Draft Renewable Transport Fuel Obligations (Amendment) Order 2011
The Committee consisted of the following Members:
† Baker, Norman (Parliamentary Under-Secretary of State for Transport)
Banks, Gordon (Ochil and South Perthshire) (Lab)
† Burley, Mr Aidan (Cannock Chase) (Con)
† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con)
† Dakin, Nic (Scunthorpe) (Lab)
† Donohoe, Mr Brian H. (Central Ayrshire) (Lab)
† Elphicke, Charlie (Dover) (Con)
† Eustice, George (Camborne and Redruth) (Con)
† Greenwood, Lilian (Nottingham South) (Lab)
† Harris, Rebecca (Castle Point) (Con)
† Huppert, Dr Julian (Cambridge) (LD)
† Lazarowicz, Mark (Edinburgh North and Leith) (Lab/Co-op)
† Lumley, Karen (Redditch) (Con)
† Mordaunt, Penny (Portsmouth North) (Con)
Shannon, Jim (Strangford) (DUP)
† Skinner, Mr Dennis (Bolsover) (Lab)
† Wiggin, Bill (North Herefordshire) (Con)
Anne-Marie Griffiths, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Monday 5 December 2011
[Mr Graham Brady in the Chair]
Draft Renewable Transport Fuel Obligations (Amendment) Order 2011
4.30 pm
The Parliamentary Under-Secretary of State for Transport (Norman Baker): I beg to move,
That the Committee has considered the Draft Renewable Transport Fuel Obligations (Amendment) Order 2011.
The order will give legal effect to changes to an existing scheme that requires the suppliers of fossil fuel for road transport to ensure that a proportion of the fuel that they supply comes from renewable sources—the renewable transport fuel obligation. The order is of key importance in our efforts to tackle climate change, and it will implement the transport element of the EU renewable energy directive.
Biofuels are an important alternative to fossil fuel in transport, particularly in the period before low-emission vehicles become the norm. They therefore play a key role in allowing us to keep within our forthcoming carbon budgets and in meeting our European renewable energy targets. However, biofuels are not the silver bullet that some once believed. Legitimate concerns remain about the sustainability of some biofuels.
Before I became a Minister, I listened when environmental pressure groups said that biofuels were the best thing since sliced bread; and I listen to them now when they express significant concerns about their sustainability. With that in mind, I want to make it clear that we are not setting out a new trajectory for increased biofuel targets beyond that already set under the current RTFO. The order is about making biofuels more sustainable; it is not about supplying more biofuel.
Given the environmental concerns and the need to consider how best to deploy biofuels across transport sectors, there is no proposal to increase the biofuel targets already set under the Renewable Transport Fuel Obligations Order 2007.
With the existing trajectory of targets, the required amount of biofuel will reach 5% of the total volume of fuel used for road transport in April 2013. It will stay at that amount until we choose to amend the order further, once we have greater reassurance that higher volumes of biofuels can be supplied sustainably. Today’s order is not intended to change the trajectory of targets in any way.
Concerns remain about the sustainability of some biofuels in relation to their indirect impacts. Given those concerns, we have not made a commitment to targets greater than those already set in the existing trajectory. They are considered to be currently sustainable, as recommended by the Government-commissioned Gallagher review of the indirect effects of biofuel production.
The order will, however, place a duty on the Secretary of State for Transport to keep those obligations under review. In particular, we must consider the European Commission’s forthcoming proposal to address the effect of indirect land-use change, as well as work that is being completed by the Committee on Climate Change and our own bioenergy strategy, which will consider the use of sustainable bioenergy across different sectors. The outcome of those different studies will establish a robust evidence base, allowing us to base future trajectories on sound science.
It is our intention to consult in 2012 on possible increases to the percentage of biofuel that must be supplied from 2014 to 2020. It might be useful if I give a brief overview of the current regulatory framework, so that the changes that we propose today can be better understood.
Suppliers of fossil fuel for road transport have an obligation to supply a small percentage of biofuel in relation to the amount of fossil fuel supplied. Currently, suppliers must supply a volume of biofuel equivalent to 4% of the volume of fossil road fuel that they supply. Suppliers of biofuel are awarded a certificate for each litre of fuel that they supply. Those renewable transport fuel certificates can be traded on the open market. Therefore, those entities supplying biofuels that do not have an obligation to do so may still benefit from helping suppliers that are under an obligation to meet their targets, as they can sell their certificates to those suppliers that require them to meet their obligation.
The buy-out mechanism is in place to provide a safety valve that protects both industry and the consumer from spikes in the cost of supplying biofuel. Presently, industry also reports the performance of its biofuels against voluntary sustainability criteria. However, if we pass the order, the UK will reward only sustainable biofuel. That is a key issue today.
The order will introduce the mandatory sustainability criteria set out in the renewable energy directive. Therefore, for the first time, there will be a legal obligation on industry to supply biofuels that demonstrably reduce carbon emissions and can be shown to have been produced from feedstocks whose cultivation did not threaten areas of high biodiversity or damage carbon stocks.
Dr Julian Huppert (Cambridge) (LD): The Minister is right to highlight the concerns raised about some biofuels and the damage that they do to land. Will he support innovative work—particularly under the life sciences strategy announced today—such as that done by the company, Naturally Scientific, which used waste carbon dioxide, plant cell cultures and natural light to make vegetable oils and sugars with a very low footprint? Will he support further research, so that we can have even better sources of that kind?
Norman Baker: I am grateful to my hon. Friend. We are very interested in biofuels that arise from waste and residues, and I shall say more about that in a moment.
In the light of what I have said, suppliers must be able to prove that their claims for sustainability are true. Such sustainability data must be verified to the internationally-recognised limited assurance standard by an independent third party before participants in a scheme receive the renewable transport fuel certificates that demonstrate that the obligation to supply sustainable
biofuel has been met. It follows that if companies continue to supply biofuels that do not meet those environmental standards, they will not receive certificates for those fuels. Such non-sustainable biofuels will therefore count as fossil fuels for the purpose of the RTFO and will increase a supplier’s obligation to supply sustainable biofuel accordingly.Another important driver behind the order is further to encourage biofuels made from the most sustainable feedstocks. Fuels made from waste and residue, such as those mentioned by my hon. Friend, will be eligible for double counting, thus receiving twice as many certificates by volume as biofuels made from other sustainable feedstocks. Such double counting will also apply to biofuels made from woody material and material such as stalks left over from agriculture that does not compete with food crops—such material is known in the industry as lingocellulosic material and non-food cellulosic material.
We remain concerned that significant indirect impacts from some biofuels are not currently addressed by the renewable energy directive. Earlier this year, the UK published research on the scale of such impacts, and we have written to the European Commission to reiterate our belief that indirect impacts are a pressing issue that must be addressed robustly at a Europe-wide level. The current directive does not take such impacts into account. Although the extent of the impacts remains uncertain, there is robust evidence that widespread use of some biofuels can lead to significant indirect greenhouse gas emissions through the process known as indirect land-use change, or ILUC, which the Government take seriously. Earlier this year, the Department for Transport published research on the scale of ILUC impacts, and we continue to lead work on how to tackle such impacts, as well as encouraging the European Commission to address the issue on a Europe-wide scale with a robust solution.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): I am sure there is support across the Committee for the proposal, but is there not a danger that it will be some time before information on indirect impacts is available and that, in the meantime, there will be increased use of sustainable biofuels that, nevertheless, do not address the indirect impacts that, as the Minister has rightly pointed out, concern many people?
Norman Baker: The hon. Gentleman is right to draw attention to uncertainties, but the need to get this bottomed out as quickly as possible is one of the reasons why I have written twice to the European Commission to express the Government’s concerns about ILUC and to press for robust and proportionate action to be taken as soon as possible. The longer that this goes on, the more damage that could be done to the environment and the more uncertainty there is for business. So it is in everyone’s interest to bottom this out as soon as possible, which is what we are pressing to achieve.
Lilian Greenwood (Nottingham South) (Lab): I note that the Minister has written to the European Union on this matter. What response has he had so far on ILUC?
Norman Baker: To be perfectly frank, I have not had a detailed response. It is still not entirely clear what the European Commission will do. The nature of the letters was to encourage the Commission to speed up its consideration in a robust fashion, based on sound science,
to make good progress, because I recognise the concerns. So we continue to press the Commission to propose with a sensible solution as soon as possible. That is our current position.We have also been consulting on guidance that will help suppliers and others with an interest in this industry to understand better how we take technical decisions in accordance with the order and how they are expected to comply with this legislation. The RTFO guidance will update existing guidance on carbon and sustainability reporting, verification and process-related issues for fuel suppliers.
I will now briefly summarise other key changes that will be delivered by the order. It will require suppliers to provide additional sustainability information and extend the RTFO, so that biofuel suppliers, as well as those supplying fossil fuel for road transport, are obliged to register with the RTFO administrator and report on their biofuels. I stress that small suppliers will still be outside the scope of the obligation, given that the minimum supply threshold of 450,000 litres per annum will continue to apply.
The order will expand the RTFO, so that all liquid and gaseous renewable fuels of biological origin that are for use in road vehicles are eligible for certificates. That approach will enable more renewable fuels, such as biomethanol, and partially renewable fuels to be eligible for reward under the RTFO.
Mark Lazarowicz: On the 450,000 litres of fuel that would be required under the directive, is the Minister confident that enough sustainable oil will be available to meet that target?
Norman Baker: As I understand it, 450,000 litres is the existing arrangement that the last Government put in place. We seek to maintain that, but we have tried to strike a balance between the need to ensure that sustainability criteria are in place and the need not to overburden very small operators, for whom it would be disproportionate. That is what we have tried to achieve.
Mark Lazarowicz: I think that I made myself unclear; I was referring only to the figure. My concern is whether there will be enough sustainable biofuel available to meet demand when the directive is implemented in the UK.
Norman Baker: I think so. As I mentioned earlier, we will not set further targets until we consult next year. We cannot set targets until the information that we require from external bodies such as the Committee on Climate Change, the European Commission’s work on ILUC and so on are taken into account. Therefore, we seek to proceed in a way that will not require us to make any changes subsequently, as that would generate uncertainty for the industry. As things stand, the answer is yes.
To allow maximum flexibility for industry, while ensuring that the sustainability criteria are met, we are allowing suppliers to carry over renewable transport fuel certificates from one obligation period to the next where the fuels associated with the certificates have met the minimum greenhouse gas requirements in both periods. The order will remove the duty on the RTFO administrator to
report annually to Parliament, because the administration of the scheme is now carried out by the Department for Transport, rather than by a non-departmental public body, as was the case previously. It is therefore subject to the usual ministerial oversight of departmental business, rendering additional reporting unnecessary.We also propose to amend the suite of civil penalties available to ensure compliance, to reflect the changes made to other aspects of the 2007 order. Today’s order is intended to ensure that biofuels used on Britain’s roads deliver real carbon savings and can demonstrate their sustainability. By double counting, it will also encourage industries to seek out ways to deliver the most sustainable fuels. I therefore commend the order to the Committee.
4.42 pm
Lilian Greenwood: It is a pleasure to serve under your chairmanship, Mr Brady. I assure the Minister that the Opposition support the order, although we have some concerns, which I will explain.
It is right for the UK to amend existing legislation, to begin working towards the renewable energy directive, under which 10% of the UK’s transport fuel must come from renewable sources by 2020. Reducing transport’s contribution to greenhouse gas emissions is something that the previous Labour Government took extremely seriously, which is why the Climate Change Act 2008 set ambitious targets to reduce emissions by at least 34% by 2020 and at least 80% by 2050. We believe that transport has a key role to play in reducing the UK’s emissions, especially as the sector accounts for a fifth of all domestic emissions. There can be no credible strategy for reducing emissions without fundamental changes to how we fuel our transport networks, as the renewable energy directive makes clear.
We also support the Government’s move to follow Labour’s decision in delaying any increase in the percentage of biofuels in transport fuel beyond April 2013. As the Minister acknowledged, that decision was made in 2008, after the Gallagher review, which was commissioned by the previous Labour Government as a result of concerns about the indirect effects on the environment of increasing the production of biofuels. We believe that it is too soon to increase the amount of biofuels in fuels beyond the 5% level set for 2013. Serious work must be done by the UK and, more importantly, by the EU to consider fully the impacts of increasing biofuel production.
That leads me to our concerns about implementing the renewable energy directive through the renewable transport fuel obligations. As the Minister knows, the consultation on implementing the directive raised many concerns, especially from non-governmental organisations that work extensively in the developing countries that supply much of the crops used for biofuels in the developed world. As he acknowledged, one major concern is the directive’s lack of social sustainability criteria. It has other criteria, such as preventing approved biofuel from being used on particularly environmentally sensitive land. That is obviously commendable, as such criteria help reduce the emissions resulting from biofuel production, yet it is well documented that producing crops purely for use as biofuels has knock-on effects for societies
around the world. Those effects can take many forms such as forcing up food price—by as much as 75%, according to World Bank figures in 2008—or dislodging communities as more land is turned over to producing crops to meet demand. Will the Minister tell us what work is being done at EU level to encourage the European Commission to implement a social sustainability criterion in the renewable energy directive?The Commission’s current strategy of simply reporting once every two years on the social impacts of the policy is hopelessly inadequate if we are serious about ensuring that the production of our fuel does not damage the lives of some of the poorest communities in the world. Without a workable criterion that takes into account the impact of increased biofuel production, supposedly renewable fuel sources will continue to lead to the displacement of people in developing countries to allow more biofuel growth, and food prices will continue to increase if feedstock is still used for fuel.
The Minister touched on another concern, both today and in his statement on 7 November in response to the consultation on the renewable energy directive: indirect land-use change and the lack of account taken of that problem by the renewable energy directive. As he acknowledged, indirect land-use change is a serious factor in understanding the true sustainability of biofuels. One study commissioned by the European Commission into indirect land-use change found that the renewable energy directive target would mean that an extra 52,000 sq km of land—equivalent to twice the size of Belgium—might be converted to grow crops for biofuel. The majority of that projected increase would take place outside the EU. Although the renewable energy directive has criteria that prevent biofuel growth on highly sensitive land, increased change in land use may still have negative consequences for the environment. Will the Minister tell us a bit more about the work that is being undertaken to ensure that indirect land-use change and the impact on greenhouse gas emissions created by biofuel production will be taken into account in setting criteria for the renewable energy directive?
The Minister mentioned in his statement of 7 November the question of where our fuel is sourced from, and I would like to question him on the fuel quality directive. The Opposition support the directive’s aim of requiring fuel suppliers to land-based transport to achieve a 6% reduction in lifecycle greenhouse gas emissions from their fuels by 2020. Major concerns have been raised, however, about the use of tar sands to produce transport fuel, and as the Minister knows, they have been picked out as a particularly harmful source. He has reacted strongly to reports that the Canadian Government and fuel companies that have invested in tar sands have lobbied the UK Government to prevent tar sands from being designated as highly polluting. What representations has he made to the EU on penalising highly polluting sources of oil, including not only Canadian tar sands but other heavy oils?
That leads me on to another concern regarding research into how we source our biofuel. In its report into the ethical issues created by biofuel production, the Nuffield Council on Bioethics was clear in its belief that more needs to be done to develop more ethical biofuel sources. The council’s report stated:
“Current policy includes few incentives for the development of new, more ethical types of biofuels.”
On research, the council also notes:
“Promising avenues include biofuels made from the non-edible parts of crops…and biofuels made from algae.”
The hon. Member for Cambridge has mentioned biofuels from similar sources. Will the Minister tell us what work his Department is doing on biofuels made from those sources, which would allow us to grow our fuel without competing with feedstocks?
I should like to ask the Minister about his Department’s commitment to electrically powered vehicles as a means of meeting the 10% target for renewable energy in transport by 2020. It feels as though the Government are all over the place on the importance of electrically powered vehicles. The Secretary of State for Energy and Climate Change announced in yesterday’s papers that it was the end of the road for petrol cars and that all cars and vans would have to be electrically powered by 2050. That is why we welcome the Government’s commitment in the coalition agreement that they would develop a national network of chargers for plug-in electric vehicles. That commitment was recently abandoned, however, by the Minister’s Department. What proposals does he have in place to meet the ambitious targets set out by the Secretary of State for Energy and Climate Change? I am sure that the Minister will talk about the plug-in car grant scheme, which offers grants to reduce the price of new electric vehicles by up to £5,000. That is unlikely to stimulate much demand when electric cars cost in excess of £20,000, even after the grant is taken into account.
The scheme is set to last only until March 2012 and it consists of just £43 million. That contrasts with the previous Labour Government’s scheme, which aimed to establish a £250 million fund to increase low-emission vehicle ownership. There is clearly a mountain to climb if the UK is to increase the number of electric and plug-in hybrid vehicles on our roads. As of December last year, there were only 83,624 electric and hybrid vehicles registered in the UK out of the 28 million registered vehicles in total. I hope the Minister can elaborate further on the issues that I have raised.
I am sure the Minister agrees with me that it is crucial that the UK sets the most sustainable targets possible for our transport fuel and that there are still many unresolved problems with the renewable energy directive as it stands.
4.50 pm
Oliver Colvile (Plymouth, Sutton and Devonport) (Con): May I say how much I welcome trying to move to alternative forms of fuel for cars and other vehicles? I have two or three simple questions. First, where does the Minister foresee brown hydrogen fitting in? Secondly, does he agree that a market should be created within brown hydrogen and that this is a good way of doing so? Thirdly, can we ensure that there is a timetable to deliver it?
4.51 pm
Norman Baker: I welcome the Opposition’s broad support for the steps that we are taking today. As the hon. Member for Nottingham South said, it is sensible to proceed on the basis of sound science and not to set targets that might have unforeseen and unwanted consequences. That is why we have stuck to our trajectory. She is also right to talk about her concerns about ILUC.
I hope that I addressed many of those concerns in my comments. Sadly, I do not believe that our concerns with ILUC are necessarily shared among all European Union countries, so we have an uphill task to try to get a good result out of the European Commission on that matter. Obviously, we will do what we can to get like-minded countries to support us, as she would expect us to. However, that matter is still obviously partly down to negotiation, so she will understand that it would not be sensible to go into more detail at this precise moment.The hon. Lady mentioned the social sustainability criteria. Under the renewable energy directive, the European Commission must monitor and report every two years on the impact of biofuel policy and increased demand for biofuel on social sustainability. That will include reporting on the availability of foodstuffs at affordable prices, particularly for people living in developing countries—a point that the hon. Lady rightly raised. The reports must address issues of land-use rights and must state whether the raw materials used to produce biofuel that is used in the EU comply with the conventions of the International Labour Organisation. If necessary, the Commission must propose corrective action. The first report is expected in 2012.
The Government have considered the impact of biofuels on the 2008 food price spike—I think that work was undertaken by the hon. Lady’s Government—alongside other factors such as the price of oil and adverse weather conditions. It was clear that biofuels put some upward pressure on prices for agricultural commodities using biofuel production, but it is possible to overstate that. I am not minimising that, but putting it in context.
The hon. Lady asked about tar sands, or oil sands, as they are sometimes described. She is right to say that that matter has been dealt with by the fuel quality directive. That directive and the renewable energy directive are closely interlinked. Indeed, in retrospect, it might have been better for the European Commission to have come up with one directive rather than two, especially as they are run by different sections of the Commission. However, that is where we are now. We will give close attention to that matter when implementing the FQD next year. We are, of course, in discussions with our European colleagues.
In answer to the hon. Lady’s direct question, I can assure her that we have made representations to the European Union and that we have tried to be greener than the European Commission perhaps wishes. There is a window of opportunity, with the consideration of specific and default values, for the fuel quality directive to get the right result. We want to use that opportunity to ensure that we deal with all fossil fuel sources, including conventional crudes, which provide up to 99% of what we presently use and some of which are extremely damaging in greenhouse gas terms, including those from Angola, Nigeria and Venezuela, for example. If we do not end up with those included, we will not serve the environment well, frankly. That is why we proposed for discussion a banding solution, with high, medium and low bands, to incorporate all crudes and all sources of fossil fuel. That is obviously also a matter for negotiation.
We are considering what the European Commission has suggested and how that aligns with our views. We will try to get the best deal for the environment during
the negotiations. Nothing much else will happen in decisions on how the European Commission is working on that until next year, as I understand it.Lilian Greenwood: I should be grateful to the Minister if he clarified whether, in the representations that he has talked about, he said that the use of tar sands should be penalised, although they are part of a range of crude oils that are environmentally problematic.
Norman Baker: We have made it plain that it is important to tie a fuel source to the climate change damage that it does. Therefore, the fuels with the highest greenhouse gas consequences should be dealt with more severely than those with lesser consequences. We are seeking to persuade the European Commission that that is the right sort of arrangement to make.
Mark Lazarowicz: Will there be an opportunity to take up this issue at next year’s negotiations on Rio plus 20? If we can get a UN-wide position on this, that might provide an additional incentive to the less enthusiastic members of the European Union.
Norman Baker: That might be the case, but the hon. Gentleman will appreciate that those matters are the responsibility of those in the Department of Energy and Climate Change, rather than myself in the Department for Transport. I was keen to answer that question, but I want to return to the matter at hand, because the fuel quality directive is outside the remit of this discussion.
The hon. Lady asked about biofuels from algae. In general, we are keen to promote alternative sources of fuel, particularly where they do not have unwanted consequences for climate change or for populations in developing countries, for example, to which she rightly referred. I am aware of significant investment in this
area from aviation operators. I have discussed that with one or two of them, and I am following the discussions with interest. There may be downsides as well, and I do not want to pretend that the use of algae has no downsides. It is very easy to identify upsides and then find downsides later on. We have to look at this on a sensible, rational, sound-science basis. I certainly think that the area is worth pursuing. That is happening with our support, through the private sector in particular.The hon. Lady referred to electrical-powered vehicles, which are also somewhat outside the renewable transport fuel obligation. I do not recognise her description of the Government as being all over the place, or whatever phrase she used. On the contrary, I would say that we have led the European Union on this matter. The incentives through research and development, the plug-in car grant and the charging places, which we are introducing across the country, plus our favourable playing field for the private sector to invest are bearing fruit. Charging places are now being put in by a number of key private sector players. I helped launch Little Chef’s new scheme, for example. The idea of having somewhere that someone can stop, charge their car and have something to eat at the same time seems sensible. That is going forward well.
I think that I am right in saying, although I stand to be corrected, that we have allocated £400 million during this spending review period for the development and promotion of low-carbon vehicles. I do not think that that includes the extra money that we have made available for green buses. I hope that the hon. Lady noticed in the Chancellor’s statement last week a further £20 million for a third round of the green bus fund. We are taking this matter seriously. We are using the transport system to create growth and cut carbon. With that in mind, I am happy to recommend the order to the Committee.