
in terms of per hectare of land and also a bigger carbon saving,
but they still do not quite manage the huge amount you get from
power generation, as we have indicated in our paper.
Q127 Lynne Jones: It is a huge amount
so why not just concentrate on the biomass, the power and heat?
Mr Watson: That is a choice for
the government; it is not a choice for us.
Q128 James Duddridge: This is a question
to the Petroleum Industry Association. In the evidence you refer
to the oil industry as still being relatively low cost. Given
the volatility of the main oil producing regions and pricing of
environmental costs of use of carbon and so on, is it realistic
to consider oil as low cost as far out as 2030 compared to other
renewables?
Mr Hunt: On the studies that have
been conducted—I refer to one particular study carried out
by Concawe which is, if you like, an oil industry research body
together with the European Union and the motor manufacturers—they
have looked at a well-to-wheels basis on all the options. Without
doubt, you find that whichever way you go in terms of absolute
cost of CO2 abated biofuels have a cost and will have
a cost for a consumer compared to fossil fuels. Fossil fuels are
available and they will be available well up to 2030 and beyond.
They are manageable; people are used to them. The supply infrastructure
is there. The refining infrastructure is there. Therefore, I guess
it is the game in town to beat. On that strand, anything we do
on a bio content in some way, shape or form will be a cost to
society on a well-to-wheels basis. Having said that, that should
not stop you from doing it, but we have to recognise that cost.
Your second question was about security of supply, I believe,
on fossil fuels versus other alternatives. Even if we took the
last 30 years or more the very worst global crises we have had
within the region and outside—particularly if we took the
Iran/Iraq war, for example—the downturn in production from
that for a fairly short time was 8%. Therefore, if we applied
that to the current UK strategic stockholding obligation, if nothing
else happened, those stocks would last the UK something like 36
months. The disruptions that have happened, if you look back at
the actuality of the situation, have been fairly modest. Furthermore,
if we took UK refining as an asset, something that we should use
to give us the ability to flex and generate our road transport
and other fuel needs from a variety of sources, there are probably
something like 27 different sources of crude oil around the world.
We compare that to where some of our biomass might be coming from.
We probably have more options open on crude oil supply than on
biomass necessarily.
Q129 James Duddridge: My analysis
might be simple. Forgive me if it is and correct me. Demand over
time, if we assume that that is static for energy usage and take
almost fossil fuels and renewables as two products, if they are
two competing products in a market economy, there will be a point
as fossil fuels diminish in volume at which there is a cross over
if you graph it out in terms of price, the renewables being better
value for money. Have you a view on when that supply and demand
graph date is projecting out?
Mr Hunt: On the supply perspective
for fossil fuels, we are not going to run out. It is as simple
as that. We have reserves now of conventional fossil fuels. There
are heavy tar sands and various others that will eke us out well
into the future.
Q130 James Duddridge: It is an absolutely
limited resource so even if we are talking 200 or 2,000 years
presumably there is a number of years?
Mr Hunt: At some point. I do not
have a precise figure for that but it will certainly see me out.
That is for sure.
Q131 James Duddridge: I was worried
about beyond that and beyond everyone.
Mr Hunt: You are then looking
at the development of the alternative fuels that are coming on
behind which will be the use and application of things like hydrogen
and where we generate that from renewable sources. The message
was the imperative to move towards a lower carbon economy is not
because you are going to run out of oil; it should be for the
right, considered reasons going forward.
Q132 Chairman: Everybody keeps talking
about hydrogen. Mr Barnes dropped it in as a little sweetener
to his initial opening comments. How realistic is hydrogen transport?
If I look towards our two motor manufacturers as part of your
delegation, how far away are you from having a car available to
the European customer that runs on hydrogen?
Mr Stokes: You have to acknowledge
that there are two routes for hydrogen. One is in a conventional
internal combustion engine and one is the much vaunted fuel cell.
I think it is fair to say the fuel cell has been a perpetual 10
or 20 years away for as long as I can remember.
Q133 Chairman: It is a bit like the
TB vaccine.
Mr Stokes: Exactly. That technology,
depending on who you talk to, some people feel is further along
the curve. Some people feel it is further back. It still seems
to remain around the 20 year mark but an awful lot of work is
going on there. In terms of the internal combustion engine, some
manufacturers are looking at that and I believe there is a hydrogen
filling point being set up in London somewhere so that a manufacturer
can bring product in that will run on that. There are two developments
but that is not renewable hydrogen; that is conventional hydrogen.
Q134 Chairman: How near are we to
having a vehicle that can run on it? It is all right having a
filling point but I do not think you will have very many customers
in the United Kingdom because, unlike California, I have not been
made aware that there is a fleet of cars knocking about. Maybe
Mr Bruce is going to shock us and tell us there are some.
Mr Bruce: We do already have vehicles
available running on fuel cells. The issue is more in relation
to the range of the vehicle, the durability of the fuel cell and
the cost of producing the fuel cell on a commercial basis.
Q135 Chairman: You are saying that
hydrogen at the moment is more likely to be a fuel cell alternative
than using hydrogen as a feedstock directly as a point of combustion,
for argument's sake?
Mr Bruce: Different companies
are pursuing both options. From General Motors' perspective, we
are investing heavily in fuel cell technology specifically and
looking to try and address those specific issues related to the
cost of production of the fuel cell on a commercial basis, the
range and storage of the hydrogen on board the vehicle. Those
are the main issues that need to be addressed in order to make
it commercial.
Q136 Chairman: To put what we are
doing into perspective, our previous two witnesses made it very
clear that if a biofuels industry was to become viable they would
have to have an element of certainty with reference to the investments
that would have to be made. What kind of a timescale—I appreciate
you cannot be exact to any one year—are we talking about?
Are we talking 5, 10, 15 years? You said it is always 10 years
away but in terms of hydrogen powered vehicles is it always that
speck of light away in the distance so we do not need to worry
about it or is it getting nearer so that we can say, "Yes,
we could well see some vehicles for sale in, say, 10 years' time"?
Mr Bruce: You could well see vehicles
in that time frame but whether they will be affordable for everybody
is going to be the big question. That is the fundamental issue
in relation to hydrogen fuel cells, being able to produce them
for the mass market on a commercially viable scale. That is really
what we are grappling with in relation to fuel cells. For the
foreseeable future, 10 or 15 years, you will see continued demand
for biofuels both first and second generation.
Q137 Mr Williams: If the RTFO target
of 5% by volume of inclusion of biofuels was achieved by 2010
it would be equivalent to a reduction of one million tonnes of
carbon dioxide or taking a million cars off the road, but as the
inclusion rate at the moment is only 0.3% do you think it is going
to be in any way achievable?
Mr Hunt: UKPIA and its members
are and will be committed by our government by an obligation to
move towards that, from the work that we have been doing as UKPIA,
the involvement we have in the RTFO committees, working with biofuel
producers. For example, the indicative figures that we are hearing
in those meetings, if we took biodiesel as an example, are that
something like a 3% availability of total UK demand in 2008-09,
rising to 4% in 2010. For ethanol you have sources like Brazil
outside of the country. From a UKPIA point of view, what we need
to make fairly substantial investments in bringing these fuels
to market, always being very mindful of the imperative for quality
and maintaining that quality—I am sure my colleagues in
the vehicle industry will back me up on that—is a workable
scheme and a well thought through process. Biodiesel will probably
be easier to bring to market but we still need investment in tanks
and necessary equipment at refineries and other points to do that.
Ethanol is somewhat of a different animal. That will require a
far more significant investment because you can only effectively
blend that product in with standard petrol at the terminal, very
near to the consumer. You need investment in tankage, blending
equipment et cetera at those terminals and further down the chain
there are issue in terms of the service station itself. Ethanol
does pick up water. It tends to pick up dirt as well and the experience
in Germany has said we have a fair bit of work to do to ensure
that the service station is geared for receipt of that product.
That gives us some things to think about over time. Of the 10,000
service stations in the UK, oil companies own and operate about
2,500. There are 5,000 independent service stations that need
help in getting towards that so the investment cycle for ethanol
is going to be longer than that for biodiesel which is why we
have said in our responses to the Treasury in particular that
the interim target should be set as achievable. Otherwise, the
consumer will be paying a penalty for a CO2 reduction
which is not being made.
Q138 Mr Williams: Are you saying
as the rate of inclusion increases so the investment by retailers
at the petrol pump in the higher quality storage and distribution
will increase?
Mr Hunt: No. What I am saying
is it is the speed at which you can make the investment. For example,
if you take the investment we need to do on ethanol at major terminals
around the UK, you can imagine the sorts of discussions we are
going to have on planning permission following Buncefield, about
putting in additional tankage for highly volatile products. It
is a question of availability of the product and the infrastructure
to take it. They are the only limiting factors really. It is not
a lack of will.
Q139 Mr Williams: Would the motor
manufacturers like to comment on whether the target will be reached
or not by 2010?
Mr Barnes: Last year we had 0.3%
of biofuels content in the UK. We are manufacturing cars now to
a 5% standard, so towards 5% that is not an issue. The car parc
today can run on that percentage of fuels. Going beyond 5%, we
certainly need the European CEN standard on fuel to be established
as soon as possible to enable us to start manufacturing towards
that higher percentage. The introduction beyond 5% also raises
some slightly different issues at the point of dispensing and
potentially with informing the public that there will be vehicles
that will run on 5% and on 10%. Up to 5%, fine, but beyond that
needs further consideration.
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