The
Committee consisted of the following
Members:
Chairman:
Mr.
Clive Betts
Ainger,
Nick
(Carmarthen, West and South Pembrokeshire)
(Lab)
Bacon,
Mr. Richard
(South Norfolk)
(Con)
Baker,
Norman
(Lewes) (LD)
Baldry,
Tony
(Banbury) (Con)
Fitzpatrick,
Jim
(Parliamentary Under-Secretary of State for
Transport)
Goodwill,
Mr. Robert
(Scarborough and Whitby)
(Con)
Griffiths,
Nigel
(Edinburgh, South)
(Lab)
Hain,
Mr. Peter
(Neath)
(Lab)
Harris,
Mr. Tom
(Glasgow, South)
(Lab)
Leech,
Mr. John
(Manchester, Withington)
(LD)
Seabeck,
Alison
(Plymouth, Devonport)
(Lab)
Stuart,
Mr. Graham
(Beverley and Holderness)
(Con)
Tami,
Mark
(Alyn and Deeside)
(Lab)
Tipping,
Paddy
(Sherwood)
(Lab)
Wilson,
Mr. Rob
(Reading, East)
(Con)
Wright,
David
(Telford) (Lab)
Adrian
Jenner, Committee Clerk
attended the Committee
The following also
attended (Standing Order No.
118(2):
Chapman,
Ben
(Wirral, South) (Lab)
Ninth
Delegated Legislation
Committee
Tuesday 17
March
2009
[Mr.
Clive Betts in the
Chair]
Draft
Renewable Transport Fuel Obligations (Amendment) Order
2009
4.30
pm
The
Parliamentary Under-Secretary of State for Transport (Jim
Fitzpatrick): I beg to
move,
That
the Committee has considered the draft Renewable Transport Fuel
Obligations (Amendment) Order
2009.
It
is a pleasure to see you in the Chair, Mr. Betts. I am sure
that if you preside over the Committees discussions in the same
way as you captain the parliamentary football team, we shall have a
successful
outcome.
The
order will give legal effect to changes to an existing scheme that
requires suppliers of fossil fuel for road transport to ensure that a
proportion of the fuel that they supply is renewable. It will have an
important impact on our efforts to tackle climate change from road
transport. Todays renewable transport fuels are almost entirely
biofuelsfossil fuel substitutes derived from crops and other
forms of biomass. Biofuels will be important if we are to meet our
European target of 10 per cent. renewable energy by 2020 and
abide by our legally binding carbon budgets. In addition, failure to
make this amendment order by mid-April would have a negative impact on
the UK biofuel industry at a time of financial difficulty. The order is
needed for both environmental and economic
reasons.
The
renewable transport fuel obligation is an important measure to help to
deal with emissions from the transport sector. It was introduced in
April 2008 by the Renewable Transport Fuel Obligations Order 2007, made
under powers in the Energy Act 2004. The RTFO requires suppliers of
fossil-based road transport fuels in the United Kingdom to redeem
renewable transport fuel certificates with the Renewable Fuels Agency
each year, or to pay a buy-out price. A certificate is issued for each
litre of renewable fuel supplied, and the number of certificates
required from each obligated supplier is calculated according to the
amount of relevant hydrocarbon oil that it supplies during the
obligation
year.
Through
the RTFOs carbon and sustainability reporting
requirements, the scheme has been recognised internationally as helping
to encourage the supply of biofuels in a sustainable manner. From April
2008 to April 2009, the RTFO obligation level is 2.5 per cent. of total
fuel supplied. Total fuel means the total amount of renewable fuel and
relevant hydrocarbon oil. In other words, suppliers must produce
certificates for an amount of renewable fuel equivalent to 2.5 per
cent. of the total fuel that they
supply.
Under
the 2007 order, the obligation level increases each obligation year
until it reaches 5 per cent. in 2010-11. This amendment order will make
three important
changes to the RTFO scheme. First, we are slowing down the rate of
increase of the obligation level, so that less renewable fuel is
required to be supplied under the scheme between April 2009 and April
2013 than was intended when the 2007 order was made. That slow-down is
in response to concerns about the current sustainability of existing
biofuel
production.
In
July 2008, the Government-commissioned Gallagher review concluded that
biofuels have the potential to deliver approximately 338 million to 371
million tonnes of global carbon dioxide savings every year. However, it
proposed a more cautious rate of increase for our obligation levels
than the increases set out in the 2007 order, while we try to
understand better all the social and environmental impacts of
biofuels.
In
response to Professor Gallaghers review, the rate of increase
of the obligation level will be slowed to 0.5 per cent. per
year after 2010-11, so that 5 per cent. of all road transport fuels
will be sourced from renewable sources by 2013-14 instead of 2010-11.
However, there will be a 0.75 per cent. increase in 2009-10, raising
the obligation level from 2.5 per cent. of total fuel supplied in
2008-09 to 3.25 per cent. in 2009-10. I shall explain the reason for
that
shortly.
The
second key change is that we are rectifying a significant problem that
we have identified with the definition of relevant hydrocarbon
oil in the 2007 order. The definition determines whether a
supplier is obligated and, if so, how many certificates the supplier
must produce. The problem is that the definition in the 2007 order does
not cover all the fossil fuels that we intend it to cover. It excludes
fossil fuel that is blended with biofuel before it passes the excise
duty point. In short, this discrepancy between what the order was
intended to provide and what it does provide makes it much easier for
fossil fuel suppliers to meet their obligation. As a result, some
biofuel suppliers may be left with certificates for this year that they
cannot sell, and/or lower demand for their products. We discovered this
problem late last year and we are acting to address it quickly by
amending the definition.
Paddy
Tipping (Sherwood) (Lab): The Minister will recall that
the drafting error became apparent last autumn. Why is it only now that
we are taking remedial action? Why was it not possible to introduce an
order retrospectively earlier this
year?
Jim
Fitzpatrick: I can assure my hon. Friend that it was not
possible to bring a measure forward to deal retrospectively with the
issue. The order has been introduced at the earliest possible
opportunity to rectify the discrepancy that was identified, as I am in
the course of explaining.
Norman
Baker (Lewes) (LD): I want to follow up the point made by
the hon. Member for Sherwood. The Government identified the problem in
October. To draw attention to it, I tabled an early-day motion early in
January, which has received a large number of supportive signatures
from all three parties. This problem will not be finally resolved until
April, and I am at a loss to understand why it could not have been
dealt with speedily after the Government identified it in October. A
consequence is that renewable transport fuel certificates are now
worthless for this year.
Jim
Fitzpatrick: I do not accept that they are worthless. We
have identified and accepted that there are complications. I am trying
to explain and will go on to explainI hope to the satisfaction
of my hon. Friend the Member for Sherwoodwhile elaborating on
the point raised by the hon. Member for Lewes, why it was not possible
to deal with this retrospectively. An anomalya
discrepancywas identified. This measure has been brought
forward at the earliest possible opportunity. This is an important
issue that was identified late last year, and we are dealing with it as
expeditiously as we can. If my hon. Friend and the hon. Gentleman will
allow me to explain the matter fully, when I conclude they may want to
ask further questions, make comments and examine that which I am about
to elucidate.
As I was
saying, it is of critical importance to explain that, unless the
discrepancy is corrected, the effects will continue for the next
obligation year. In other words, fossil fuel suppliers will be able to
avoid being obligated by simply blending small quantities of biofuel
with their fossil fuel before it passes the duty point. We do not have
powers under the Energy Act to legislate retrospectively, so we are not
seeking to apply the new definition to the current obligation year,
which started in April last year. The revised definition will be
effective from the start of the next obligation year, beginning on 15
April
2009.
As
we cannot act retrospectively, we are taking action to minimise the
effect of not changing the definition for the current year. That is why
the amending order sets an obligation level for the next obligation
year of 3.25 per cent. of total fuel supplied, which is higher than the
level of 3 per cent. recommended by the Gallagher review. Thirdly, we
are adding two new fuels to the renewable fuels eligible for
certificates under the scheme: biobutanol and renewable diesel. That
increases the flexibility for obligated suppliers to meet their
obligation in the
future.
The
RTFO remains the Governments primary support mechanism for
renewable transport fuels. The change to future obligation levels is
intended to balance environmental concerns about the overall effects of
biofuel production against those of the biofuel industry, which is
seeking long-term certainty for the market, and it is the right way for
us to support renewable transport
fuels.
If
the amendment order is not agreed, the discrepancy will remain
unresolved. It will continue to have the practical effect of depressing
the obligation level by giving fossil fuel suppliers the means to
avoid, or significantly reduce, their obligations if they wish. That
could threaten the future of the UK biofuel industry and hamper our
efforts to achieve our climate change goals. I therefore commend the
order to the
Committee.
4.39
pm
Mr.
Robert Goodwill (Scarborough and Whitby) (Con): It is a
great pleasure to serve under your chairmanship, Mr.
Betts.
I thank the
Minister for his detailed explanation of the measure. I am pleased that
he has managed to escape the clutches of the Kidderminster and area
driving instructors, who have been in Parliament today, equipped, I
suspect, with tar and feathers, given the imminent closure of their
test centre.
I am pleased
that the Minister listened to the arguments following the Gallagher
report and took action, albeit as a late convert. If he checks the
record, however, he will see that I raised concerns about this issue
from the Back Benches as early as 8 May 2007nearly two years
agoduring a Liberal Democrat Opposition day debate, although he
was perhaps too busy closing post offices that week to be in the
Chamber. I
said:
Any
action plan to curb our carbon emissions must take account of how green
some new technologies being touted as panaceas really
are.[Official Report, 8 May 2007; Vol. 460,
c.
68.]
I
mentioned how ethanol produced from maize in the USA offered a 13 per
cent. CO2 reduction at best, given the amount of CO2
created by fertiliser production, tractor diesel, pesticides,
transport and processing. Even rape oil produced in the EU represents
only a 50 per cent. reduction in CO2 . Palm oil produced in
Indonesia and Malaysia has often been described as deforestation
diesel, and some of the oils that could be imported into the EU from
countries such as Brazil can actually do massive damage to the
environment. If rain forest is destroyed, the amount of CO2
per hectare produced is 100 times greater than any benefits that
the oil produced might offer in terms of CO2. Producing only
1 per cent. of our oil in that way will therefore obviate the rest of
our
efforts.
In
Westminster Hall on 5 June 2008, the Minister and I had the chance to
debate the report of the Select Committee on Environmental Audit. The
Committees Chairman, my hon. Friend the Member for South
Suffolk (Mr. Yeo), stated that it was wrong to
create
another market
for palm
oil
when
the
combined
effects of logging, fire and palm oil production could result in the
total destruction of Indonesias lowland rain forest as soon as
2012...The impact of deforestation is extremely serious. It has
been calculated that between 2008 and 2012, deforestation will cause
the release of 40 gigatonnes of carbon dioxide. That is more than the
total emissions from aviation from its invention until at least
2025.[Official Report, 5 June 2008; Vol. 476,
c.
318WH.]
Another
issue that was taken into account during that debate was food security.
My hon. Friend the Member for South Suffolk said that a tank of ethanol
in a car was equivalent to the amount of food that would feed an
African for a year. We have seen great volatility in the prices of most
food commodities over the past two or three years, and I wonder how
that will affect planning and investment in terms not only of growing
these crops but of providing the plant to process them in the UK and
the EU. Given concerns about global warming, which we all agree are
real, we are also entering a period of more uncertain crop production.
That could result in more droughts and more instances when we in the
west, including in the United States, will be asked to provide food aid
for Africa. It will be no good at that point saying, Im
sorry, but weve turned all our surplus food into ethanol to put
in the tanks of our
cars.
As
I said in our previous debate, we are very concerned that we are locked
into a target, despite the environmental evidence in the Select
Committee report. I therefore welcome the proposal that the Minister
has presented today. It shows that we have taken our foot off the
accelerator a little, but without applying the brakes. That should send
a signal to the embryonic UK biofuel industry that it can go ahead and
invest for the future.
It is
especially important that we maintain momentum on the use of used
cooking oil as a biofuel. As the Minister will recall, that oil was
previously used in animal feed, but the advent of the animal
by-products directive meant that that could no longer happen. For a
short time, there was a real crisis because a lot of this oil was being
discarded and was causing problems in our sewerage systems, but now we
have systems in place to collect the oil and turn it into biodiesel. In
this difficult investment environment, with the credit crunch and
volatile markets, I hope that we shall see investment coming forward
for such new
technologies.
We
should not underestimate the scale of the challenge before us. To reach
10 per cent. renewable fuels by 2020, we shall need to produce 50
billion litres per annum in the European Union, which is equivalent to
the whole worlds entire biofuel production in
2006including countries such as Brazil, which are already well
ahead of us on
biofuels.
The
second aspect of todays proposal is the amendment of the
drafting error to include bioblends because, as the Minister mentioned,
the biofuels are often added to the fuels before the duty is paid. The
correction is sensible. Although I can understand the points made by
the hon. Member for Sherwood, it would be difficult to change the rules
halfway through a
year.