The Parliamentary Under-Secretary of State for Transport (Jim Fitzpatrick): I beg to move,

It is a pleasure to see you in the Chair, Mr. Betts. I am sure that if you preside over the Committee’s 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. Today’s renewable transport fuels are almost entirely biofuels—fossil 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 RTFO’s 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 Gallagher’s 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 explain—I hope to the satisfaction of my hon. Friend the Member for Sherwood—while elaborating on the point raised by the hon. Member for Lewes, why it was not possible to deal with this retrospectively. An anomaly—a discrepancy—was 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 Government’s 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.

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 2007—nearly two years ago—during a Liberal Democrat Opposition day debate, although he was perhaps too busy closing post offices that week to be in the Chamber. I said:

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 Committee’s Chairman, my hon. Friend the Member for South Suffolk (Mr. Yeo), stated that it was wrong to create

when the

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, “I’m sorry, but we’ve 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 world’s entire biofuel production in 2006—including countries such as Brazil, which are already well ahead of us on biofuels.

The second aspect of today’s 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.