Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 94 - 99)

TUESDAY 20 NOVEMBER 2007

MR PETER KENDALL, MR GUY GAGEN, MR GREG ARCHER AND MS JESSICA CHALMERS

  Q94  Chairman: Good morning and welcome to you. I think most of you heard the previous evidence and we very much appreciate your coming in to give evidence. Would you like to say, and I will skip the formalities, what you think the main drivers of the biofuel industry in the UK are and what role the Renewable Transport Fuels Obligation is now going to play.

  Mr Archer: Good morning and thank you very much for inviting us. The main drivers for biofuels in the UK are clearly climate policy, and I think the Government has made that clear in repeated announcements, and I think in the way in which it has designed the RTFO, it has made clear that the primary objective is to bring about greenhouse gas savings in a sustainable manner. There are other benefits in terms of rural development and in terms of modest benefits in security of supply, but the UK Government in its RTFO and the way it has designed that and in the way that it is negotiating in Europe to encourage a sustainable biofuels market in the EU is putting climate policy above all other considerations, and I think that is a fair reflection of what they have done.

  Mr Kendall: I would say exactly the same actually. It is remarkable as you travel around the world the different drivers you see and certainly, if I was talking to European farming colleagues of mine, the rural development would pay a higher percentage, but certainly the drivers within the UK and the ones we would support are trying to make sure these are greenhouse-gas-sustainable and it is why we, as the NFU, have been so keen to make sure that we do not get seduced by an American-style biofuel rush and that we make sure that we get it in a sustainable and pragmatic way.

  Chairman: That is a very interesting point, and I am glad you have made that point for us.

  Q95  Mark Lazarowicz: To what extent do the reporting requirements envisaged in the RTFO encourage suppliers to obtain biofuels from sustainable sources and how satisfied are you that their reporting on sustainable sources will be accurate, given the difficulties associated with traceability?

  Mr Archer: I think the procedures that we have put in place are really quite robust. The purpose of the scheme is to put into the public domain good-quality information about how those biofuels have been sourced, and targets will be set within the guidance for how much information should be provided along with how much fuel should be sustainable in nature. Companies know that they will need to get their submissions and claims independently audited according to international standards. Therefore, we can be confident that there will be robust information being provided through the reporting process. We also know that there will be rigorous analysis of the claims that companies are making by environmental groups and others who will be checking up in terms of what companies are doing, but these reports will be completely publicly available and the claims which are being made will be transparent, and we have been clear in constructing the guidance that the whole reporting scheme and the validity of the reporting scheme relies upon having robust information. Now, we recognise that it will not be possible for every company to provide this information upon every litre of fuel it provides into the UK market, but what we expect to happen is over the first few years of the scheme more and more information will become available as the supply chains mature and as the companies get more used to providing this type of information from their suppliers. That is built into the guidance with the proposed ramping up of the data capture targets from 50% in the first year up to 90% in the third year of the scheme.

  Q96  Mark Lazarowicz: Is there not a problem in that, as I understand it, the scheme provides that, if a supplier does not have any information about any land-use change associated with its biofuels, then the report will show that there were no emissions from land-use change associated with that particular production? Is that not a drawback of the system because obviously land-use change can have a very big impact, almost the biggest impact of carbon savings associated with biofuel?

  Mr Archer: Land-use change does have a significant impact, but we have to understand that the threshold which is being set or proposed to be set for land-use change is the target that is set in the RSPO guidance which is November 2005. In the first few years of the scheme, it is very unlikely that very much fuel will be produced and supplied into the UK market which has been on land which has been deforested during 2006 and 2007. Therefore, it would be a gross overestimate to assume for any fuel which had been supplied into the UK market that you could not specify from its origin if it had come from deforested land. That would simply be a gross assumption and would gravely overestimate the level of greenhouse gas emissions associated with that biofuel. Now, when we move to a carbon-linked scheme in 2010, as the Government has proposed, I think it will be absolutely essential that that land-use change information is provided and certainly my advice would be that there will have to be a default factor applied in the event that companies cannot say or cannot guarantee that there has been no land-use change, but for the start of the reporting scheme, what we have proposed is a pragmatic and, I believe, reliable approach.

  Mr Kendall: Certainly as UK farmers, we are tied with the restrictions on what we can do with our land, and we do have environmental impact assessments, so we do see this as being very critical once we move down to the further development of biofuels. I think there is a danger that, if we wait for the perfect measurement, we put off the evolution to change the investment and, bearing in mind we do have the RTFO now, we do support the fact that in the early years we had the option for the `no information' category, but also I think we should have some faith in the major retailers who are big purveyors of fuels, but also the major petrochemical companies not wanting to be associated with very negative messages, so they are looking to work very closely with the industry to make sure they can also have strong sustainability claims about what they are retailing.

  Mr Archer: There is one further point which needs to be borne in mind, that we allowed `not known' reporting under this scheme because there was a risk that, if we did not, the scheme would be challenged under Trade Rules because it is much easier for UK and European farmers to provide this information than it is for countries of the south and that could be considered a de facto barrier to trade, and a case could be brought under World Trade Rules against the UK for requiring that. We took a pragmatic solution that we wanted to get this scheme up and running in April 2008 and we did not want it bogged down in WTO legal arguments for years and years and that was the position we took at the start of the scheme. By 2010, the situation, I hope, will be different.

  Q97  Mark Lazarowicz: How high is the risk that suppliers would simply bow out of the scheme, given the difficulties necessarily in sourcing materials which are required to meet the standards?

  Mr Archer: Companies will make their own decisions, but all the evidence that we have heard from the major suppliers into the UK is that they intend to meet the overwhelming proportion of their obligation by supplying biofuels. They are putting in place substantial new infrastructure to handle those biofuels by way of tankage and other things and they simply would not be doing that unless they were gearing up to actually supply the fuel rather than buying out. All of the major companies we have spoken to said that they intend to try and meet their obligations, and there may be a small amount of buying out because they will struggle to meet the full 5% target level, but our expectation is that the overwhelming majority will be met by biofuels and that companies are going to seriously take into account the sustainability of the feedstock they are sourcing. The oil industry has been very heavily engaged in the discussions around how the reporting system will work and very engaged in making sure that their reputations are protected in sourcing these new fuels.

  Ms Chalmers: There are some companies, obligated suppliers, who potentially will over-supply through their target and, therefore, have additional certificates, so it is not necessary for everybody to absolutely meet the 5%. Through supplying themselves, they can actually buy certificates from those who have over-supplied.

  Q98  Dr Turner: One of the most difficult things about sustainability standards for biofuels is guarding against the sort of situation, like sugar cane, for instance, which does not necessarily directly displace rainforest, but it may displace another crop which does result in deforestation and, therefore, with all the environmental downsides. How do you think that we can address those sorts of issues in setting and maintaining standards?

  Mr Archer: I think the displacement issue is potentially a serious one. However, the contribution that biofuels are currently making to deforestation and displacement is really very small. Biofuels represent about 2% of the global palm oil market, they represent substantially less than 1% of the wheat market and about 1% of the oilseed rape market. The drivers and the pressures on land are coming from the growth in feed for animal feedstock and in food, changing diets in India and China, and so forth. This is where the real pressure on land is coming from at the moment. Even by 2010, the estimates are that global production of palm oil will still be 60% for feed, 30% for food and 10% for biofuels, so the contribution of biofuels is becoming more important, but the primary pressure is coming through the feed and feedstock. Now, that is not to say that the issues of displacement should be ignored, but to try to tackle the issues of displacement through the biofuels industry will simply not be effective. What we need to do is to make sure that we have good land management schemes in the countries of the south where there is natural forest which needs protecting, and we need to encourage those countries to protect their forest in the right way. The other thing is that schemes like the RSPO scheme do not work on a plantation-by-plantation basis, they work on a company basis, so, if you are a company that is signed up to RSPO, you have signed up to saying that you will not grow any produce in an area which has been recently deforested, not that you will not produce crops for biofuel. If we can extend schemes like the RSPO, then we are getting greater buy-in from those companies and we will start to reduce the pressures on those sensitive ecosystems. The other point to make is that the OECD recently estimated that there is about 80% more available land than is currently in agricultural production, large areas of Brazil, large areas of Central America and huge tracts in Africa, so there is land which is available for biofuels production. What we need to make sure is that the biofuel production occurs in the right places and is undertaken in the right ways and that is what the sustainability standards are there to do.

  Q99  Dr Turner: So it is perhaps unfair to point the finger of blame, as it has been placed squarely, at biofuels when we should be looking very critically at food and animal food production and applying the same standards there?

  Mr Archer: The principal set of issues at the moment are with food and fuel. The issue with biofuel will grow and it is one which certainly needs to be managed, but the focus on biofuels at the moment in terms of their displacement effects is unrepresentative of the impacts and their contribution to the overall market.

  Mr Kendall: Greg touched a moment ago on the challenges that might be placed on deforestation by WTO, and I think for you, as a European Select Committee, the fact that we still have a WTO agreement which does not have provision for non-trade issues to be addressed, the fourth pillar, as we refer to it, so where welfare and environmental standards cannot be addressed, is one that worries me greatly so that we have a WTO agreement that is not actually looking at being able to prevent movement of product that is causing severe environmental degradation. Your point about the challenges are those of food and animal feed being a challenge going forward, and of course with a global population now of varying estimates, whether it is 6.4 or 6.7 billion today and it is going up to nine or above, of course we are going to have challenges. One of the things I think is very important that we look at is that food will cost more and it will enable us to do it in a better and more sustainable way. One of the things that I think low prices have caused in recent times and also global agricultural policies perforce is lack of production in many countries around the world. I will give you one example, if I may, of the Mexican riots of the summer where they said that this was because of biofuels in the United States and what actually had been happening was the United States' Farm Bill allowing farmers to make a living on $2 corn or $2.50 corn and the American Government made it up and topped it up with another $1.50 to make it $4. Then a surplus was dumped in the Mexican market at about $2/2.50 and when the price went up to $4, because of the drivers in the United States to actually use it, the Mexicans found a sudden increase in price. The challenge was that they could not afford to produce corn for $2.50, and I think you will find they will produce a lot more themselves at $4 a bushel because they can put the infrastructure in place and they are able to make that investment. They have been the subject of global dumping which we in the United Kingdom and the EU have been party to and we have supported the European Union in abolishing export restrictions. We are in favour of that being done away with, I think it is wrong, that we should destroy other people's markets so that actually there is a big, fundamental issue on this about agricultural policy as a whole, but I think you will see that higher prices will enable those countries which have been adversely affected to raise their production and invest in sustainable techniques.

  Mr Archer: My research into those corn riots also shows that it was a dumping of US excess production which caused the problems.


 
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