House of Commons - Environmental Audit

Select Committee on Environmental Audit First Report

3 The biofuel rationale

65. The primary stated aim of the Government's support for road transport biofuels is climate change mitigation. However, as we outline above, there are significant environmental risks associated with the large-scale utilisation of first generation biofuels as a source of road transport fuel. In developing the UK Biomass Strategy, the Department of Trade and Industry published an Economic analysis of biomass energy. It concluded that first generation transport biofuels are the least cost-effective way to lower GHG from UK-grown biomass, with all other uses of biomass being more effective.

Table 3: Cost effectiveness of energy from a range of UK biomass (excluding from waste)

Application Biomass type Fossil fuel displaced CO2 abatement cost (£/tCO2)

Medium industrial/commercial boilers Chip Oil -5

Small commercial boilers Chip Gas 36

District heat/CHP Chip Oil 52

10% co-firing with miscanthus on existing coal power plant Miscanthus Gas 111

10% co-firing with SRC on existing coal power plant Short rotation coppice Gas 128

Biodiesel Waste cooking oil, rape seed Diesel 137

Bioethanol Wheat Petrol 152

Source: Department for Trade and Industry, UK Biomass Strategy 2007, Working Paper 1 - Economic analysis of biomass energy

66. As identified earlier, there are a range of other subsidies associated with biofuels, increasing abatement costs and reducing cost-effectiveness further. This bleak picture is balanced somewhat by a report published in January 2008 by the Royal Society, Sustainable biofuels. Focusing on ability to reduce emissions rather than cost-effectiveness of emission reduction, it pointed out that biofuel GHG emissions per unit of energy are highly dependent upon a range of factors such as the yield of feedstock and which fossil fuel is being displaced. When these wider issues are taken into account it argues that one cannot claim that biomass always provides greater GHG emission reductions than biofuels. It concluded that:

Although on a greenhouse gas reduction basis the most immediately effective use of plant material, in terms of conversion efficiency is to generate heat, this is not always true when comparing combustion for electricity with conversion to biofuels. There are real opportunities to develop biofuels that can deliver substantial greenhouse gas savings.[81]

67. Current UK and EU policy fails to ensure the most efficient use of bioenergy in terms of the greenhouse gas mitigation potential of the land on which it is grown. It does not deliver good value for the taxpayer. The Common Agricultural Policy should be adjusted to ensure that bioenergy feedstock production no longer receives agricultural subsidies where it fails to constitute the most effective use of sustainable bioenergy resources.

BIOFUELS VS WIDER POLICIES

68. A cost-effectiveness comparison between a range of GHG emission reduction policies was conducted in the Government's Climate Change Programme Review (Table 4). In comparing the RTFO with other forms of GHG emission reduction policies, the Review concluded that only three other policies were less cost-effective: the Voluntary Agreements package; the future voluntary agreement with car manufacturers; and subsidies for biomass. Revised figures published in the explanatory memorandum that accompanied the Order, makes the RTFO the second least cost-effective policy behind the Voluntary Agreements package.

Table 4: Cost-effectiveness of policies in the Climate Change Programme Review

Biomass-related policies Cost effectiveness (£/tC)

Woodland Grants Scheme 50

Subsidy for biomass heat -140

Transport-related policies

Fuel Duty Escalator 250

RTFO (as given in CCP Review)
Revised RTFO estimates in explanatory memorandum
-135

-320

Voluntary Agreements Package (including reform of company car tax and graduated Vehicle Excise Duty) -365

Other policies

Market Transformation including appliance standards and labelling 570

Better billing and metering 0-170

Renewables Obligation -175

Source: A review by the National Audit Office

NOTES

1 Figures given represent expectations at the time of the Climate Change Programme review and might not be an accurate reflection of current expectations. The revised RTFO estimate is an example of this; the latest figures lowered the carbon savings expected.

2 Positive figures represent a total net benefit over the lifetime of the policy, negative figures represent a total net cost.

69. We asked the Minister, Jim Fitzpatrick MP, whether he was satisfied that biofuels offer good value-for-money. He responded that he believes that the policy is cost-effective, and should be as 'cost-effective as wind farms, for example'.[82] He also argued that there are ancillary benefits to the biofuels policy including 'security of fuel supplies, […] support for British agriculture [and] employment in new technologies in respect of renewables and biofuels'. He told us that 'therefore, there are a range of important reasons why we are supporting biofuels but certainly the question of climate change is the biggest and most important but not exclusive'.[83]

70. The Minister's favourable comparison of the cost-effectiveness of biofuels policy to wind farms would appear to come from analysis conducted for the Energy White Paper. This indeed found that an extension to the RTFO has mid-range costs out to 2020 and is slightly cheaper than onshore wind over that timescale.[84] However it also showed that biofuels are roughly twice as expensive as biomass making them a less effective use of bioenergy resources. This analysis also fails to include the considerable costs associated with agricultural support for biofuel production.

BIOFUELS VS ROAD TRANSPORT POLICIES

71. In 2006 we looked at the challenges associated with reducing emissions from transport. We concluded that the level of effort by the Department for Transport (DfT) in reducing emissions was 'not nearly good enough'.[85] We found that 'in view of the imperative to take bold actions in order to help avert dangerous climate change, the Department should actively encourage modal shift towards lower carbon modes of transport [and take] more decisive action to shift the balance of affordability more in favour of trains, buses and lower carbon cars and lorries'.[86] The latest UN Human Development Report2007/2008 gave a similar critique of Government transport climate change policy. It concluded that a range of measures, not including biofuels, would be required to reduce transport emissions:

Increased taxation on petrol is one demand management mechanism. More broadly, vehicle excise duties could be adjusted, with a steeper graduation to reflect the higher CO2 emissions associated with low fuel-efficiency vehicles, especially sports utility vehicles. The national carbon budget could establish 'carbon pricing' in vehicle taxation as a source of revenue for investment in renewable energy, with vehicle tax registration for all new cars after 2010 graduated to reflect more stringent pricing on CO2 emissions. Rising emissions from transport also reflect weaknesses in the public transport infrastructure and a decline in the cost of private transport relative to public transport.[87]

72. The Government told us that biofuels are not a particularly expensive way to reduce emissions from the transport sector.[88] But we were given evidence that directly contradicts this assertion.

73. In September 2007 the Commission for Integrated Transport (CfIT) published a major review of transport and climate change policies. It said that 'the transport element of the Climate Change Programme… appears to depend heavily on relatively expensive measures to deliver emissions savings', and questioned whether these measures would actually lead to the expected reductions. It pointed out that the figures used by the Government fail to account for carbon emitted during the production of biofuels imported from abroad and therefore potentially overstates the net global reduction of emissions. It suggested that actual reductions would be a third less than those given and that it was 'premature to move towards greater biofuels penetration of the transport fuels market [given the] significant debate about the life-cycle carbon benefits of biofuels, the extent to which greater demand might accelerate deforestation […] and crowed out food crops, and about the relative merits of using biofuels for transport as opposed to meeting other energy needs'. It argued that further work is required to resolve these issues 'before committing to more ambitious policy goals for the use of biofuels'.[89] CfIT concluded that policies focused on behavioural change could be more cost effective and help to lock in the benefits of any technological advances. It said:

There is therefore a case for identifying measures that can deliver greater and more cost-effective ways of reducing transport carbon emissions. We believe that the case is even stronger, given that there are challenges facing the delivery of carbon abatement opportunities in other sectors and the strengthening scientific evidence pointing to the need for larger carbon reductions to be delivered more quickly than currently anticipated in the Government's approach.[90]

74. Evidence that we received for this inquiry also indicated that biofuels have received disproportionate and inappropriate attention and funding in comparison to other transport policies. The RSPB argued that a range of other transport mechanisms should be prioritised over biofuels as they have potentially greater GHG savings with smaller environmental risk.[91] It pointed out that the hoped-for 1 million tonnes of CO₂ saved by the RTFO was relatively small compared to what could be delivered using alternative methods. For example, 'an equal amount of savings could be gained through enforcing the 70mph speed limit on motorways, whilst increasing the average vehicle efficiency to 100g CO₂/km would save 2.4 [million] tonnes of CO2'.[92] It also said that road transport emissions could be 'reduced by 14% from 1990 levels through a combination of vehicle efficiency savings, eco-driving, changes in travel behaviour, efficiencies in freight transport, and including aviation in the European Emissions Trading Scheme'. On this basis they did not feel that the argument that biofuels have an important role to play in reducing emissions was valid.[93] From the perspective of fuel consumers biofuels also represent a poor deal as biofuels are far more expensive than conventional fuels. Even when oil prices are high, biofuels are estimated to be 25 to 65 % more expensive than fossil fuels.[94]

75. The Royal Society argued that there is a role for biofuels, as emissions from the transport sector are rising rapidly and that these emissions are difficult to deal with due in part to increased demand and a lack of mature technologies available to reduce carbon from transport. It states that 'with suitable targeted [biofuel] policy interventions, energy supply in the transport sector could become more diverse, while also reducing greenhouse gas emissions… Biofuels have a limited, but potentially useful, ability to replace fossil fuels, largely due to technical and economic constraints'. However, they are critical of the policy arrangements for biofuels and low-carbon fuels in general due to:

the short-term nature of the policy which will 'encourage the import of fuels from abroad and the domestic production of crops and fuels with low CO₂-equivalent savings';
the failure of policy to recognise that low carbon technologies at earlier phases of development require more support, and that therefore investment will flow to established technologies;
the lack of wider carbon pricing; and
the current approach does not clearly lead to wider environmental co-benefits, such as better flood management or carbon sequestration.[95]

76. The Royal Society recommended that other transport measures outside of the RTFO would be required to bring down emissions, and that the RTFO should be redefined to become a Low Carbon Transport Fuel Obligation taking into account the need to address the above points.[96]

77. Part 1 of the King Review of Low-Carbon Cars found that biofuels are likely to have a significant role to play but that their use 'must not be expanded ahead of advances in technology and the development of robust safeguards to minimise their environmental and social impacts'.[97] It argued that future biofuel technology has the potential to deliver GHG emission reductions without the environmental risks associated with current technologies. The next stage of the King Review will detail how an appropriate low-carbon vehicle policy framework should be developed to cost-effectively reduce emissions. It will aim to encourage emission reductions across the life cycle of all fuels.[98]

78. Transport biofuels have received disproportionate attention and funding in comparison to other policies which could reduce greenhouse gas emissions at lower environmental risk and lower cost. The focus on biofuels is an example of silo policy-making as the Department for Transport has failed to ensure that the policy fits rationally with cross-Government action on climate change.

79. Support for biofuels has been premature given the substantial environmental risks associated with current technologies. Second generation biofuels might have a role to play in reducing emissions from transport at some point in the future. In the meantime other transport measures are required. Indeed, these wider measures can deliver significant and cost-effective GHG savings without the environmental risk of first generation biofuels. They could lower UK transport emissions by 14% in 2020 from 1990 levels.

80. In order to stimulate the development of second generation biofuels and other low carbon fuels we recommend that the RTFO is reformed exclusively to stimulate the development and use of low carbon fuel technologies, rather than to simply encourage the use of conventional biofuels. As part of this:

81. certificates should be granted on a highly differentiated carbon-saving basis to encourage the development and use of those technologies that deliver the most greenhouse gas emission reductions from the start of the scheme; and

82. long-term market stability must be granted to give the confidence required to stimulate the development of effective technologies — referential tax status should be guaranteed at an appropriate level out to 2020.

83. These changes, alongside robust sustainability standards, should ensure that support is no longer provided for the production of damaging first generation biofuels. Even with these changes it is not clear to us that current level of expenditure on alternative fuels is justified in light of our assessment that the money could more effectively reduce emissions elsewhere. Therefore we call on the Committee on Climate Change to report at the earliest opportunity on how more appropriately to stimulate the development and use of low-carbon fuels, taking into account the risks presented in this report.

84. The 2007 Comprehensive Spending Review set out new Public Service Agreements (PSA) to identify 'the key priority outcomes the Government wants to achieve in the next spending period'.[99] PSA 28, DEFRA argues, is the first time that there is a shared responsibility across Government to secure a healthy natural environment for today and the future. Progress on the PSA is measured using a number of indicators:

Indicator 1: Water quality as measured by parameters assessed by Environment Agency river water quality monitoring programmes.

Indicator 2: Biodiversity as indicated by changes in wild breeding bird populations in England, as a proxy for the health of wider biodiversity.

Indicator 3: Air quality - meeting the Air Quality Strategy objectives for eight air pollutants as illustrated by trends in measurements of two of the more important pollutants which affect public health: particles and nitrogen dioxide.

Indicator 4: Marine health - clean, healthy, safe, productive and biologically diverse oceans and seas as indicated by proxy measurements of fish stocks, sea pollution and plankton status.

Indicator 5: Land management - the contribution of agricultural land management to the natural environment as measured by the positive and negative impacts of farming.[100]

85. The DfT is listed as a formal delivery partner of the PSA. The Department will ensure that it 'improves the environmental performance of transport, taking into account impacts on land, water, biodiversity, air and the marine environment'.[101] The evidence that we have received for this inquiry has indicated that biofuel policy is likely to have a negative impact on at least four of the five PSA indicators (1, 2, 4, & 5). The responsibility given to the Department for Transport to consider transport's wider environmental impacts as part of Public Service Agreement 28 is very welcome but current biofuels policy is at odds with the Public Service Agreement and will jeopardise the Government's stated aim to 'secure a healthy natural environment for today and the future'. We call on the Department for Transport to reassess the policy in light of the new PSA.

Rural support

86. The Minister, Jim Fitzpatrick MP, told us that climate change mitigation was not the sole rationale for biofuels policy. He argued that biofuels can also be used to improve the economic situation of the rural economy through an increase in agricultural commodity prices, more diverse markets for commodities and potentially an increase in employment opportunities.[102] Professor Roland Clift thought that this is the primary motivation for a biofuels policy in many EU countries. His argument is supported by the existence of import tariffs and quotas which in many cases are enough to keep cheaper foreign imports from the domestic market.[103] The EU Trade Commissioner, Peter Mandelson, has argued that import tariffs should be removed so that the most efficient biofuels, from both an environmental and cost-effective perspective, could be imported, but there is likely to be resistance from certain EU countries to this.[104]^,[105] Indeed, there is significant pressure to increase trade barriers as a result of US subsidies.

87. Since 2004 a US subsidy to stimulate the use of biodiesel has granted 1 cent for every percent of biodiesel blended into regular diesel. This means that biofuel shipments to the EU often stop off in the US where typically 0.1% of diesel is added to take advantage of the subsidy. This arrangement means that many EU producers are being undercut. It also adds a further incentive to produce biofuels in the tropics as well as increasing the greenhouse gases emitted in their transport to the EU. We were told that the Government had expressed concern to the European Commission about the US subsidy, and that the Commission was considering the introduction of a duty to limit such imports.[106]

88. Increased agricultural commodity prices and biofuel support mechanisms will benefit the rural economy. However current agricultural support for biofuels is inappropriate as these mechanisms do not guarantee that bioenergy is produced sustainably. By failing to move away from supporting conventional high input crops the EU is missing a significant opportunity to make overall land management more sustainable while ensuring that bioenergy potential is maximised.

89. Reforms of agricultural subsidies and support mechanisms to focus only on technologies that are the most effective at cutting greenhouse gas emissions in a sustainable fashion will benefit the rural economy and be better value-for-money for the taxpayer. Arbitrary trade barriers to international bioenergy markets must ultimately be removed, although international regulatory improvements must be in place to ensure sustainable supplies.

Fuel security

90. The Minister, Jim Fitzpatrick MP, told us that biofuel policy also contributes to fuel security objectives.[107] Witnesses from the biofuels industry argued that although the role biofuels can play in improving fuel security should not be overstated, the fuel security benefits are justified as 'any contribution will be beneficial even at a relatively small level'.[108] The National Farmers Union (NFU) told us that:

… the UK [has] a chance to establish an indigenous industry that will relieve dependence on imported transport fuels, albeit to a limited extent. Furthermore, as the global industry develops, the UK will have an increasing number of potential trade partners from whom to source imported biofuels. The opportunity to diversify supply sources and thereby spread supply risk undoubtedly increases the UK's fuel security.[109]

91. However, this issue is more complicated than simply assuming that producing a litre of biofuel means that we have to find one less litre of fossil fuel. This is because most conventional biofuels depend on oil or other fossil fuels for their production. Fossil fuels are used to fuel the machinery to farm and then to process biofuel feedstocks, and are also used to make fertilisers and pesticides. When a country can use domestic sources of energy and other inputs to produce biofuels fuel security might indeed improve, but this is unlikely in the UK where trends point to increasing imports of energy. An OECD report argued that due to these factors, biofuels were 'unlikely to become the solution to rising crude-oil prices'.[110] The argument that biofuels will improve fuel security is further weakened as a large proportion of biofuels will have to be imported into the UK and EU.[111] Friends of the Earth argued that a better way to improve fuel security would simply be to improve fuel efficiency.[112]

92. In our view first generation biofuels will not improve fuel security in the EU. Second generation biofuels might have a role to play in the longer-term, but road transport fuel security is only likely to improve significantly when non-oil technologies become available. If transport fuel security is a major concern, measures other than biofuel use should be adopted.

Policy coordination

93. Our recent report on the Structure of Government and the Challenge of Climate Change found that policy coordination on climate change is inadequate and confused.[113] We argued that this was having a negative impact on our ability to reduce greenhouse gas emissions. Biofuels policy is a clear example of failure to co-ordinate climate change policy. As we recommended in the Structure of Government report, a long-term climate change policy framework should be developed to eliminate misguided or harmful policies, such as current biofuels policy, and to ensure that emissions are reduced in an effective and efficient manner across the whole economy.

94. This report demonstrates there may be potentially damaging environmental impacts associated with measures to reduce greenhouse gas emissions. It is vital that the Committee on Climate Change has and exercises a remit on sustainable development.

81 Royal Society, Sustainable biofuels: prospects and challenges, January 2008 Back

82 Q148 Back

83 Q148 Back

84 Department for Trade and Industry, Meeting the energy challenge; A White Paper on Energy, Cm 7124, May 2007 Back

85 Environmental Audit Committee, Ninth Report of Session 2005-06, Reducing Carbon Emissions from Transport, HC 981 Back

86 ibid Back

87 United Nations Development Programme, Human Development Report 2007/2008, Fighting climate change: Human solidarity in a divide world, 2007 Back

88 Q156 Back

89 Commission for Integrated Transport, Transport and Climate Change, 2007 Back

90 ibid p52 Back

91 written rspb memo Back

92 ibid Back