Memorandum submitted by British Sugar
plc
INTRODUCTION
British Sugar announced in December 2005 that
it would be going ahead with the construction of a £20 million
bioethanol plant at its sugar factory in Wissington, Norfolk.
This plant, with sugar beet as feedstock, has a capacity to produce
55,000 tonnes p.a. of bioethanol and is now in production. By
the end of 2008 all sugar beet supplied will have been produced
to sustainability standards as set out in the recently revised
Assured Combinable Crop Scheme. Furthermore, current carbon lifecycle
analysis on the feedstock and production process indicates a greenhouse
gas saving in the region of 60% when compared to petrol. In addition,
British Sugar's parent company, ABF, has formed a joint venture
with BP and DuPont to produce a further 330,000 tonnes p.a. of
bioethanol from wheat, with start-up estimated for late 2009.
ABF is a diversified international food, ingredients,
and retail group, and its agriculture group is one of the UK's
largest agribusinesses.
QUESTION 1
What are the possible positive and negative social,
environmental and economic consequences of biofuels? How might
trade-offs between climate benefits and environmental and social
impacts be made? Is there a need to develop a new biofuel strategy
for the UK or EU, to balance the environmental, social, economic
and climate impacts of biofuels?
QUESTION 2
Should biofuels be regulated to minimise the negative
environmental and social impacts, and in what way? How might regulation
fit in with international trade agreements and rules? Should there
be regulation of the entire carbon cycle of biofuels?
In considering the positive and negative impacts
of biofuels, it must be borne in mind that the nascent biofuels
industry in the EU, including the UK, is being developed in response
to two key drivers:
— The need for transport, in particular
road transport, to make a contribution to combating climate change.
At present road transport accounts for about 25% of the UK's CO2
emissions and continues to rise. The ability of the UK to meet
its climate change goals is therefore heavily dependent on progress
being made in the transport sector. There is also a limit to how
much other energy intensive sectors in the economy will be willing
to continue to make their contribution without input from the
transport sector. Currently, biofuels are the only fully commercially
viable option for ensuring some reduction in Greenhouse Gas Emissions
(GHG) from transport.
— The need to contribute to fuel security
in the face of geo-political instability and the approach of "peak
oil". Road transport is almost entirely dependent on fossil
oil which for the most part has to be imported.
In the light of these over-riding imperatives,
as far as environmental and social protection is concerned, British
Sugar believes that the UK Government has approached the development
of its biofuels strategy for the UK in the right way. It has developed
in conjunction with all stakeholders, including the oil and biofuels
industries, the vehicle manufacturers, the academic and NGO communities
a set of carbon and sustainability measures aimed at ensuring
that environmental and social objectives are not frustrated. In
the first instance, reporting on carbon and sustainability (environmental
and social) outcomes will be mandatory. Thereafter, reward under
the Renewable Transport Fuel Obligation will depend on the achievement
of specific outcomes from 2010 for carbon saving and from 2011
for sustainability. This progressive approach is, in principle,
a sensible way forward. In our view there is no need for a new
biofuel strategy for the UK. What the biofuel industry needs is
a period of stability and clear direction for biofuels policy
so that investment can be attracted and plant be constructed that
can deliver the GHG emissions reduction goals agreed by the Government.
On 21 June 2007 the UK Government announced
that:
— "From April 2010 the Government
aims to reward biofuels under the RTFO according to the amount
of carbon they save. This will be subject to compatibility with
EU and WTO requirements and future consultation on the environmental
and economic impacts;
— From April 2011 the Government aims
to reward biofuels under the RTFO only if they meet appropriate
sustainability standards. This will be subject to the same proviso
as above and subject to the development of such standards for
the relevant feedstocks."
As stated above this is a sensible approach,
provided the provisos on compatibility with EU and WTO requirements
can be accommodated. Biofuels and their feedstocks are internationally
traded, so the UK industry needs to be sure that it is not put
at a competitive disadvantage by regulation in the UK outstripping
regulation in the rest of the EU. Ideally, we would prefer to
see international agreement on carbon reduction targets for biofuels
together with agreement on carbon calculation methodologies. If
all biofuels industries do not operate on the same basis, the
UK will be put at a competitive disadvantage. While it is acceptable
that the UK should take a lead on this issue, we should not get
out of line with our major competitors. If feedstocks and finished
products are simply sold in other markets where there is less
regulation, the overall benefit to the planet will be put at risk
while putting UK industry out of business.
The EU Summit in March 2007 made a clear commitment
to a binding target for biofuels use of 10% by 2020. The European
Commission is in the process of drawing up proposals for a Renewable
Energy Directive which we understand will incorporate some element
of carbon and sustainability assurance, based on a Consultation
earlier this year. It is important that the assurance in the Directive
is compatible with what the UK is putting in place, firstly from
a competitive angle and secondly to demonstrate that the whole
EU is taking the issue of carbon saving and sustainability seriously
and not just selected Member States such as the UK.
QUESTION 3
How successful are existing international structures,
such as the Roundtable on Sustainable Palm Oil, at ensuring that
imports of biofuels can be obtained from sustainable sources?
To what extent is it currently possible to identify the provenance
and production standards of imported biofuels?
British Sugar is not in a position to comment
on international structures in the biodiesel sector such as the
RSPO. However, we are members of the Better Sugarcane Initiative,
which has been cited as a possible vehicle for the development
of suitable sustainabilty standards in the sugarcane sector. Progress
to date in the initiative would indicate that such standards will
not be agreed in the short term. It is therefore vital that imports
derived from sugarcane are subject to the same carbon and sustainability
rules that obtain for sugar beet and other bioethanol feedstocks
in the UK. For example, a report by Birdlife International[11]
has indicated the danger of agricultural expansion in the Cerrado
savannah of Brazil with grave consequences for biodiversity. Such
an expansion could come about by unchecked increases in sugar
production either directly or indirectly as other crops/livestock
systems are moved to accommodate sugar production elsewhere.
In addition, the way in which the rules governing
carbon calculation under the RTFO have been drawn up give us concern
that the same standards will not be applied. Our fears arise from
the way in which the so-called "default" values for
carbon intensity have been calculated. The intention is that these
should be sufficiently conservative as to make the fuel chain
provide real numbers rather than relying on defaults. This is
certainly the case as far as the default values for UK sugar beet
and wheat are concerned. However this is not the case for imported
ethanol derived from Brazilian sugarcane where such generous default
values have been given that there would be no requirement for
any supplier from Brazil to give real numbers. This, coupled with
the biodiversity and other consequences of expanded sugar production
in Brazil, could seriously compromise the intention of the RTFO
and should be changed
QUESTION 4
At what stage is biofuels technology? Is there
enough support for the development of biofuel technology? A UN
report found that the climate change benefits of solid biomass
outweigh those of liquid biofuels. Are current policies promoting
the development and deployment of a range of biofuel technologies?
How successful have EU strategies and Directives been in stimulating
biofuel usage?
Biofuels are fuels derived from a variety of
crops and processes which can be used as substitutes for fossil
fuels in the road transport sector. Bioethanol is derived from
a variety of carbohydrate crops such as wheat, maize, and sugar
crops (cane, beet) using proven fermentation and distillation
technology. GHG reduction performance can be enhanced by the intelligent
use of co-products from agriculture and the production process,
and through the development of the manufacturing process itself.
Although current biofuels production processes use proven technology
(sometimes referred to as "first generation") there
are ongoing developments in feedstock and processes that will
reduce costs. In addition, there is widespread development worldwide
to improve the cost-effectiveness and competitiveness of the processes
required to convert cellulosic material such as straw and corn
stover to bioethanol (so-called "second generation"
processes). This would extend the range of feedstock available.
In contrast biomass can be burned in a power station
to produce "renewable electricity", but it should be
remembered that there is a limit to the scale of such production,
and there is a wide range of options for electricity production
(eg coal, nuclear, gas, oil, wind, tidal). As stated earlier,
in the medium term such a range of options does not exist for
road transport fuels, so that biofuels are the only short-to-
medium solution for GHG emissions reduction in the road transport
sector.
The UK Government's support for biofuels is
through a 20p/litre fuel duty rebate and the Renewable Transport
Fuel Obligation (RTFO).The table below sets out the level of obligation
for biofuel inclusion, the duty rebate and the RTFO buy-out price.
The 5% target by volume for 2010-11, is lower than the EU indicative
target (as set out in the Biofuels Directive, 2003) of 5.75% by
energy by 2010 (5% by volume is equivalent to only 3.5% by energy).
This lower target will act as a ceiling to the level of biofuel
inclusion.
The current fiscal incentive in p/litre is as
follows:
|
| | 2008-09
| 2009-10 | 2010-11
|
|
| Biofuel inclusion, by volume | 2.5%
| 3.75% | 5%
|
| Biofuel duty rebate | 20
| 20 | |
| Buy-out price | 15
| 15 | |
| Total incentive | 35
| 35 | 30
|
|
British Sugar believes that the total incentive for 2010-11
is too low, and should remain at the same level as for 2009-10
ie 35p/l. We cannot see any justification for reducing the total
incentive at this stage of such an infant industry when there
is no experience of how the market will work.
In addition, the UK Government should confirm its commitment
to the UK achieving the targets set by the EU Summit in March
2007. In light of the announcement of 21 June 2007 (see above)
the Government should also indicate the route by which it is proposing
to get to the 10% target by 2020. Investors require visibility
well beyond 2010-11.
QUESTION 5
The EU Strategy for Biofuels claims that biofuels "are
a direct substitute for fossil fuels in transport and can readily
be integrated into fuel supply systems". What proportion
of UK domestic transport and energy generation could be fuelled
by UK produced biofuels? Is it possible for biofuels to entirely
replace oil for transport purposes? Is there a role for public
procurement or public transport? Will biofuels improve fuel security?
How secure are biofuel crops from unexpected events such as drought
or disease?
Biofuels can be readily integrated in to the fuel supply
systems. However, the EU Strategy for Biofuels and the biofuel
industry never intended for biofuels to be a total replacement
for fossil fuels. The EU Renewable Energy Directive to be published
by December 2007 is likely to include the binding 10% (by energy)
biofuel inclusion target by 2020 based on availability of sustainable
biofuel with satisfactory carbon savings. This is likely to be
reached through a combination of locally produced and imported
products as indicated in the EU Biofuels Progress Report published
earlier this year.
(Note that biofuels are not used in energy (ie power) generation,
see answer to Q4 above.)
British Sugar is the first producer of bioethanol in the
UK, using feedstock arising from the reform of the EU Sugar regime
which previously would have been exported. The aim of the cessation
of exports was to help maintain world prices that would support
countries outside the EU. Biofuels will provide more diversity
for the source of supply for road transport fuels.
QUESTION 6
What impact would an expansion of UK production of biofuels
have on the ability of the UK to produce its own food? How might
this impact on greenhouse gas emissions from international trade
patterns? What impact might the expansion of biofuels have on
international food security and prices?
QUESTION 7
How might farm viability in both developed and developing countries
change with an expansion of biofuels? What implications are there
for poverty in developing countries? Should we be concerned about
large monopolies forming on the biofuel sector?
The UK has historically had a surplus of wheat which can
in the future be used for bioethanol production. It should also
be noted that milling wheat, used in bread making, is not used
when manufacturing bioethanol. British Sugar recognizes the recent
increase in the price of wheat worldwide as a result of historically
low stock levels. However, this is caused first by poor harvests
over the last two years and secondly by the rising wheat consumption
in Asia. European bioethanol production has had a minimal effect
on wheat prices to date, as such a small proportion is used for
biofuel. For example in 2006 bioethanol production in the EU used
1.4% of the EU total cereal crop.
In addition the EU has just announced its intention to set
the 2008-09 set-aside requirement at zero, so encouraging European
set-aside land to be used to grow crops next year. The European
Commission estimates that an additional 10-17 million tonnes of
grain will be produced in 2008/09 because of this policy change.
This will clearly help reduce cereal prices.
Biofuels can help support the rural economy in developed
countries as direct intervention/support is reduced, and provide
sustainable development opportunities in developing countries.
1 October 2007
11
12th Report of Session 2003-04, Reform of the Sugar Regime, HC
550-II, Ev 76. Back
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