Energy and Climate Change Committee - Draft Energy Bill: Pre-legislitive ScrutinyWritten evidence submitted by the Wood Panel Industries Federation
Executive Summary
The Wood Panel Industries Federation represents all UK manufacturers of wood based panels. The sector provides significant employment opportunities and has an annual turnover of £650 million.
The wood panel industry is concerned by current renewables policies, notably the Renewables Obligation (RO) which is subsidising energy companies to purchase wood to burn as biomass.
These subsidies have led to a distortion of the wood market which is negatively impacting on the wood panel industry’s ability to operate competitively. The industry is therefore at serious risk of displacement.
The industry is concerned that the Draft Energy Bill will not work to rectify the damage caused by the RO.
Detail on the Draft Energy Bill and the position it will take on biomass is needed urgently. Reassurance must be provided to the wood panel industry that there will be sufficient feedstocks available to them to encourage expansion and further investment in the UK.
The industry urges the Committee and the UK Government to ensure that all interests are taken into account when working on this legislation and that it is not only investment in the energy sector that is considered.
1. The Wood Panel Industries Federation (WPIF) represents all UK manufacturers of wood based panels. There are seven manufacturing sites across the UK. The sector has an annual turnover of over £650 million and directly employs 2,400 people. Taking account of related businesses upstream and downstream, there are 8,700 FTE jobs, the majority of which are in rural areas, dependent upon the wood panel industry.
2. Due to its reliance on UK-sourced wood the industry has become increasingly concerned by the cumulative impact of the Renewables Obligation (RO) and is concerned that the Energy Bill will implement mechanisms which continue this. Energy companies are currently being subsidised under the RO to purchase wood to burn as biomass. The WPIF is very concerned about the impact this is having on the wood market and the industry’s ability to operate competitively. In the past five years the price of standing timber has risen by 71%. The only major new entrant into the market during this time has been the energy sector taking advantage of Government subsidies. This distortion of the wood market is having a serious impact on the wood panel industry and is putting it at risk of displacement. The WPIF is not seeking protection but rather a level playing field so that the industry is able to operate competitively in the UK and continue its valuable investment and job provision.
3. In addition to difficulties caused by the distortion of the wood market, the WPIF, and other forestry and wood processing industries, are also being put at risk by the demand for domestic wood from the energy sector that has been created by the RO’s subsidy regime. DECC figures forecast that demand for biomass from energy plants will be equivalent to 80–100 million tonnes of wood by 2030.This is more than eight times the UK’s 2010 wood harvest. Although current projections anticipate importing 90% of biomass feedstock requirements, even meeting 10% of this demand domestically would consume the entire UK wood harvest. DECC believes that increased tree planting and forest management will mitigate these problems, however the Forestry Commission estimates that potential increase in production will only be two to three million green tonnes. This means that the UK wood market will be unable to meet the demands of large-scale biomass developments and existing wood users will be at risk of displacement.
4. Not only would displacement of the wood panel industry have ramifications for the UK economy and job market, it would also be detrimental to efforts to reduce carbon emissions and to meet the UK’s renewable heat targets. Processing wood locks carbon into wood products and produces only 378kg of CO2 per tonne of wood, whereas burning wood for electricity generation produces 1,905kg of CO2. Displacement of the wood panel industry (and its contribution to carbon sequestration) by wood fired electricity generation, would see a net increase in CO2 emissions by six million tonnes per annum—more than 1% of the UK’s reported emissions in 2008. In addition, the wood panel industry is the UK’s largest industrial generator of renewable heat and this significant contribution to the UK’s renewable heat targets would also be lost if the industry were displaced.
5. Much of the evidence given so far during the Committee’s inquiry has focused on concerns about the complexity and the lack of clarity in the Draft Energy Bill, particularly regarding the proposed Contracts for Difference (CfDs). The energy industry and its investors have stated that the current complexity of the proposals is creating uncertainty and risk that is deterring investment in renewables. This is a crucial point, however it must also be noted that the energy sector is not the only one being deterred from investing in the UK as result of the Draft Bill and DECC’s ongoing renewables policies. The wood panel industry, along with other wood processors and forest industries, is a vital investor in the UK economy, particularly in rural areas where business and employment opportunities are often less readily available. The parent companies of the WPIF’s members are all international groups that have invested a considerable amount in the UK and may not be in a position to expand this investment if there were yet more uncertainty from the Government about biomass policy and the impact it is having on feedstock supplies.
6. The Draft Energy Bill is designed to replace the RO, however, there is no information in the proposals to outline the impact this change will have on biomass subsidies and if biomass will continue to be viewed as an important type of renewable energy. Any uncertainty can delay investment, not only from the energy sector but from the wood panel industry as well. Without the certainty that current wood market distortion and sustainability problems will be rectified the wood panel industry cannot expand or make significant investments for fear of displacement in the near future. If this uncertainty continues then the companies may look elsewhere for investment opportunities. It is important that the Committee and the Government notes that the energy sector is not the only one that the Energy Bill will have an impact on and that they work to engage with all stakeholders to ensure that the Bill supports investment from all related sectors.
June 2012