Energy and Climate Change Committee - Minutes of EvidenceHC 181-i

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Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 21 May 2013

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Barry Gardiner

Ian Lavery

Mr Peter Lilley

Albert Owen

John Robertson

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: Harry Huyton, Head of Climate Change, RSPB, Dr Raphael Slade, Centre for Energy Policy and Technology, Imperial College, Hamish Macleod, Director of Public Affairs, BSW Timber, and Alastair Kerr, Director General, Wood Panel Industries Federation, gave evidence.

Q1 Chair: Good morning. I apologise for keeping you waiting. Our private business took longer than anticipated this morning. I am told we are quite tight for time. We have about 60 minutes with the first panel. We will try and keep our questions brief and to the point, and I would ask for a similar approach for the answers so we can cover as much ground as possible. I need to begin by drawing attention to my entry in the Register of Members’ Interests, including interests in companies involved in the biofuels business.

If I start by saying that the UK has a target of 15% of energy consumption to come from all renewable sources by 2020. How much contribution do you think bioenergy can make to achieve that target? Don’t hold back.

Alastair Kerr: Of course you need to look at the definition of bioenergy. That is quite a broad definition. When you say "biomass", the predominant solid biomass type being sourced for energy generation is wood and the contribution that can be made from UK sources we believe is quite limited.

Dr Slade: I don’t know the proportion that is anticipated to come from biomass, but, if you are looking at the 2020 target, you have a very limited range of technologies that are currently commercial and can deliver at scale within the time available. Bioenergy is one of those technologies that can deliver the whole range of different services. You can debate what proportion is correct, but if you take bioenergy out of the mix you are going to have a much more difficult time reaching that target.

Harry Huyton: We believe, overall, that bioenergy can play a significant role in energy generation in the future and in delivering our 2020 targets. Two years ago the RSPB, Woodland Trust, Greenpeace and Friends of the Earth published a report called Securing a Sustainable Bioenergy Sector. That looked at the resource availability within the UK that we consider to be low risk from a sustainability and carbon perspective. That went through genuine waste: agricultural co-products and waste, forestry arisings, off-cuts and wood wastes. I must make the proviso that we didn’t look at what alternative uses for those products might be, but, from a sustainability perspective, we felt that using these for energy made sense if they were genuine wastes. Adding all those together, that came up to the equivalent of 11.7 million tonnes of oil equivalent, which is roughly up to 70% of the bioenergy primary energy demand that DECC envisages. So it is pretty significant.

When we look at the Government’s plans for the development of the bioenergy sector in the UK, for example on electricity, it is anticipated that you have about 6GW on line, 50TWh, which is about 40% of the renewable electricity required to meet the target. So that is very large. At the same time, you have the anticipated increase in bioenergy used for heating; currently about 1% of heat use, up to 6%. We are concerned that the cumulative demand for feedstock from those industries may be unsustainable and may result in the use of feedstocks that are not attractive from a climate perspective.

Q2 Chair: Given that, what do you think that implies for the Government’s expectations about the contribution of bioenergy?

Harry Huyton: From a sustainability and carbon perspective, I think the current plans for large-scale electricity generation are too ambitious. We have been encouraging DECC to look at this again and to review that. Potentially that could be made up for through increased investment in other forms of bioenergy-as laid out in our report that focused on domestic resources-but it may have to be made up elsewhere.

Dr Slade: The scale of ambition means that there will be a very strong role for imports, certainly for large-scale electricity production. Although the fit with local distributed heat provision is not so close, you might also see imports of pellets for heat production. In terms of the domestic resource, at Imperial College we did a very thorough review of estimates on the domestic resource looking across the board, so not just wood but also waste and the potential for energy crops going out into the future. The conclusion was that up to 10% or 11% of UK primary energy could be covered by the domestic resource, with the caveat that all barriers had been overcome including economic. If you said perhaps 25% or 50% of that, from the domestic resource you could get to 4% or 5% of the 2020 target, which means that if you want to go beyond that with biomass then that would be coming from overseas.

Harry Huyton: To just add to that, from a sustainability perspective, importing feedstocks can make sense. We are completely supportive of the use of wastes and residues from agriculture and indeed forestry, and their use for energy generation, so we do see that playing a role.

Q3 Barry Gardiner: To what extent are the Government’s current and proposed new sustainability criteria satisfactory for ensuring that there will be genuine carbon reductions from the use of bioenergy?

Harry Huyton: The current proposal from DECC on carbon standards is a 60% reduction in emissions against the average grid. That calculation is based on the fossil fuel emissions that are linked to harvesting, processing and transporting the feedstock. Our view is that that misses the more fundamental question, which is: what is the impact of harvesting of wood, and, in the case of biomass and forestry specifically, the impact on the carbon sink of the forest and the debt that it can create by using that?

Q4 Barry Gardiner: Let’s tease out the difference between carbon sink and carbon stock, if you would, because I think that would be helpful for the Committee. Also, if you could explain why emissions from biomass would not be included in the calculation.

Harry Huyton: So, your second question first. The reason why they are not currently included is that there is an assumption that the biogenic emissions from combusting biomass are neutralised by regrowth in the wider forest from which that wood was harvested. For example, there have been proposals that one can prove that, if you are practising sustainable forestry practices, the carbon that comes out of a forest and is combusted is less than or equal to the carbon that is re-sequestered in the wider forest.

The reason why I distinguish between carbon stock and carbon balance of the forest, is that, at the moment, the world’s forests are a hugely important carbon sink that effectively offset a large proportion of our fossil fuel emissions. For example, if we take the USA-which seems pertinent, given that we expect a fair bit of the forest biomass that we are going to use to come from the USA-the US’s forests each year are a carbon sink that is equivalent to about 11% or 12% of their fossil fuel emissions. When the USA reports its emissions it is a ledger of sink and source. The fossil fuel emissions and other sources are added up and then the sinks are deducted, and that is their national emissions.

Therefore, the forests are an important sink offsetting those emissions. If you take carbon out of those forests, even if that carbon is less than or equal to what is taken out, you turn what was a sink into something that is carbon neutral or a smaller sink, and that is the debt that is created: the difference between what it was, a carbon sink, and what it has become.

Q5 Barry Gardiner: Let me be clear about that. If you are exporting biomass from the United States, and you are using that to reduce your emissions here, what you are saying is that the net effect in the US is that as the sink is smaller, even though the stock may be the same or slightly larger, the net effect will be that there are increased net emissions in the United States?

Harry Huyton: Net emissions.

Dr Slade: That is not necessarily correct. It entirely depends on the way in which the forest is managed.

Barry Gardiner: I was coming to that, Dr Slade. Perhaps I can ask you the question in relation to that.

Dr Slade: Stepping back a bit, the way in which the calculations have been done over the last few years is just assuming that the carbon emitted when the biomass is burnt is equal to the carbon that was absorbed when it grew. That is true if you are burning an annual crop. It is true if you are only burning the annual growth increment of the afforested area. It is not necessarily true if you have an unmanaged forest that you are bringing into management and, therefore, you are reducing the age class across the whole forest, in which case you would get some carbon debt. Whether that-

Q6 Barry Gardiner: Sorry. I agree with you, but I think it is important to tease out exactly what you are saying to the Committee here. If there is an unmanaged forest, which is brought into productive forest management, the effect of that would be to thin out that forest, to begin to manage it properly and sustainably for timber, and you would then be increasing your carbon debt by properly managing that forest?

Dr Slade: You would, but-and it is an important "but"-it depends on what you think would have happened anyway. So there is the-

Q7 Barry Gardiner: If it is unmanaged it would have continued as an unmanaged forest.

Dr Slade: Yes, but you have a difference between the natural disturbance regime and the human disturbance regime. Essentially, you are trading off a cycle over 100 years or so of growth followed by destruction by wind, insects or fire, for one where you are harvesting. It does depend on the specifics of the forested area.

Q8 Barry Gardiner: Indeed, I understand that. Let’s look at those different kinds of factuals then that can occur to a forest. You can take the thinnings out and use them for biomass. You could leave the forest simply to grow as an unmanaged forest, in which case both the stock and the sink would increase. You could use the thinnings for alternative uses, such as chipboard or pulp and paper, and you could take the thinnings out and you could just burn them on the spot, which would be probably the most environmentally disastrous of the lot. So it depends very much on what is happening to those. The proposal that we have had from some companies is that, because there is a decline in the housing market and a decline in the pulp and paper market, in fact, because there is no value in this, there is a net gain to the environment. On those lights, that would be correct. Is that right?

Dr Slade: I am not quite sure I understand the question.

Q9 Barry Gardiner: What I am saying is, for example, Drax have argued that, because there is a decline in the need for chipboard-people are not buying thinnings for chipboard, so you are not sequestering that carbon in chipboard for a period of years, nor are you sequestering it into pulp and paper products for a period of years-therefore, the alternate use is either going to be to burn it onsite, if you are managing the forest, which would be a less good outcome environmentally, or it might be to not manage the forest at all, which would potentially be a better environmental outcome because your stock and your sink would have increased. It will depend on the counterfactuals, so that, in that market where there is a declining housing market and a declining pulp and paper market, actually biomass might be a good way of doing this. Is that correct?

Hamish Macleod: I think there is a bit of confusion there, in terms of the short-term and the long-term economic cycle because, certainly in the UK, for example, there is still this huge, unfulfilled demand for new housing and it is only the economy that is holding some of that back at the moment. I would see that in the UK we have grown the production of timber for construction and we continue to do so, and that is even when we have a poor economic cycle. When things recover I can foresee a full utilisation of-

Q10 Barry Gardiner: Mr Macleod, what you are saying to us is that it would be foolish for us to predicate the supply chain for a biomass energy industry, for our electricity industry, over a 40-year period, on the basis of the current dip in the housing and pulp paper market. Is that correct?

Hamish Macleod: I believe that is the case, yes. I think it would be an opportunity forgone if we lost that now.

Q11 Sir Robert Smith: Would you say that the US housing market is perhaps more than just a current dip, compared with the UK where there is a housing shortage?

Hamish Macleod: I believe that the US housing market is in recovery at the moment. We are seeing that, in terms of commercial trading of timber worldwide, the US is picking up fairly rapidly.

Dr Slade: The point that is important to make is that the energy component of the harvest has tended to be the lowest value fraction, so it has tended to be the sawdust, the offcuts. The availability of that material is very closely intertwined with the markets for the primary product, which are pulp and saw logs that have gone into the construction and housing industries. Currently we are importing pellets from the east and west coast of North America. It is as economic to transport them from the west, so from British Columbia, because the demand for material is less than in the eastern United States, and that is a reflection of the existing and established markets for that material.

Q12 Mr Lilley: It all seems terribly complicated. Either you have stuff that would be waste and would rot and turn into CO2, presumably-

Hamish Macleod: Or methane, which is worse.

Harry Huyton: Over time.

Mr Lilley: -over time, or you are harvesting it specifically to burn. How much is likely to come from waste and how much is coming from chopping down trees and burning them?

Dr Slade: Currently, from the East and North America, around 90% is from waste and 10% is from harvested.

Mr Lilley: That is coming here?

Dr Slade: That is coming here. Sorry, that is total.

Q13 Barry Gardiner: Sorry, Dr Slade, define "waste", please. Are you including thinnings in waste? I understand the disputes here. Some would call those whole trees. I don’t. I call them thinnings. Equally, if you are calling them waste, I do not think that is quite legitimate.

Mr Lilley: What else would they be used for?

Dr Slade: I think that is a good point. I don’t have a definition, but I can certainly find out and can make that available.

Q14 Barry Gardiner: That would be helpful. What they would be being used for is precisely either chipboard or pulp and paper, or they might be burnt on the spot if there was no market for them. Is that correct? That is why I outlined the four possible categories.

Dr Slade: For some of it. You would not be using all of that for chipboard or other-

Barry Gardiner: No, indeed, and certainly not at the moment.

Dr Slade: Yes.

Q15 Mr Lilley: What happens normally to all this waste? I am not talking about a particular point in the economic cycle, but normally in a steady sense.

Alastair Kerr: While much of the wood for large-scale power generation may be imported, we must not lose sight of the fact that there is a forecast from DECC that a proportion would be coming from domestic sources, and last year-

Q16 Mr Lilley: Of trees?

Alastair Kerr: Of timber. In the UK there is no wood waste in the terms that we understand it. You have harvested timber and you have sawmilled products being derived from it. If there is any waste from forestry, it is what they refer to as the forest brash. On waste timber-and our industry is the largest consumer and reclaimer of post-consumer wood waste in the country-there is, from the best study, about 4.2 million tonnes of wood waste arisings, of which between 2.2 and 2.6 million tonnes is currently going to established markets, such as chipboard, animal beddings and mulches and things like that. There is a proportion that is being exported. and-

Q17 Mr Lilley: It is not being exported to burn, is it?

Alastair Kerr: There is a proportion going to be burnt and there is a portion going to Belgium into chipboard manufacture. What is going to landfill is somewhere around 750,000 tonnes, and that material would be the material that is the most difficult to recycle. The other materials that may be referred to as waste arisings are not waste. They do have applications, and sawdust definitely is not a waste.

Q18 Mr Lilley: That makes sense. I can’t imagine America is filling up with piles of sawdust unless we import it to Drax. Is it? Don’t they use it for something?

Dr Slade: Depending on where the timber operations are, they have historically created very, very large piles of sawdust because it has been uneconomic to export.

Q19 Barry Gardiner: Are you familiar, Mr Kerr, with the USDA report on residues?

Alastair Kerr: Not the detail of it, no.

Q20 Barry Gardiner: The US harvest residue is about 42 million undried tonnes; US sawmill residue is 87 million undried tonnes; US use of bioenergy is 122 million undried tonnes.

Mr Lilley: Undried? It sounds a rather heat-intensive process.

Barry Gardiner: It is so that you get a standard measure, Peter. If you take the residues, both from harvest and from sawmill, and add them together, you get 129 million ODT and for US use of bioenergy you would have 122 million of ODT, which leaves you precisely 7 million. That is only with 2% of primary energy in the US being supplied by that. So it doesn’t leave you a great deal of residues to export it, does it? What is your estimate of what the UK would need? Do it in megawatt years. Usually the figure that would be used is about 6,000 tonnes per megawatt year as a rule of thumb. That would be 12 million tonnes for Drax, I think.

Mr Lilley: Per annum.

Barry Gardiner: It wouldn’t work out, would it?

Mr Lilley: Either there is a lot of waste around, which otherwise is naturally converting into carbon and we might, therefore, just as well burn it or we are having to chop down trees and burn them, and I want to know which it is. I suspect it is quite a lot of chopping down trees.

Barry Gardiner: Mr Huyton, could you perhaps take us through the time lag argument and why that is important in this? Ultimately, if this is going to be degraded, decomposed into methane-as Mr Lilly was saying-or burnt ultimately, onsite or offsite, it is difficult sometimes to see why it makes a great deal of difference unless you take into account the time lag through the counterfactual use of where it goes and for how long it is sequestered, either as chipboard or as paper or as some other product.

Harry Huyton: Sure. Can I very quickly add to the answer to your other question about what is being used at the moment? Ofgem report annually on the biomass that generators consume, and last year 3.6 million tonnes were consumed in 20 power stations. Given the way reporting is structured at the moment, it is difficult to say exactly what it is but self-identified waste is 24% and 76% has been forest biomass, although some of that might well be residues. About half of it is imported from the US and Canada principally, but also Latvia, New Zealand, Russia and South Africa, just to add to the answer to your question.

In terms of the time lag, as I say the critical question is: when wood is taken from a forest and used for energy, is there a reduction in the overall size of the carbon sink and, if so, how does that reduction compare to the sequestration? If the sequestration takes more than a period of a year then that is a carbon debt.

I would point the Committee to the Joint Research Centre’s-the Commission’s science unit-review of this issue. They have compiled the various peer reviewed studies of this issue. Their conclusion was that for use of stem wood you get a repayment period of anything between zero and 500 years. That huge range is because the forests of course are different, growth rates are different and such like. They also noted that for residues and stem wood you will get a carbon debt because, while the wood that is left in the forest will degrade, it does take time to do so. For example, over 20 years perhaps half of the dead wood left in the forest will have decomposed but half of it remains. So there is still a time lag there.

Why is time lag critical in this? Because from an "avoiding dangerous climate change" perspective, you need global initiatives to peak over the next couple of years and then enter a long-term decline. So what we need to try and avoid doing is investing in bioenergy production pathways that counter that kind of time profile that is required for emissions reductions.

Q21 Sir Robert Smith: Can I remind the Committee of my interest in the Register of Members’ Interests to do with oil and gas energy, in particular my shareholding in Shell and also, I suppose, as owner of a farm in terms of this inquiry? I want to come on to the cost-effectiveness of the biomass in the energy mix. The ETI contends that excluding biomass from the energy mix would significantly increase the cost of decarbonising our energy. RWE npower and E.ON have also suggested that biomass is cost-effective. Do the panel have any views on the cost-effectiveness of biomass in the energy mix?

Harry Huyton: Just to be very clear, I don’t think we should be taking bioenergy out of the equation. We think that you can deliver a significant amount of energy from bioenergy. However, we are saying that perhaps biomass electricity projections are too high based on the available resources; so just to be very clear on that. I do not have exact costings because it will depend what you replace it with. Obviously demand reduction is the cheapest alternative, and we are all aware that DECC will be coming forward with proposals on demand reduction shortly based on the McKinsey report from last year.

I guess what we are talking about is a shift from biomass electricity to alternative uses of bioenergy, which may have additional upfront costs. There is another economic factor at play of course, which is that there are additional economic benefits for investing in a domestic bioenergy sector rather than one that is based exclusively or predominantly on imports. I haven’t seen any work on this, but one would assume similar dynamics. For example, last year there was a report by Cambridge Econometrics comparing the jobs and economic benefits of a large wind-based pathway to a gas one. It showed that on wind, if we can capture the supply chain in the UK, you get benefits equivalent to 0.8% of GDP compared to 0.2% if you don’t capture those benefits, i.e. you are depending on other countries to provide the missionary, as it were, and expertise. I think there is something about capturing the full benefits of the support from the domestic versus an imported system.

Dr Slade: Last year we did a survey of potential North American suppliers. We posed a hypothetical question: if we build a biomass power plant in the northeast of the UK how much biomass could we get to supply it from North America? We came to the conclusion that, within a three-year time span, we could only get around 4 million tonnes, which is not huge compared to the quantity that Drax might be looking to burn in the next few years. The price for that was difficult to ascertain. Only about half the people we spoke to would even discuss prices. On the basis of four quotes, we came up with a figure of between £22 and £27 per megawatt hour. Those contracts were all long-term contracts, so 10 to 15 years. If you wanted to put that in place then that implies a two to three-year time lag before that is available.

Alastair Kerr: There are clearly going to be some benefits to the economy arising from certain bioenergy developments, but it is a question of balance. There will be no benefit to the economy if there is a disproportionate uptake of domestic timber. Because what that risks is displacing existing industries, if you have an uncontrolled and disproportionate uptake of wood particularly from the power generation sector. A more sustainable and economically viable option for the relatively limited wood resource in this country is in smaller-scale development, small-scale heat and power, because it stimulates local supply chains and so on. A study by Pöyry Consultants looked at the employment benefits per man hours per tonne of wood processed. For bioenergy there are two man hours per tonne of dry wood processed, whereas in the wood products industry you have 54 man hours per tonne of dry wood processed, because it is going from forestry to sawing to the manufacture of wood-based panels, and then construction applications and some various other spin-offs that you don’t get with bioenergy.

Q22 Sir Robert Smith: One of the things you have suggested is the disparity or the need to subsidise domestic and imported wood at different rates, given the different prices. What is the difference in prices?

Alastair Kerr: It certainly varies between whether it is a chip or a pellet. I don’t have those figures with me, but we can certainly provide them to the Committee. For importing it is more expensive. There is an additional transport leg for one thing. We know that the subvention system incorporated and took account of the higher costs of importing when that was set. As a consequence, when you procure domestically then that is where the disparity occurs. There is an advantage to procure domestically, and it puts you at an advantage in that market over other consumers.

Q23 Sir Robert Smith: You have legal advice that DECC could target the subsidy to imported-

Alastair Kerr: Yes, we obtained very senior QC opinion. That focused on two questions, but primarily focused on whether you could differentiate the support and give less support to the domestic generation side, as opposed to imports, because it had been suggested that there were international trade barriers to that occurring. It came back very clearly that there was no international trade barriers to doing that differentiation, and DECC, while acknowledging the opinion, did not offer a counter-opinion and they haven’t come forward with any alternative legal advice in respect of that question.

Dr Slade: I think it is very important to differentiate between large-scale power, distributed heat, the domestic resource and the imported resource. Last year we spoke to the top four pellet producers and the largest pellet distributor in the UK. At that time they had almost no interest in supplying large-scale power. That is because they figure that they could get better margins supplying small-scale heat. Also, for their business strategy, they didn’t want the entirety of their production going to a single customer.

Cost-effectiveness-wise, I believe it is more attractive for the large-scale power producers to import because you have a synergy between the size of the plant and the capacity of the boats, and transport costs are an important factor but they don’t dominate either from a cost perspective or from a carbon perspective. In terms of the wood products industry in the UK, the competition from small-scale heat for domestic biomass is likely to be a larger issue than imported biomass for large-scale power.

Q24 Dan Byles: I want to explore a little bit about the impact on the economy. A lot of this does come down to cost, so if you don’t mind I want to explore something that was touched on by Rob. The Energy Technologies Institute have said that, if we exclude biomass from the energy mix, we will be paying an extra £42 billion a year to supply our energy needs in a decarbonised manner by 2050. Surely this is something we can’t afford not to do.

Dr Slade: I would agree, for the reason that it is available, it works, it works at different scales and it is commercially there. If you start looking at some of these scenarios that are future-looking you end up comparing essentially hypothetical technologies at hypothetical cost points, whereas, if you want to make a difference in the short term, you need to be looking at the technologies that are currently available and effective, and biomass is one of those. It is not perfect and it is difficult to see how you could implement any new technology, on the scale that is required, without having some knock-on impact with some other sectors but it does work and it can deliver.

Harry Huyton: I absolutely agree that we should not be excluding bioenergy. I think it comes down to what is the makeup of that industry, and ensuring that that industry is at a scale that is commensurate with the amount of sustainable resource and that is where I think-

Q25 Dan Byles: Do you disagree with Dr Kennedy, from the Commission on Climate Change, who said that if there is conflict between carbon reduction and sustainability, carbon reduction should take precedence?

Harry Huyton: I think we should be doing everything we can to avoid that conflict by ensuring that we have proper sustainability standards.

Q26 Dan Byles: But if we can’t avoid it?

Harry Huyton: Then we should be looking at alternative ways to decarbonise, absolutely.

Q27 Dan Byles: You disagree with David Kennedy in this case?

Harry Huyton: I don’t think we are at a stage where we have an irresolvable conflict.

Q28 Dan Byles: The Commission on Climate Change have said that 10% bioenergy penetration is required to meet our 2050 target. That is quite a lot.

Harry Huyton: That is a lot, but it-

Q29 Dan Byles: We are not going to achieve that with small bits here and there. That is large-scale, 10% penetration.

Harry Huyton: That is by 2050, so we have to leave room for technological breakthrough. But I think the point of the positive vision that we set out was that we do think there is a considerable resource. We do think there is more we can be doing to unlock that resource. One of the examples we gave there was food waste, and phasing in a ban of food waste in landfill because that is an energy resource that we should be using and that we are not using at the moment.

Q30 Dan Byles: But that is tiny. That is nowhere near 10%. Drax represents 7% of our generation. Eggborough represents 4% of our generation. They are going to switch off. These are real problems in generating power in the immediate foreseeable future. If we don’t convert them to biomass what are we going to do? Are we going to replace them with gas-fired power, unabated gas? Would that be better? This is a problem here. Waiting for some wonderful technological advance that might come sometime in the next few decades is all very well, but, as politicians, we need to make sure the lights are going to be on in five, 10, 15 years’ time at an affordable price.

Harry Huyton: What we have said is that there is obviously room for co-firing. There is obviously a certain amount of sustainable resource but we have not seen a credible analysis as to exactly how much that is. I think we all agree that we don’t want to be taking feedstock away from existing industries, for obvious reasons, and we don’t want to be burning things that are going to increase emissions, again, because that goes against our officially-agreed policy on climate change. The problem is we haven’t done the analysis yet that says, "How does that all add up, what role could bioenergy therefore play?" and then we address the problems that you rightly point out. It is hard to comment on that until we know exactly what the available resource is, and we have been pushing into doing that.

Q31 Dan Byles: We don’t have that time. Eggborough is going to make the decision to switch off this year if they don’t get the agreement to convert to biomass. These are decisions that cannot afford to wait, but I take your point that perhaps there is still a level of uncertainty here.

In terms of source product, there are two very separate issues being discussed here, in a sense, and I think the issue at the other end of the table is about the fact that you guys are seeing competition for a product you currently use in your industry. If I could sum it up, basically you are saying that you are now competing with another industry, who are being subsidised in purchasing products that you need to purchase and you are not subsidised to purchase. Is that it in a nutshell?

Hamish Macleod: That is correct. It is important to say that our industry is not against using biomass in either heat production or in CHP production. As a company we use biomass for process heat, for drying timber, for example, and it is a very economical way of raising heat. Small-scale local CHP and heating projects that we are seeing up and down the country, absolutely fine. Again, our sector has been quite used to competition over the years. I have been in the trade a long time and we have seen competition from all sorts of different sectors coming and going. Fair competition; fine, fair game. We have invested in and modernised and built and grown the business and the market share within the UK. It is the subsidised competition that we find potentially objectionable.

Q32 Dan Byles: Do you think that the increased demand across the board for wood products is liable to see an increase in supply? Basic supply and demand suggests that if there is an increase in demand for a product supply will go up. In fact, DECC have said, as part of their bioenergy strategy, that wood supplies increased by 7% between 2007 and 2010. Are you not confident that-

Hamish Macleod: That is absolutely right. The forests of the UK last year produced just over 10 million tonnes of wood fibre, all of which found a home within the UK, some of which was energy, and that may peak at 12 million in the next five to 10 years. I know we have a trough coming after that, because we haven’t been replacing our commercial woodlands at a fast enough rate or at a high enough density, so we will have a tail off over the next 20 to 50 years. In fact, we are doing some research just now in Scotland as to how we fill that gap. There will be a reduction, but I am quite confident that we can utilise that wood within the sector. There will also be some room for bringing under-managed or unmanaged woodlands into the equation too, perhaps another couple of million tonnes a year.

Q33 Dan Byles: That is in the UK?

Hamish Macleod: Yes, within the UK. That is within the Forestry Commission estimates. Again, that can be used for biomass in proportion. But I think we are confusing those issues of imported large-scale and support for that and the knock-on residual effect on the domestic marketplace. Coming back to your point earlier: can we differentiate that subsidy? That is a big question.

Q34 Dan Byles: If I put the question to you really simply: what can DECC do to try to ensure that other industries such as yours are not negatively affected by their bioenergy strategy? I think you have already come down to this import, domestic, subsidy potential.

Hamish Macleod: Yes, either that or the large generators are saying that they are going to build their plants or convert plants on the basis of imported as well. Let’s have a signed commitment to that.

Dan Byles: On the basis of what, sorry?

Hamish Macleod: Of imported, predominantly imported. They don’t say exclusively, but predominantly imported. If that is the case, can we have a signed agreement to that effect?

Q35 John Robertson: If we are importing more how do we know it is coming from the right places?

Hamish Macleod: That is a very good question.

Dr Slade: I think that comes down to the role of certification, which is something that has been developing as the market has developed. I think it is important to understand you are not talking about a market that has been around very long. It is not as big or as extensive as the market for petroleum or gas products. The market for pellets was about 10 million tonnes in 2007, globally. It is now 18 million and it is expected to go to somewhere between 20 million and 80 million tonnes by 2020.

At the same time as you have had that exponential growth you have had the development of certification schemes, which have been trying to make sure that the biomass does come from the right places. There has been a bit of an explosion of different schemes, some of the most prominent being the Green Gold Label scheme. I would argue that, essentially, you need to allow the certification to develop as you develop the market. You shouldn’t wait for the perfect guarantee before deciding to go ahead and purchase the biomass, because chances are that the Netherlands, Sweden or another country will have gone ahead and bought it anyway.

Q36 Dr Whitehead: Just very briefly, the Government’s new sustainability criteria and the Government’s move to increase scrutiny in terms of wider impacts, such as food security and biodiversity loss, do you think those are good paths to follow and are there any other things you might do to add to those particular initiatives?

Harry Huyton: The sustainability criteria as proposed by Government at the moment are what will tell you where the biomasses come from. They are effectively to comply with the Government procurement guidelines, which are, that generators should supply what is known as CEPET category A or B evidence. A evidence is compliance of existing accreditation schemes like FSC, which I am sure everyone is familiar with, but also schemes like PEFC and SFI. These are existing-

Q37 Mr Lilley: Mr Huyton, don’t throw out just initials.

Harry Huyton: Sorry. Gosh, you are testing me here. Forest Stewardship Council, Sustainable Forestry Initiative and PEFC-

Q38 Mr Lilley: What is their context?

Harry Huyton: These are existing accreditation schemes that require-

Q39 Mr Lilley: What do they certify? They certify it comes from trees or from-

Harry Huyton: They certify a forest. That certification is then carried by its wood to say it was from a certain place and produced in a certain way. All of the schemes vary.

Q40 Mr Lilley: Produced in a certain way?

Harry Huyton: Yes.

Mr Lilley: I thought trees sort of grow.

Harry Huyton: Managed. The forest is managed in a certain way.

Q41 Mr Lilley: It isn’t getting over the fact that trees take decades to grow and hours to burn.

Harry Huyton: They give no assurances in terms of the impact on the carbon.

Q42 Mr Lilley: No. So it is a useless accreditation. It is just a lot of initials that disguises the fact that we are burning stuff that took decades to grow and will take decades to replace.

Harry Huyton: On carbon they are not particularly useful in that respect. On biodiversity some of them can be more useful, because they do deal with how the forest is managed and so they have biodiversity requirements.

Dr Slade: A single tree takes decades to grow and hours to burn. Within an entire forest you have a whole different aged structure, and if the forest is sustainably managed then you would only be burning a proportion of the annual growth increment each year.

Q43 Mr Lilley: But if you go from not doing it to doing it, it will take the lifetime of a tree or half the lifetime of a tree before you get to a sustainable position.

Dr Slade: It comes back to the debate on what do you think the appropriate counterfactual is. I think there is no single counterfactual that applies across the board and allows you to make sweeping judgments easily.

Q44 Sir Robert Smith: Is it also the case that an unmanaged forest is more likely to burn?

Dr Slade: Yes, that is it. This comes down to the debate on the coal report where the counterfactual was, essentially, you do nothing at all and the entire age class of the forest reaches a climax of old trees. That is a somewhat hypothetical situation because, over the course of 100 years, you are likely to have forest fires. You are likely to have wind damage. It is not a very realistic comparison.

Chair: Interesting and important though these issues are we have another panel waiting. We are about 20 minutes overdue, so we will have to cut this short. I am absolutely certain this is a subject to which the Committee is going to want to return before very long. Thank you all very much indeed for your contributions.

Examination of Witnesses

Witnesses: Dorothy Thompson, CEO, Drax Group PLC, Todd Bush, Sales and Marketing Director, Green Circle Bioenergy (US Industrial Pellets Association), Marcus Whately, Director, Estover Energy Ltd, and John Smith, Managing Director, GB Railfreight, gave evidence.

Chair: Good morning. Thank you very much for coming in and for your patience. As with the previous session, I have to draw attention to our time constraint. We have until about 12.10pm, so I will appeal to my colleagues for concise questions and to the witnesses for concise answers. I should draw attention again to my entry in the Register of Members’ Interests, particularly to the fact that I am both a director and a shareholder in Groupe Eurotunnel SA of which GB Railfreight is a wholly-owned subsidiary.

Q45 Dr Whitehead: We have heard and we have received considerable evidence about the scale of scaling up biomass, the extent to which there are rapid changes in biomass deployment in the UK. What particular challenges do you see to that scaling up?

Dorothy Thompson: Shall I make a start by saying we are the biggest user of biomass? First, thank you for the opportunity. We have seen that there are three challenges to large-scale biomass. The first is policy and regulation, that there is the correct support for it. A key part of that is having good mandatory sustainability standards, which the UK is leading on the introduction of.

The first is to have the right policy framework. The second is the technical challenge. Until a few years ago, biomass had not been used in a very large-scale on very large coal units, not in very high percentages. Now we, Drax, E.ON and RWE have all proved successfully that you can run biomass through a coal unit, solely fuelling with biomass, on a reliable and flexible basis. The technical challenge was there. We and others have spent millions and millions and millions in research and development to overcome it, and we have overcome it and we have demonstrated it.

The third challenge-and I think you have heard some of it this morning-is biomass sourcing. The challenge on biomass sourcing is not whether there is enough biomass. There is abundant biomass, but the supply chain is highly underdeveloped. I should say that I think all large energy users burn biomass in pellet form when you get to any large quantities. So we are talking about the supply chain for pellets, be it for agricultural residues or for wood products that we have been hearing about this morning. That supply chain is everything from the pellet processing to the transportation. If you are shipping it, and the vast majority of the biomass we use is imported, then you are talking about port facilities in the export country, shipping facilities and port facilities here in the UK, and, finally, transport.

The thing I should explain about biomass is it is highly explosive. It cannot get wet. You need bespoke facilities if you are going to handle it in a safe way; so quite a big challenge.

Q46 Dr Whitehead: Indeed, a number of challenges there. This is also a question to Mr Bush. You mentioned, first, that biomass plants overwhelmingly use pellets. Pellets are sourced and processed from a variety of international origins-for example, in some instances as a result of beetles chewing through trees in America, which presumably they will stop doing at some stage or other things will happen. How is it possible to produce confidence in the supply chain in the UK market with those sorts of factors inherent in the process? Do you think it is possible, with such an expansion of biomass, to have a high level of confidence in a supply chain, particularly in the international pellet supply market?

Todd Bush: I think it is. In the US especially we have had to deal with this before in the expansion of the pulp and paper industry throughout the 1900s, where we had a large amount of wood basically going into this new field. It is the same thing with pulp and paper. We talk a lot about sustainability, but one of the aspects-and I am just speaking for the US here, I can talk about Canada but I wouldn’t be an expert on it-is the US forest industry has basically been able to put land into better management practices and, in some cases, to put more land into forest management, and we were able to ramp up the amount of wood that is available.

When we talk about this whole carbon debt debate, what we are doing is we are increasing the amount of growth that is available in any one year but we are also only taking a certain fraction of that that is added each year. So we are always paying into that account, at least as far as the US is concerned. For example, between 1990 and 2010, if you look at the total carbon sequestered in the US forests, it went from around 700 to 922 million tonnes of CO2 sequestered in the forest. That is with the most rapid expansion of the pulp and paper industry that has been seen in the past century. We did that only because the market forces created a market for these products and for the landowner in the US forest, especially in the US southeast . It is a very disparate group of forest owners, there is no vertical integration for the most part anymore. These forest owners have an incentive to manage their forest better for a larger amount of wood products coming out of it. Also in some cases, if you have marginal land, land that you can put back into forest to create carbon sequestration and also to create products that could then be sold to the market-in some cases this could be wood products. In other cases it could be wood fuel to displace highly-intensive carbon fuels.

Dorothy Thompson: On the point of security as well, we find that the only way to buy biomass in large volumes is through long-term contracts. A very high percentage of our biomass supplies are contracts somewhere between a five and 10-year term. It varies. That is the starting security for us. What we do believe-and I think you heard it again this morning from Dr Slade-is as this market develops it will mature and then there will be better security of supply, because you will have more pellet producers and there will be better options for buying. But right now it is about contract security.

Q47 Dr Whitehead: The question of getting secure contracts and getting the pellets to the biomass plants presumably also means a secure supply chain, not just of ports but also inland and particularly on rail, I would guess. I presume, in terms of the increase in biomass, it is probably not easy to contemplate trucking everything around the country.

Dorothy Thompson: If I am clear, when I talk about contracting, either we or our supply will contract all the way through the chain. You will find that Green Circle has a long-term contract for their role from the plant to the port. They have bespoke port arrangements at their exporting port. They then have a long-term contract or a fixed contract to ship to us. We have had built for us by Port of Tyne, under a term contract, a bespoke biomass import facility. Then we have term freight contracts for the delivery of that biomass. We are building our own wagons so we can transport them in a cost-effective and low-carbon way, again through ownership. Therefore, long-term contracts; same thing. Yes, you are right, in all the different areas there has to be that long-term commitment.

John Smith: To just add to that, in terms of security within the UK, the great thing about Drax and the other power stations is a lot of the infrastructure from a rail perspective is already there, because it mirrors what we have doing for the carriage of coal for many years. The security of the relationship with Drax, though, enables us to buy the specialist equipment that we have to invest in in order to carry biomass because-as Dorothy has already pointed out-it is more volatile. It has to be covered and consequently we have to invest in equipment, but effectively the efficiency that we have driven into the carriage of coal can be exploited and that adds carbon benefits in the carriage of biomass.

Q48 Dr Whitehead: However, if you have done all that and you have all the pellets, and everything is sustainable and certifiable, and you run it in electricity-only power stations where 60% of the fuel effectively goes up the chimney, that is, presumably, something of a counter-equation as far as real sustainability is concerned. Is there a particular onus here as far as CHP is concerned?

Dorothy Thompson: Could I perhaps take you back a bit to what we are doing? Drax has six units, each 650MW on coal. We expect each to be 585MW on biomass. We have a project underway to convert three of those units. We have converted the first unit. It has been operating since April. It has been operating to plan. It has been operating reliably and it has been operating flexibly. It has had to respond to load following requests from National Grid and it has done very well. But we are part of a project. It will take time for us to convert the three units we are investing in, and that is all about the challenge of buying the biomass from a new supply chain effectively.

In terms of how biomass through large coal stations like Drax fits in, I think I would first like to take it back and say the reason why we make sense is the UK has ambitious but realistic renewable targets for electricity if you include biomass in the mix. If you don’t include biomass in the mix we will become more dependent on offshore wind because, ultimately, the only other large-scale solution available to the UK right now before 2020 is offshore wind. The beauty about biomass is we are the perfect complement to offshore wind, in that we are reliable, and we are flexible, so we are a renewable that fits very well with offshore wind.

The other advantage about biomass, though-and it is DECC’s own analysis that brings this out-is when you compare biomass in a large coal station like Drax, or biomass in a large coal station, and you compare offshore wind generation. The levelised cost analysis of DECC shows that it is about £105 per megawatt hour for generation from biomass from a large coal station, and it is £145 per megawatt hour for Round 3 offshore wind. So there is a significant financial benefit. The true financial benefit is even greater. That is because, as I am sure you know, we socialise all our grid support costs, both the support for intermittency and also the new connection cost.

Q49 Dr Whitehead: What I am particularly thinking about here is-and we have already this morning had a substantial discussion about the sustainability of the origin of biomass-if at the other end of the process you are wasting most of the heat, which is produced from the burning of biomass, and are producing electricity only, that has a substantial effect on the overall equation of the emissions level.

Dorothy Thompson: My apologies.

Dr Whitehead: Mr Whately may have some thoughts on that.

Marcus Whately: Yes, so we at Estover are slightly piggy in the middle here. We are doing the smallest industrial size of biomass as CHP for electricity and heat for industry. These are plants for a start that use chip rather than pellets because it is entirely UK domestic supply. It is supporting the industrial jobs on site, so it is about 3,000 jobs over the four projects that we are doing initially. The problem is that we are under the same support mechanism as electricity at a larger scale, once you are addressing the UK-wide problems that Drax are addressing. "Biomass" is a very broad term and we are doing a very different part of it, which we think is equally necessary, but they are combined heat and power because it is industrial heat loads. There are a totally different set of challenges. Our problem is that we are governed under the same regime at the moment.

Q50 Dr Whitehead: Yes. Does that mean the Government has put in the CHP Quality Assurance Programme?

Marcus Whately: It has.

Q51 Dr Whitehead: Does that have a negative effect on your operation?

Marcus Whately: No, it doesn’t. It is just making sure that CHP plants are CHP plants, which is fine. The problem is that on the electricity side we are then receiving the same ROC levels for the electricity. We get a heat incentive now. There are problems that we don’t have enhanced preliminary accreditation for the heat incentive yet, so we cannot use that for financing a project at what is a very large-scale, for a heat project. It is just that we are on a very small scale for an industrial electricity generating project.

Q52 Dr Whitehead: As far as biomass is concerned, are we in a position at the end of the supply chain, on the basis of how the various incentives work, that we may not be facilitating the best ultimate result after we take account of everything else?

Marcus Whately: I can only talk for the UK biomass market, because we are only sourcing our wood domestically in the UK. But, yes, it has to be demand-driven. We have seen all these figures of how much additional wood supply there is available. The reason it isn’t coming to market is because there isn’t the demand there. If we are going to bring that demand in, and make use of that and bring all the benefits of forestry management, we need an incentive scheme that works on the smaller scale as well as the larger scale.

Q53 Dr Whitehead: I think you were going to add some-

Dorothy Thompson: Sorry, I was just going to apologise. The reason why I went into my long explanation, the truth is that for most large coal power stations we weren’t built next to CHP opportunities, so it is simply not an option available to us.

Q54 Sir Robert Smith: Mr Whately, you are a domestic supplier of biomass then, and Drax is mainly an importer. As a domestic supplier of biomass do you think it is sustainable for all the other uses of timber in this country and also to grow a biomass relying on domestic fuel?

Marcus Whately: Absolutely, and I am pleased to see that all the respondents to this process have said they are in favour of combined heat and power. We are not going to be building a combined heat and power plant of the scale that Drax is looking at. They are just different things for different places. On an industrial scale, supporting industry and supplying their heat and electricity needs, there aren’t that many places in the UK where the project works and where there is absolutely scope in the domestic wood supply to supply all of those projects.

Q55 Sir Robert Smith: What is stopping Drax using the domestic supply?

Dorothy Thompson: I think Dr Slade said it very clearly; it is not an economic and appropriate source for us. With probably three units once they are operational, we will need about 9 million tonnes. So it is much more effective for us to buy biomass in contracts of 0.5 million tonnes rather than the very small volumes that come from the UK market. This year we expect to burn less than 0.5% of wood products in the UK, and that is basically local suppliers who have sought us out. We don’t think of it as a practical, economic market for us.

Q56 Sir Robert Smith: Mr Bush, how do you see the UK market developing?

Todd Bush: To tell you the truth, the UK Government is the furthest along of the countries who currently import pellets. We started out in 2008 selling pellets to the Netherlands and Belgium, Sweden and Denmark. The UK really came about relatively more recently and the scale is looking to be larger. That doesn’t mean that it is the only market that we sell into. It is just that I think a lot of the other countries are currently watching the UK deal with the sustainability issues and the incentive schemes, to then put in their own. The UK is going to be a large portion of our portfolio as far as our sales contracts moving forward.

Q57 Sir Robert Smith: Is Drax confident of a sustainable long-term supply on the scale necessary?

Dorothy Thompson: Yes. We have been burning biomass since 2003. We have been building our knowledge about large-scale supply to ourselves probably since about 2007-08. It was in 2008 that we put in the sustainability standard for our own policy and we are absolutely confident. It will take time, because it is a new market developing, but we are absolutely confident.

John Smith: The thing that I would add to that as well is the management and how you handle the fuel. As has been mentioned, it is quite volatile. What has happened since our involvement-we have been carrying for Drax now for two or three years-is a development of the knowledge of how to manage it and manage it more efficiently, and a development of the handling equipment and the development of the equipment that we use to rail into Drax. It may sound relatively simple carrying a bulk product, but we are beginning to see knowledge building up in the UK as to how to manage this and manage it more efficiently as time moves on. I think that is extremely valuable, and what Drax have done in committing to their capital investment to convert their power station has created the momentum for that knowledge to be built up, which must be valuable to the UK in the long-term.

Q58 Sir Robert Smith: Are there any policies, negative or positive, impacting on your contribution in terms of rail freight?

John Smith: Yes. I have a level of frustration about the joined-up thinking between the Department of Energy and the Department for Transport. What I mean by that is there are various reviews that take place of our industry. At the moment we are going through one with the Rail Regulator, in relation to charging for our rights of access to the network from a freight perspective. There are also capital lumps of investment that exist within Network Rail, a strategic freight fund. Obviously, in parallel with that, is the development of biomass consumption within the power stations. I have a sense that when you look at those three elements I am not sure that they are always reviewed together, so a very stark reflection on that is the decision of ROCs coming ahead of a decision from the Rail Regulator on what they will charge for the carriage of biomass. All I would ask is that those decisions are joined up, so that it is clear what the effect and impact of each of those is. I also feel that the capital, which is available to Network Rail to invest in rail freight, needs to be focused on the biomass industry as well, in order to create capacity for our carriage. There is existing capacity there. To do it more efficiently, then that money can be very efficiently invested within Network Rail to allow us to drive our carriage more efficiently for Drax and other power stations.

Q59 Mr Lilley: You referred at the beginning to having the right regulatory regime, which I take it is a coy way of referring to the right subsidy. Why is it more expensive to burn wood than coal, and is it more expensive to burn wood than gas?

Dorothy Thompson: First, I would say we have always said it is two parts of the regime that are important. One is, yes, the right financial support, but the other is-

Mr Lilley: I am just interested in that, so forget about the other.

Dorothy Thompson: The other is sustainability. The delivered cost of biomass is roughly three times the cost of coal.

Q60 Mr Lilley: Even though it is a waste product free and above ground whereas coal is underground?

Dorothy Thompson: Yes. The reason for that is there are costs in processing and transporting, and that is the bulk of the cost.

Q61 Mr Lilley: You have to transport coal as well.

Dorothy Thompson: The difference is the supply chain is already developed for coal. The problem with biomass is you are investing in every single part of the supply chain just to get it to your site, so it is almost like it is an industry you are paying for the start-up.

Mr Lilley: Sort of.

Dorothy Thompson: No. A very good example is when we have these port facilities built for us, we are paying for those capital investments over 10, perhaps 15-year contracts.

Q62 Mr Lilley: But each new coal development in Mozambique or whatever has to build its port facilities.

Dorothy Thompson: Exactly, but most of them were built a long, long time ago, so they are not looking to pay off that capital investment any longer. It is a much lower return they are seeking.

Q63 Mr Lilley: You also said "the processing", what processing goes into the wood and is that processing very energy intensive?

Todd Bush: It is. It is energy intensive, but it is usually renewable resources that are used for the energy. Whenever we pellet we basically source from approximately a 25-mile radius, sometimes up to 50 for our wood. We ship it in chip form or residue form, and then we dry it. We dry it using the wood itself, so a certain slipstream portion of it is used for the drying process.

Q64 Mr Lilley: So you burn some wood underneath it?

Todd Bush: To dry it. That is basically to increase the energy content because otherwise you are going to be shipping very bulky, water-filled wood chips, which becomes very inefficient. Your delivered costs would be even more expensive than to ship a densified, compacted, dried form of biomass. So you have electricity, you have heat, and then you have the transport in the supply chain.

Q65 Barry Gardiner: Ms Thompson, Dr Slade spoke earlier of the importance of certification, and I think you were in the room and may have heard that. What percentage of your fuel currently comes from certified forests?

Dorothy Thompson: I am sorry but I don't know the answer to that. I do know that in the US south only something like 20% of the forest is certified. The reason why it is that low-and that is just an illustration-is that the US has an awful lot of private forest ownership. It is very, very expensive to have that standard certification and it is simply not economic for a lot of the private forest owners. You would then think, "That would make us worried because perhaps we are not buying from sustainable forests" then you fall back on other US regulations. Todd is more of an expert than I am on this.

Todd Bush: It is one of those things that DECC is currently looking at, because we are-

Q66 Barry Gardiner: Who is looking at it?

Todd Bush: DECC is looking at the sustainability schemes right now in the US, and how to assure that. The US does not have a significant amount of certification on the forest land itself, but we are one of the few countries where you can basically track that all the way back. When I say "not certified" I mean that a very small portion is certified. For example, take Green Circle; we have the Green Gold Label certification that was mentioned earlier. We have-

Q67 Barry Gardiner: Can I just clarify, is Green Circle the US Industrial Pellet Association or is it a separate brand?

Todd Bush: Yes. USIPA is the US Industrial Pellet Association of which we are a member.

Q68 Barry Gardiner: You are a member of that association?

Todd Bush: Correct.

Q69 Barry Gardiner: But you are an independent company?

Todd Bush: We are an independent company, right. I am speaking as a member of USIPA and just using Green Circle as an example, because I know it the best. We have many certifications for our supply chain, which means that we can track it all the way back up to where it was landed in the forest. Our loggers are all Master Logger certified, which means that they follow sustainable harvesting guidelines, that they use all of the best management practices, which are state-by-state guidelines for the sustainable harvest and growth of forest products. We have SFI fibre sourcing, which is basically a chain-of-custody certification, FSC-controlled wood [incorrect], so we manage that supply chain to get every certification we have. That means that we know where that wood comes from and we can even go back and audit it if we have to. We are basically audited by every one of our clients probably at least once a year.

Q70 Barry Gardiner: Can I just clarify that? What you have said is that very few of the southern US forests are certified.

Todd Bush: Correct.

Q71 Barry Gardiner: The certification processes that you have, in terms of certified loggers, would be qualifications and there would be certification of processes, desk certification in other words, rather than forest?

Todd Bush: Correct. You could not label our product as FSC or SFI-certified. We cannot do that because it is not throughout the entire chain.

Q72 Barry Gardiner: Is Enviva one of the association’s members?

Todd Bush: Yes.

Q73 Barry Gardiner: Enviva I believe supply to Drax?

Dorothy Thompson: Exactly. I would like to make clear that where the forest is not certified from where the biomass is coming from, then what is very important is that we have a good assurance process to ensure that we are taking from a sustainable source.

Q74 Barry Gardiner: Good. That is precisely what I want to get on to, because Enviva operate the Ahoskie pellet plant in the southern US, and the Southern Environmental Law Center report has observed hard wood tree trunk damage of between 1 and 2 feet at the plant, including some wetland species, which could only have come from natural forest rather than plantation forest. Isn’t that correct, Mr Bush?

Todd Bush: It is probably correct. When I speak of Enviva, the reason that they could possibly have those-when we say "harvesting residues" oftentimes we have a problem with definitions. We are never clear felling a forest entirely for pulp wood.

Q75 Barry Gardiner: No. But what we are talking about here is wood that has come from natural forests, not from sustainable sources, and yet you have just said that the assurance that you are able to provide, even without certification, should ensure that that is not happening. You said that you would be able to track back to the trees in the forest, yet here the Southern Environmental Law Center has identified wetland species coming from natural forest rather than plantation forest. That doesn’t give me a great deal of confidence in the assurances that you have just provided.

Todd Bush: Natural forest can still be certified. That is the thing. You can still trace it back and it does not mean that it is not sustainable. For example, take Russia; it has the largest tracts of sustainable forest certified, in the world, but the thing is that all of those forests are natural forests. Just because they are natural does not mean that they are not sustainable. Oftentimes the cycle is a little bit different, just because it doesn’t come from plantations does not mean that forest source is not sustainable.

Q76 Barry Gardiner: All right. In that case, we will beg to differ on the specifics of the Environmental Law Center’s report.

Ms Thompson, the Back Biomass Campaign-which I understand Drax is a supporter of-has said that the biomass industry is at the bottom of the list, taking the cheapest materials that can find little other market. For example, this includes residues, bark, sawdust, forest thinnings and very low-grade saw logs. You would recognise that as an accurate description of the biomass industry and Drax?

Dorothy Thompson: Yes. I didn’t know about the low-grade saw logs, but I would not say I am an expert. The rest I would recognise.

Q77 Barry Gardiner: Could you just tell me the job title of Nigel Burdett in your organisation?

Dorothy Thompson: Nigel Burdett is Head of Environment at Drax.

Q78 Barry Gardiner: Why then did Neill Burdett say to my office, on the phone on 17th May, that clean, white wood is all that Drax burns and all that Drax is able to burn, that bark and the contaminants in agricultural residues could damage the furnace, and that Drax may never be able to use anything other than clean, white wood, they are not banking on residues?

Dorothy Thompson: Then we go back to a problem with definitions. In the past, when we were burning a little bit of biomass and a lot of coal in our units, we burnt primarily agricultural residues, so peanut husk, oat husk. We have our own straw pellet plant. What then happened is, as we went through our technical trials for burning essentially pure biomass in our units, what you find is the more mature the growth of whatever the fibre is then the better our boilers perform. So the safe beginning for us is clean, white wood. That clean, white wood-I am sorry we are talking in our internal code-will be wood pellets that contain some bark. There is a limit on how much bark we are willing to have in those pellets, and I am sorry I don’t know that limit.

What I would say is the technical challenge to my team-and they are very much on top of this-is we want to go from burning solely wood in our boilers, with an acceptable level of bark and other things, to a wider spectrum. We would like to open up the opportunity again for these mainly agricultural residues and some lower grade wood products, I suppose, but we-

Q79 Barry Gardiner: That hardly seems to correlate with what your Head of Environment said, "Bark and the contaminants in agricultural residues could damage the furnace and Drax may never be able to use anything other than clean, white wood".

Todd Bush: We know from speaking to Drax that-

Barry Gardiner: Sorry, I think it is more appropriate that Ms Thompson responds.

Dorothy Thompson: No. We are today burning pellets that have some bark in it. It is a question of what is the percentage of bark in those pellets. At a very high percentage we would not be confident that we have done the technical trials to be able to burn them at the moment, but our objective is to increase our burning of what we find more difficult biomasses, and that includes high bark pellets.

Q80 Barry Gardiner: That rather suggests that the Back Biomass Campaign handout, which is putting it about that the biomass industry is at the bottom of the list, taking the cheapest materials, bark, sawdust, very low-grade, is not a terribly accurate description of what you are saying, because what you are saying is, "We burn a lot better on clean, white wood with a very little proportion of bark in there and, yes, we are trying to increase the amount of bark that we might take in, and low-grade stuff, but we don’t know whether we can do that yet".

Todd Bush: When we look at a pellet, though, if we take sawmill residues, which is sawdust, chips and shavings, those are all clean, white wood, even though they are considered residues and low value products. If we take thinnings, those are also considered a low value product. Thinnings are still basically the low value portions of the tree, which we can then debark. We use the bark for our fuel. The bark does not go into the pellet; it is used as a fuel.

Q81 Barry Gardiner: I thought you just said it did?

Dorothy Thompson: No, I said some of our pellets have some bark.

Todd Bush: Yes, very rarely. Sometimes we also use thinnings that we have to chip whole. Like if we use harvesting residues, we will just have to chip that. Okay, we already have four different feedstocks. We have shavings, chips, the other sawmill residues and then the thinnings itself. Add all that up; the bark that comes from the very small diameter trees is going to be a very small percentage of the total pellets you get.

Dorothy Thompson: If you picture it, when you harvest a tree, all the limbs and branches, that is what is called the harvesting residues. That can then get turned into dust and then put in the pellet, so by definition that has some bark on it.

Q82 Barry Gardiner: But by definition it is not clean, white wood. Is that not the case?

Todd Bush: No matter what, maximum you are going to get 5% of bark. I think if you are going to call that "clean, white wood" you would still be safe in calling that clean, white wood.

Q83 Barry Gardiner: I am asking you what you do call it. What is it correctly called? Is it correctly called clean, white wood?

Dorothy Thompson: Clean, white wood pellet can contain some bark but only a very small percentage.

Q84 Barry Gardiner: Thank you. Ms Thompson, you heard the interchange earlier about carbon debt and the distinction between stock and sink. Do you believe that the proposed new sustainability criteria that DECC are taking on board is going to properly reflect the notion of carbon debt?

Dorothy Thompson: I think that if you take biomass from a truly sustainably managed forest, the starting point is there is no carbon debt. That is what I believe.

Q85 Barry Gardiner: You maintain that the growth-drain ratio is always less than one, and that means that there is no debt? Is that correct?

Dorothy Thompson: Greater than one.

Q86 Barry Gardiner: Yes, is always less than one.

Dorothy Thompson: The growth is greater than the drain.

Q87 Barry Gardiner: Yes, the growth-drain ratio.

Todd Bush: The growth is on top.

Barry Gardiner: I am quoting you, so I hope you have it right. If not then-

Dorothy Thompson: Yes. I think it needs to be greater than one, because you put the growth in-

Q88 Barry Gardiner: Exactly. You would say that therefore there is no carbon debt. But that avoids the issue that was explained by the earlier panel, in terms of the other uses to which that wood might be put in the interim, which might give a period where it was sequestered for longer than a year and hence represent a debt. Why do you not take account of that in your own calculations and in the criteria that DECC should be putting in place?

Dorothy Thompson: Because we believe that, as long as we are taking from a forest where the growth is greater than the drain, what we are also reflecting is the fact that there isn’t necessarily demand for the rest of that product. It is not that we are substituting because, if there was more demand, then the growth-drain ratio could be lower.

Q89 Barry Gardiner: I am sorry, that precisely doesn’t answer the question. I agree with you that over time the growth-drain ratio, in your terms, will be greater growth than there is drain; over time. The point is that the time element becomes critical when one is dealing with combating climate change in the short to medium term. If otherwise product, which you are burning and therefore emitting CO2 into the atmosphere, would be sequestered, there is a problem of carbon debt that you are failing to address.

Dorothy Thompson: I am sorry, I still think of this the other way around that, if you encourage active forest management, what you have is an increasing amount of carbon absorption by the forest. The way you encourage active forest management is by having a good economic use for the forest.

Q90 Barry Gardiner: Indeed, and that economic use could be by having the sustainably managed forest, taking out the thinnings, putting them into chipboard, putting them into pulp and paper, putting them into other uses. Simply to rely on the fact that there may be a dip in those markets at the moment, which you may well be filling, is not the basis for a sustainable industry in the long term, is it?

Todd Bush: Do you mind if I address this?

Barry Gardiner: Please.

Todd Bush: I think the counterfactuals that you mentioned in the panel earlier were burning them on the spot, thinnings for alternative uses, and then leave it to grow in the forest.

Q91 Barry Gardiner: Not quite. It was burning from the spot, the forest could simply be unmanaged, which would increase both stock and sink, in the short to medium term. You could put it into other uses, such as chipboard and paper, or you could bring it into the biomass process.

Todd Bush: Right. I think we both agree that burning it on the spot, the thinnings, would be a horrible thing.

Barry Gardiner: Absolutely.

Todd Bush: So for alternative uses the counterfactual requires there to be a market for that. In this instance in most of the places we don’t have that market, so we are saying that automatically the counterfactual with these residues that we use would go into that. In the areas that we go to they wouldn’t, because we sit so far to the left on the demand curve that if they were to compete with us in this market they would win for those residues. So this counterfactual in my opinion basically doesn’t have any bearing.

Q92 Barry Gardiner: Tell me this, Mr Bush. Why would anybody, other than yourselves, who has no market for their thinnings, chop those thinnings down and burn them on the spot?

Todd Bush: Most of the time you do thinnings because you want to decrease the competition for your dominant species in the forest itself so, at the later harvest, when you clear fell, you have more saw logs that are bigger and better. If you don’t have a market for those, you would still have the incentive to thin if you thought your later value was greater. So what you would do is you would still thin those, and then you would burn them.

Barry Gardiner: I accept that.

Todd Bush: That is what happens. So what we are saying with your counterfactual is that we don’t have a market for it, so it is just going to get burned anyway, if we take this to the extremis.

Q93 Barry Gardiner: What evidence do you have of the uses in forests in the southern states? What evidence do you have of the use of thinnings, or non-use of them, in the southern states? You have already said that it is very difficult to certify these forests, because many of them are small and in private ownership, so this argument between us critically depends on if there is a counterfactual use or not, doesn’t it?

Todd Bush: It does.

Q94 Barry Gardiner: If there is a counterfactual use, then I think you would have to concede that the argument of sequestration for a period longer than a year creates the potential for debt. If not, then I would concede that it is absolutely right to put it into the biomass chain. You don’t have the evidence for that at the moment to prove it.

Todd Bush: I don’t, because it is not collected.

Barry Gardiner: Absolutely.

Todd Bush: Basically we could do this economic exercise and then point out if there was a mill close.

Barry Gardiner: Thank you. You have accepted that you don’t yet have the evidence to show that, and that is my point

Dorothy Thompson: The bit that I cannot quite understand is if we still have a situation where the growth is greater than the drain, then what we have the evidence to show is that there is not enough demand to use the potential of the forest. The forest is only used at its optimal if the growth and drain is equal to one. That is why I am confused.

Q95 Barry Gardiner: I am not here to help you out of your confusion, but I am very happy to resume the argument at another time.

Dorothy Thompson: Okay.

Todd Bush: Also, one of the things that we are trying to point out is that the counterfactuals only make sense if we are talking about the carbon parity point, basically where we have paid back compared to the counterfactual. After we hit that carbon parity point, in your example, if we just let it grow we have no more advantage, that forest is just sequestered carbon. Whereas, when we are sending it to another value, when we are replacing the carbon, we are constantly replacing that carbon. So we are constantly taking it out, we are constantly making deposits into that bank.

Q96 Barry Gardiner: If you leave the forest intact then it will not be a sustainably managed forest, I grant you. It will not achieve the same value. As you well know, there are many forests that are badly managed. Those forests will simply continue to grow, continue to sink and continue to sequester. They won’t do it as effectively, but they will do that. There is a point of course where-

Todd Bush: They don’t continue to grow.

Dorothy Thompson: There is a point where they become negative carbon.

Q97 Barry Gardiner: There is a point where they become negative, absolutely. I agree with you. At that point they will begin emitting or they will emit not just CO2 but they will emit methane, which is worse. That is why the time factor here is so critical. If there is a counterfactual use for what you are using in your supply chain, that sequesters that carbon for a period of time longer than a year, then there is a net debt. Ultimately it will all be paid back, and I grant that. That is why over time biomass is extremely important, but at the moment, when we are trying to get emissions down, when we are trying to meet 2030 and 2050 targets, there is a potential for it to do damage.

Marcus Whately: I would just emphasise that, for a UK domestic wood supply, I think it is accepted on all sides that the carbon savings are hugely greater for domestic. So this doesn’t apply. But again, just to emphasise on a cost per carbon basis, it is very nice to have extremely good value for the taxpayer but we have to do a lot more with the same effectively carbon cost as to import it, so there is an argument here for a smaller scale having a different incentive regime, where there aren’t any of these carbon queries.

Todd Bush: Also, we assume that it is just going to stay in the forest. That is not the case. A lot of times, if it is not managed and there is no value, you would have to pay the landowner some money to keep it in forest. Otherwise they are going to finally harvest it and then never put it back into forest again. That is also the other extremis of the counterfactual. In the US southeast each of these is privately managed. It is not like it is managed just for the sheer good of it being a forest. So if they do at some point find some way to harvest it, then that is completely taken out of the market. We add a reason to keep it in forest.

Barry Gardiner: It is sequestered. It goes into buildings and it goes into tables and chairs and panelling. It is sequestered there for 100, 200, 300, 400 years if it does that.

Chair: We have five minutes left, so I don’t know if we want to cover another issue. Alan?

Q98 Dr Whitehead: Overall, when we take all these factors into account, what do you think the overall benefit to the UK economy of the development of bioenergy can be? Is it a least-worst alternative to things that are already there working rather better, or does it have a benefit in its own right?

Dorothy Thompson: I believe we can deliver significant carbon savings. We carbon footprint all the biomass we burn and can demonstrate those savings, and the UK will be introducing a mandatory sustainability policy that requires those savings are delivered. It is a cost-effective renewable. It is good for security of supply. You heard the statistics earlier. We alone produce 7% of the power in the UK. What converting to biomass secures for half of our power station is that 3.5% of the half is secure. It is flexible so we can provide the demand response, and then I think there is very significant employment across the supply chain. I am sure it is true in your supply chain.

John Smith: I would add to that as well from a rail perspective, coal has been a huge market for rail freight. It isn’t the only thing we do. We move a number of other commodities that supports UK GDP. The replacement or the diminishing demand for coal is a big concern for rail freight in the UK. The natural replacement of biomass going into existing facilities is hugely important, in order to support the rail industry through its support to other commodities and, therefore, other elements of UK GDP.

Dorothy Thompson: I would add that we have thousands of people at work, not just the people who are running the power station and providing the maintenance service, but also the people who are building the enormous facilities we are putting in place to be able to have this conversion.

Q99 Dr Whitehead: You have mentioned, particularly as far as Drax is concerned, that you are unlikely ever to be particularly dependent on UK supplies, whereas, Mr Whately, you pretty much are dependent on UK supplies. Between you, how do you think you can ensure, as the industry grows, that indeed the other industries that are reliant on UK wood supply that we have raised so far are in balance with that industry, rather than being permanently and negatively affected by it?

Marcus Whately: From a UK point of view, we are a very long way from having a level of domestic CHP plants that impinge on existing wood industry in any way. On our scale, there is a huge excess of plant, excess wood supply, and we make the best use of it. We are using it to support other existing UK industries that we are supplying the heat and the electricity to. We build our supply chains in units of 500 tonnes, 1,000 tonnes and 1,500 tonnes in a lot of different contracts. I think it would take Drax rather a long time to build a supply chain on the same level. I think we are just in a completely different market.

Q100 Dr Whitehead: We have heard and we know that there are concerns about supply of round wood for panels, supply of shavings for horse bedding, a whole range of things that could be scooped up by biomass that have other-

Marcus Whately: I think it is important to say that those are not concerns at the moment, and given the forecast increase in wood supply in the UK there aren’t any concerns at all. It is the other way round. It is the forest owners saying, "Is there going to be a market?" If suddenly there is a huge demand for biomass that, instead of it being imported, is drawn domestically then you have a conflict. But it is not saying, "There is a problem at the moment. What are we going to do?" It is a question of how-

Q101 Dr Whitehead: My thought is that, as bioenergy really does grow to the extent that the projections suggest, is there a balance that ultimately can be drawn with those other uses? Or is it inevitably going to be the case that, because of the historic circumstances that there have been around that, eventually, there will be a clash and our hamsters will not be safe in their cages?

Dorothy Thompson: I think the concern probably does come that we may switch our buying practices, and that the large generators who are using biomass will switch their practices. I think that is probably where the concern comes from. We have spoken with the Department about this concern, and the large generators have all made a voluntary commitment not to burn more than 10% domestic. I think, equally important is that we have made a commitment to report regularly to DECC on what our domestic wood use is. The reason why we do that is that if a problem should start to develop, then DECC has early statistics on it and can consider whether there needs to be a different solution.

Chair: One final question I think from John.

Q102 John Robertson: Mr Smith, I want to ask a question about carbon emissions reductions. How could the proposed changes in the regulation to the transportation of biomass by the Office of Rail Regulation impact on the cost of biomass, so that it can make a cost-effective contribution to carbon emissions?

John Smith: I think it depends on how far you transport the biomass. But the Rail Regulator proposals, which are still under consultation at the moment, add about £1 to £1.50 to the cost of the carriage of the biomass. As I was mentioning earlier, I think in relation to that cost, and whether it is affordable and whether it therefore encourages us to carry the material, it needs to be seen in the round of what the Department of Energy do in relation to the ROC credits. My view is that it should be withheld at the moment until the development of the biomass market is clearer. I think I said in my response that it should be parked for about 10 years, and we have reflected that through to the Rail Regulator.

Q103 John Robertson: The cost is £1 to £1.50 a carriage?

John Smith: Per tonne that we carry.

Q104 John Robertson: Per tonne? How much does a carriage hold?

John Smith: At the moment Drax is developing a high efficiency wagon, because the material is less dense than coal, but at the moment we carry about 1,100 tonne in a train, so it is adding between £2,000 and £2,500.

Chair: As I said to the previous witnesses, I am sure we shall want to come back to this subject. I am sorry we have had to cut it short this morning, but thank you very much for your contributions.