Environmental Audit CommitteeWritten evidence submitted by Biofuelwatch

1. Executive Summary

1.1 Biofuelwatch is currently campaigning to end the Green Investment Bank’s (GIB) support for large-scale biomass electricity. In this evidence we set out our reasons for opposing large-scale biomass and describe the negative impacts associated with the industry.

1.2 In their first annual report, the GIB attributes over 90% of future greenhouse gas savings from its investments to its loan to Drax for the conversion of half of its generating capacity to biomass. We believe that the assumption that the partial conversion of Drax to biomass will result in these savings is without justification and contradicted by the evidence. Evidence suggests that this loan is directly contributing to increased CO2 emissions, the extension of the life of the UK’s largest coal-fired power station and the destruction of ancient and highly biodiverse forests in the Southern US.

1.3 We are aware that the GIB s currently considering potential finance for Forth Energy’s planned Grangemouth biomass power station and believe that a significant conflict of interest exists due to the fact that GIB Chairperson Lord Smith is also Chairperson of Scottish and Southern Energy, owning a 50% share in joint venture Forth Energy.

1.4 The GIB has five “green purposes”, but each investment it makes is only required to meet one of these. Because of this, projects that the GIB chooses to invest in do not even need to be “green” or contribute towards environmental protection.

1.5 We recommend that the Environmental Audit Committee calls for an investigation into the GIB’s loan to Drax Plc; calls for changes to the bank’s lending rules so that all sustainability-related criteria must be met in each case, rather than just one; and calls for the bank to create policy disallowing individuals with financial interests in companies seeking finance from the GIB from being involved in formulating lending policies under which these proposals will then be considered.

2. About Biofuelwatch and our Reasons for Submitting Evidence

2.1 Biofuelwatch provides evidence-based information, advocacy and campaigning in relation to the climate, environmental, human rights and public health impacts on large-scale industrial bioenergy. We are a small team of staff and volunteers based in the UK and US.

2.2 In the UK, the current key focus of Biofuelwatch’s work is on biomass electricity generation. As part of this, we have been running a campaign called “Banking on Biomass” with the aim of ending the GIB’s finance for large-scale biomass projects. In particular, we strongly opposed the £100 million loan agreed with Drax Plc in December 2012,1 and are concerned that the GIB will provide finance to Forth Energy’s recently-approved 100MW Grangemouth Biomass Power Station. Our campaign has so far drawn over 1,000 signatures to an e-action calling on the GIB to make a commitment not to fund further biomass developments, and more recently a further 1,000 participants in an e-action asking the GIB not to provide finance for Forth Energy’s Grangemouth plant.

2.3 Large-scale biomass burning in power stations is neither green nor renewable energy. Recent evidence has shown that at least some of the wood pellets supplied by Enviva to Drax Plc have come from clearcutting of highly biodiverse swamp forests in the Southern US.2 The Dogwood Alliance, a US-based NGO, has recently launched a campaign called “Our Forests Aren’t Fuel”3 focussing on European demand for wood pellets. The Dogwood Alliance state: “Right now, an emerging environmental disaster is underway across the Southeast [US]. Energy companies are moving quickly to cut our southern forests and burn the trees as a fuel for electricity-generating power plants... In the southeastern US, the massive fuel needs of these energy companies could double logging rates and increase carbon emissions significantly... Burning trees for electricity has skyrocketed in Europe. Major European utilities are now burning massive amounts of wood in their power plants. The demand for wood in Europe has resulted in the proliferation of manufacturing facilities across the Southeast to produce wood fuel. These manufacturers clear forests, grind the trees into wood chips and “wood pellets” and ship them from ports in the Southeast to ports in Western Europe. Last year alone, wood pellet exports from Southern ports increased 70%, making the Southern US the largest exporter of wood pellets in the world.”

2.4 In their original planning application for the Grangemouth plant, Forth Energy say that most of their wood is likely to come from the South Eastern US. However, during the Public Local Inquiry (PLI) held as a result of opposition to the plans, the company made it clear that at the time they did not know where they would source their wood from and that it could come from any region. When presiding over the result of the PLI, the reporter did not claim that the plant would be sustainable, but simply said that sustainability and greenhouse gas impacts should not be considered material planning concerns. The GIB, on the other hand, should seriously consider the sourcing of biomass, sustainability and greenhouse gas impacts of each development.

2.5 While the GIB have not explained how they have calculated their assumed significant greenhouse gas savings from their loan to Drax, we expect that an assumption was made that biomass is essentially carbon neutral, ie that the only carbon emissions to be considered are ones linked to fossil fuel consumption related mainly to wood pellet production and transport. This has been soundly and repeatedly refuted.4 Smokestack emissions from biomass burning are even higher than those from burning coal, per unit of energy. There is simply no guarantee that new trees will grow and resequester carbon. Even if they do, in the case of North American forests, trees grow slowly, and a large number of scientific studies have revealed a carbon debt, even compared to coal, of several decades or potentially even centuries. For power stations such as Drax, this means that converting from coal to burning trees can be expected to result in an increase of carbon emissions above and beyond even that which would occur from continuing to burn coal for the relevant and foreseeable near term future. Further, the loss of forest cover, impacts on soils, emissions from harvest and transport all contribute to further impacts. If biodiverse and carbon-rich forests, grasslands or other ecosystems are turned into monoculture tree plantation, the carbon released will remain in the atmosphere long term. And as experience with biofuels has shown, the indirect impacts of creating such a vast new demand can be even more serious than the direct ones.

2.6 Biomass power stations emit a large range of pollutants, some of which are linked to respiratory and heart disease and strokes, and others that are linked to cancer and birth defects. According to figures released by the previous UK government, biomass expansion in the UK is expected to lead to the loss of 340,000 to 1.75 million life years by 2020 just because of the additional small particulates which will be released.5

2.7 Biomass power stations are often deeply unpopular with local residents. Over 1,000 letters of objection were submitted in opposition to Forth Energy’s original plans, and a coalition involving Grangemouth Community Council and Biofuelwatch opposed the application at the resulting Public Local Inquiry. A development so strongly opposed by local residents should not be supported by GIB finance.

2.8 Our current work and campaigning is therefore of direct relevance to the Green Finance focus of this committee.

3. Our Evidence

3.1 According to the GIB’s first Annual Report,6 the bank committed to funding 11 projects, which they expect to reduce the UK’s carbon emissions by around 2.5 million tonnes of CO2. A closer reading of the report shows that over 91% of the reduction is attributed to the bank’s £100 million loan to Drax, which is in the process of converting the first of three units from coal to biomass. The other three units will continue to run on coal. The GIB claims in their Annual Report: “Converting coal to sustainable biomass provides substantial GHG emissions savings by displacing the dirtiest fuel with biomass.” This is simply not the case.

3.2 In order to generate half their electricity from biomass, Drax will have to burn pellets made from almost 16 million tonnes of wood every year—the equivalent of 1.6 times the UK’s entire annual wood production. The company paints itself as a pioneer of “sustainable biomass”,7 using agricultural, forestry and process residues to generate low-carbon energy, knowing full well that those claims are misleading—and not just because the scale of the new demand which Drax and other UK energy firms are creating far exceeds the availability of residues.

3.3 As a Biofuelwatch Freedom of Information request to DECC8 revealed in May, their own tests, concluded in early 2012, showed that converted coal power station units can only burn pellets made from slow-growing trees with low bark content. Other types of biomass—including most wood residues, which are high in bark—corrode the boilers.9 Drax thus has to rely on wood from whole-trees from boreal or temperate forests and tree plantations.

3.4 Study after study10 shows that the climate impacts of burning wood from whole trees is anything but benign—in fact, the carbon emissions will be even higher than those from generating the same electricity by burning coal for at least one or two generations. Smokestack CO2 emissions from biomass power stations are higher than those from coal power stations because wood is less energy-dense than coal, hence more of it needs to be burned for the same energy output. It takes minutes to burn a tree and decades for a new one to grow in its place. And when forests are clearcut (ie uniformly cutting all the trees in an area) and converted to monoculture tree plantations and carbon rich soils are damaged or destroyed, the carbon released will stay in the atmosphere indefinitely.

3.5 When questioned,11 the GIB have deflected all questions about the climate impacts of big biomass by pointing to Government policy—even though they make their own independent decisions on who to fund with biomass not even being a “priority area” for GIB funding according to the State Aid decision. Nor did the GIB express any concerns when a BBC investigation12 revealed that some of the pellets produced by Drax’s main US supplier have come from clearcut ancient swamp forests in the southern US.

3.6 In May, Secretary of State Vince Cable confirmed that the GIB loan did not help Drax to replace coal with wood—it helped them to keep the power station open rather than having to shut it in 2016 under EU air quality rules.13 Although overall biomass burning is as polluting as coal burning, it releases less sulphur dioxide and Drax, like many other UK coal power stations, is not equipped to meet the new EU SO2 standards without burning lots of low-sulphur fuel, ie wood.

3.7 At the GIB launch last November, Vince Cable declared: “It will place the green economy at the heart of our recovery and position the UK in the forefront of the drive to develop clean energy.”14 When the UK’s flagship project for a Green Economy helps the country’s biggest coal power station stay open, burn millions more tonnes of coal and fuel forest destruction in North America, something has clearly gone very wrong. And the fact that the GIB attributes 91% of its contribution to reducing the UK’s carbon emissions to Drax suggests that this particular loan was far from an accident or aberration.

3.8 The GIB are currently looking at a proposal to fund one of Scotland’s most controversial proposed biomass power stations in Grangemouth,15 which would see another 1.5 million tonnes of imported wood burned every year in an already heavily polluted town, where feelings against the plans run high. The company behind this proposal is Forth Energy, half owned by SSE16 whose Chair, Lord Smith of Kelvin, happens to also be the GIB’s Chairman. Biofuelwatch has highlighted this as a clear conflict of interest within the bank. The GIB responded: “In line with good practice in governance, nobody at GIB, including the Chairman, would participate in any discussion which could be perceived as a conflict of interest.” Whilst the Chairman may elect not to participate in any direct decision-making with regard to Forth Energy, he has played an instrumental role in establishing the bank and setting out its terms for operation. Because of this, his role in the bank will substantially influence any discussions over finance for the Grangemouth plant.

3.9 There are no assurances that greater future funding and future borrowing powers for the bank would not result in more finance for additional coal power stations slated for closure staying open or re-starting by burning coal and biomass, or new biomass power stations that fuel deforestation coming online. There is nothing in the legislation that enshrines the GIB into statute17 to prevent it from boosting corporate profits while harming climate, environment and communities through their funding decisions.

3.10 For example, the GIB has five basic “green purposes” against which, one would assume, any bank calling itself green would test each investment—reducing emissions, advancing efficiency, protecting and enhancing the natural environment and biodiversity, environmental sustainability. For the GIB, this is not the case. Each investment has to meet just one of those basic principles. Because of this, it would be acceptable for the GIB to finance a project deemed “efficient”, that at the same time increased emissions and caused a great deal of environmental destruction.18

3.11 Under State Aid rules, bioenergy is not supposed to be a priority spending area for the GIB. No more than 20% of GIB funding in total is supposed to go to non-priority areas. Yet we are concerned that some of their biomass funding is being categorised under other sectors. In particular, a recent loan for biomass CHP plants at hospital19 is categorised not as biomass but as “non-domestic energy efficiency”. While we have not opposed this particular loan, we are deeply concerned by the implication, ie that genuinely efficient biomass energy is not counted towards the “biomass” sector which, by implication, would therefore all include inefficient biomass electricity.

3.12 While the case for a Green Investment Bank attracted widespread support, some important questions regarding its operation have been ignored. Firstly, the question of whether the renewable energy industry is indeed “greener” than the fossil fuel industry. To those who associate renewable energy primarily with wind, solar and tidal power, the answer seems self-evident—of course such types of energy are better for the climate than burning coal, oil and gas. In reality, the majority of energy classed as renewable in the UK comes from burning biomass and biofuels, much of it at high cost to climate, environment and people. Crucially, the leading companies in the renewables and fossil fuel sectors are often the same. The UK’s biggest carbon emitters from fossil fuel burning—Drax, E.On, RWE and Eggborough—are co-financing the Renewable Energy Association’s biggest political campaigns over the past year—called Back Biomass.

4. Recommendations for Action

4.1 Biofuelwatch urges the Environmental Audit Committee to call for an investigation into the GIB’s loan to Drax Plc. This is particularly pertinent given Vince Cable’s admission that the loan helped to perpetuate coal-burning capacity and avoid the power station from being shut down.

4.2 We would also urge the Committee to call for changes to the bank’s lending rules so that all sustainability-related criteria must be met in each case, rather than just one.

4.3 Finally, we urge the Committee to call for the bank to create policy disallowing individuals with financial interests in companies seeking finance from the GIB from being involved in formulating lending policies under which these proposals will then be considered.

19 August 2013