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4.30 pm

Baroness Warwick of Undercliffe: My Lords, we have had an extremely positive and constructive debate with a galaxy of supportive speeches, and I thank all noble Lords who have spoken. It has been especially satisfying to hear so many noble Lords waving the flag for their own institutions; I stopped counting at 15. I particularly thank my noble friend the Minister for his recognition of the excellent work that universities do.

It is clear from what has been said that the House passionately believes in the value of higher education. I wonder if I might briefly return to three points. First, I am glad that many noble Lords have agreed that the expansion of higher education must be properly and publicly funded and emphasised the importance of the stability of the unit of funding for teaching, and that must continue. Secondly, creativity, the generation of fresh ideas and the regeneration of communities all depend on sustaining diversity of provision, freedom, flexibility and, importantly, autonomy. Thirdly, there is the sheer diversity of

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examples—the wide contribution from music and culture to science and economics—of how higher education is benefiting the UK economy.

My noble friend Lord Giddens said that higher education was one of the UK’s great, unsung successes. I hope that your Lordships’ voices raised in harmony today will sing out that success loud and clear. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Energy: Biofuels (EUC Report)

4.31 pm

Lord Sewel rose to move to move, That this House takes note of the report of the European Union Select Committee on The EU Strategy on Biofuels: from field to fuel47th Report, Session 2005—06, HL Paper 267.

The noble Lord said: My Lords, the committee presented its report, The EU Strategy on Biofuels: from field to fuel, on 20 November last. Much has happened since. Its purpose was to assess whether the EU biofuels directive was proving effective as a means of increasing the biofuels content of road transport energy. I suppose the short but accurate answer is that it has not.

Our inquiry found that the biofuels directive failed to enable the EU to reach its 2005 target of a 2 per cent market share for biofuels. It will be necessary for additional methods to be in place to meet the higher target of 5.75 per cent of market share by 2010. In our report we recognised in particular the value of the UK’s road transport fuels obligation, which will require fuel suppliers to ensure that, by 2010, 5 per cent by volume of their sales in the United Kingdom are from a renewable source.

We suggested, therefore, that the Commission should amend the EU biofuels directive to require member states to use similar biofuels obligations as a tool to achieve national targets. We did not consider that, in present circumstances, biofuel obligations should be imposed at a Community level. Rather, member states should be allowed to select the percentage of the biofuel obligation on a country-by-country basis while retaining indicative targets for market share.

The evidence that we collected demonstrated that there are substantial concerns over whether biofuel production does in fact contribute to a reduction in greenhouse gas emissions. As a response to those concerns, we concluded that we would wish to see the European Commission establish a European-wide system of carbon certification for both imported and domestically produced biofuels and feedstocks. We noted too the potential benefits to the agricultural industry of biofuel production, concluding that there is a genuine prospect of bringing into use more EU land, including set-aside, to grow energy crops while respecting biodiversity policies.

We supported the European Commission’s twin objectives of maintaining fair market access for imported biofuels while fostering a successful domestic biofuels industry. While not advocating

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subsidies, the introduction of economic and fiscal incentives such as the fuel duty differential and the UK’s enhanced capital allowance schemes are appropriate ways to encouraging the growth of the domestic industry.

Looking forward, we considered that the EU could add real value in the development of second-generation biofuels such as timber and straw. The European Commission could co-ordinate, finance and organise European research and development as well as facilitate good practice. In that way, the Commission could encourage the market to find and develop new technologies, including the use of by-products and potential feedstocks that are now classified as waste. It is now common ground that the real breakthrough is likely to take place with the second generation of biofuels. We considered, too, that blending limits for biofuels and conventional fuels set at EU level should be revised upwards from the current 5 per cent.

The Government agreed with the vast majority of our report. I am not sure whether that reflects our wisdom, common sense and right thinking, or whether that was in reality a condemnation of our total lack of imagination and innovation. I shall not deal with the Government’s response, because I am sure that the Minister will do that more than adequately himself. Perhaps I may make some general points.

The subject of biofuels has been one of much public and political debate since our report was published, notably within the context of Sir Nicholas Stern’s report on the economics of climate change. At the EU level, the European Commission published its biofuels progress report on 10 January 2007, concluding that the voluntary targets set for 2010 were unlikely to be achieved. It has proposed a significantly higher and, this time, obligatory target of 10 per cent to be achieved by 2020. In its report, the European Commission recognised the potential benefits of national biofuels obligations, the development of which was recommended in our report.

In general, many of the solutions suggested by the Commission are in line with the committee’s report. It recognises that blending limits must be revised, that second-generation biofuels must be developed, that measures must be taken to guarantee the environmental credentials of biofuels and that a balanced approach must be taken to international trade in order that both exporting countries and domestic producers can invest with confidence. The European Council of 8 to 9 March this year endorsed a 10 per cent binding minimum target to be achieved by all member states for the share in biofuels in overall EU transport petrol and diesel consumption by 2020, to be introduced in a cost-efficient way.

The recent Budget contained a package of measures to enhance the supply and use of biofuels; for example, the fuel duty differential was maintained at 20 pence per litre until 2009-10 and an enhanced capital allowance scheme was introduced to ensure that profit-making and loss-making firms had an incentive to invest in the cleanest biofuels plant. So it

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is an area of policy that is developing very quickly, both at the national level and at the level of the European Union.

The majority of points made in our report have since been supported by the Commission and the European Council. The importance of ensuring lifecycle sustainability of biofuel production is now towards the top of the biofuels agenda; it is recognised as a key issue. Second-generation biofuels are widely seen as the critical way forward. We regret, however, that the European Council adopted a mandatory 10 per cent target. We would prefer to see national biofuels obligations used across the European Union as a tool to achieve a voluntary minimum target.

The Commission identified three objectives that the directive, through the increased use of biofuels, would help to meet: the reduction of CO2 emissions, an increase in energy security, and providing an additional opportunity for income for farmers. The problem is that these three objectives do not necessarily sit happily together. The UK is one of the few member states to have given emphasis to carbon reduction. Others appear to have been more concerned with energy security. There is a danger that biofuel production will be undertaken in ways that lead not only to no carbon reduction overall but to major environmental damage, particularly in the context of the rainforest.

If our primary concern is emission reduction, it is necessary for us to be sure that investment in biofuels is the most cost-effective way of achieving reductions, not just in transport but overall. It would be enormously helpful if the Minister, either today or later, could provide us with some figures on the relative cost-effectiveness of different emission-reduction options.

Finally, the future contribution of biofuels is not unproblematic. Professor William McKelvey, the chief executive of the Scottish Agricultural College, has recently argued that one consequence of the reduction of world poverty and the continued economic development of countries such as China and India will be an increase in the global demand for food. In those circumstances, energy crops will be in direct competition with food production. Unless there is rapid development of second-generation biofuels, it is not clear how far more traditional biofuel production can be expanded, especially in an environmentally sustainable way. It would be a cruel irony if we ended up with an industry which today is seen as something of an environmental saviour but which in time inflicted its own environmental damage. I beg to move.

Moved, That this House takes note of the report of the European Union Select Committee on The EU Strategy on Biofuels: from field to fuel 47th Report, Session 2005—06, HL Paper 267.—(Lord Sewel.)

4.43 pm

The Earl of Selborne: My Lords, I know that the whole House will wish to thank the noble Lord, Lord Sewel, for the very clear and helpful way in which he introduced the debate on this most important report.

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I congratulate the chairman of the sub-committee, my noble friend Lord Renton, and all its other members on having presented in clear terms some of the dilemmas that a European Union biofuel strategy might lead us into. As the noble Lord, Lord Sewel, reminded us, it is by no means clear that the three objectives are mutually compatible.

I declare two interests, which pull me in different directions. The first is that I am a farmer. Clearly, all farmers welcome new income-streams, and there is enthusiasm throughout Europe for maximising income from energy crops. I also chair the trustees of the Royal Botanical Gardens, Kew. Of course, Kew, together with other botanic gardens around the world, tries to conserve rainforests, but one of the great problems that we are dealing with is the massive investment in palm-oil plantations and the loss of rainforest thereby. There is a real irony when you think that this loss of biodiversity is encouraged by people trying to demonstrate their green credentials.

Let us look at the three objectives: opportunities for rural areas, a new market contribution to energy security, and a contribution to reducing greenhouse gas emissions. All three have to be tested carefully to see to what extent all of them are valid for setting some challenging targets at the European level.

On benefits for rural areas, I had a lot of sympathy for the representative of the Danish Government who gave evidence to the committee. The Danes were not at all keen to set targets; they pointed out that they could achieve much better ways of reducing greenhouse gas emissions. After the noble Lord, Lord Rooker, gave evidence, Defra submitted supplementary evidence, which is in the second volume of the report. A question was asked about the respective costs of the different fuels. By far the most competitive source at the moment is ethanol from Brazil derived from sugarcane. It comes in at 6p to 11p per litre. If we grow it ourselves from sugar beet or wheat, it is likely to be three or four times that figure. So you need subsidies or tariff barriers, or you need to require people, under the obligation, to use it whether they want to or not. So although we are saying that it would help rural areas, it would put us back on the old treadmill—which the Danes certainly do not want, and I doubt whether the British public want it—of having subsidised European agriculture, and heavily subsidised at that.

The second objective is energy security. Let us briefly consider Sweden, which is well ahead of the rest of Europe in importing ethanol from Brazil. Sweden does not have oil stocks, and undoubtedly it is important to derive energy from another source for energy security reasons, but such imports do not help your security very much if you simply make yourself vulnerable to another source such as Russian oil, gas or whatever. There may be a security element in that reasoning but let us be clear that such an argument is not necessarily very logical.

I think that we will always be dependent on imports for biodiesel, for example. We can always produce more ethanol by not exporting our wheat, using our set-aside and perhaps increasing our area somewhat but there is a problem with biodiesel

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derived from oilseeds: you cannot grow oilseed rape as you can wheat, crop after crop on the same ground. It will always be difficult to be secure in biodiesel supply. In any case there are always competing demands for biomass crops, for use not in transport but to co-fire power stations. There is already a demand there for willow and other biomass sources such as elephant grass, miscanthus and the like. We can see very little contribution towards energy security from these new biofuel food stocks.

Thirdly, there are the environmental benefits. The noble Lord, Lord Sewel, reminded us that the British have bought into this much more than the other member states have. It is clearly true, as the report makes clear, that biofuels can make a substantial contribution to reducing greenhouse gas emissions. But that is not invariably so, as the noble Lord, Lord Sewel, also said.

Brazilian sugarcane, the best energy performer, yields about eight times the energy for every unit used in its production. Probably the worst example is some of the maize corn ethanol grown in the mid-west of America. It is doubtful whether that energy source yields as much energy as is required to produce it. It source also shelters behind a massive tariff barrier of 54 cents per gallon which is intended to ensure that this burgeoning industry in the mid-west is not undermined by the much more efficient sugarcane ethanol from Brazil.

The committee wrestled with the environmental credentials of biofuels, and I agree with the report that it should be possible to have verification on a European scale. There are assurance schemes but it is much more problematic to roll them out on a global scale. We need only think of what is happening with the illegal felling of timber from the Amazon basin, northern Borneo and many other countries. We know that a large amount of the wood that we import is illegally felled. In other words , the forest stewardship schemes which have been around a long time simply have not worked. I am absolutely certain that it will be just the same with the verification of biofuels. The concern of Kew and others that we will degrade the rainforests as we encourage higher targets for biofuels are a real worry.

What is needed is not so much encouragement to maximise biofuel production in the part of the world where it is most efficient as carbon credits for conserving forests. The EU Emissions Trading Scheme for carbon credits does not include land use. It would be an enormous advantage if you could give credit to Brazil, Malaysia, Indonesia and other countries for conserving what is already there and not giving credits to industries that pollute less than they used to. I am sure that that needs careful examination.

I agree with the noble Lord, Lord Sewel, that the future lies in the second generation. The second generation is all about using cellulose from any biodegradable source, whether it is timber, thinnings or urban waste. It does not matter what it is; provided that it is a plant and you can degrade it with enzymes to its constituent sugars, it is a source of fuel which you can use for transportation or anything. The noble Lord, Lord Rooker, was asked when giving evidence

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what the potential was. Although he gave rather a long time scale—I think he said it was 2050—he said that it was quite exciting and we might get up to a third of our energy resources from this source. I am not sure whether he was talking about transport or all energy sectors.

Either way, a lot of people in the biofuels sector are wedded to the first generation and say, “No one has ever produced this commercially; it is a long way ahead”. Again, one should be cautious about this. It is moving much faster. Since this report was published in February, the United States Department of Energy has announced awards of £385 million for six commercial cellulosic ethanol refineries, with a completion date of 2009-11. The quantities are not enormous—it will produce only 130 million gallons, compared with the 5 billion produced from corn-based ethanol—but it is a significant breakthrough when these commercial schemes are up and running. There is already a pilot scheme in Ottawa which has been running for some time. It must be admitted that the cost is currently uneconomic. It must come down by at least half and probably by two-thirds.

The evidence of this new technology is very promising. The future lies in turning these waste materials—timber thinnings, grass cuttings and the like; all sorts of waste—into transportation fuel. That is enormously valuable. We have the infrastructure for using biofuels because of the present first generation. We must put all our resources into planning for the second generation, not commit ourselves to land use which we might all regret for the first generation.

4.53 pm

Lord Bradshaw: My Lords, I do not have the expertise of the noble Earl, Lord Selborne, on this subject, but the debate is timely and I congratulate the noble Lord, Lord Sewel, on achieving it.

Demand for fuel is growing fast and will continue to do so. A 10 per cent target share for biofuel use in the transport sector by 2020, as proposed by the European Union, is demanding simply because of the rising consumption trend. Meanwhile, the search for energy economy and efficiency must continue apace. That was partly what the noble Earl, Lord Selborne, was referring to. The fact that we are looking for more fuel should not blind us to rapidly rising demand throughout the world. Biofuels are therefore not “instead of” issues but part of a multi-pronged attack on energy use. Can the Minister say whether “the transport sector” includes aviation? If so, it would make the subject even tougher than it already is.

The Select Committee draws attention to many things and while nobody wants over-regulation or over-direction, there are several very important roles that the European Commission should play. We must remind ourselves continuously, despite the noise, that we are an integral part of the European Commission. We have Ministers and Members of the European Parliament there and we should seek to influence policy. I despair sometimes at the continual whingeing that we hear about it. The United Kingdom is not doing as well as some other states. We have to admit that and learn from those other states.



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A European-wide system of certification is necessary. The noble Earl, Lord Selborne, said that such systems do not work very well as regards timber, but we are talking about things that are internationally tradable. We do not want to lay waste to the forests of Brazil, Indonesia or elsewhere to feed our appetite for fuel, and lifecycle environmental performance is vital for imported and domestic biofuels.

The taxation system is a very powerful weapon in our armoury. It has to be exercised carefully to avoid transgressing the state aid rules to which the Select Committee drew attention, but it is noticeable that other countries in the EU give greater tax and other incentives without apparently offending EU rules. I sometimes wonder whether this country is often not the victim of EEC rules but a victim of the assiduousness with which we apply them. Those are two different things.

Blending limits, as mentioned by the noble Lord, Lord Sewel, have to be addressed on an EU basis, because the vehicles and the fuel that they use are in common use and are freely traded and the automobile industry really only negotiates with the EU and Japan together. It certainly cannot be done on a national basis. As has been mentioned, the oil and vehicle industries must be persuaded to set higher limits for bio-ethanol and they should consider that alongside other clean technologies.

I give those few examples—and there are others—to show Ministers and officials that they should get in there and seek to drive policy the way that they want it. They should find allies. Just as you do not win sports events from the touchline, you will not win this debate from a passive position.

To return to targets, how does the Minister intend to implement the binding 10 per cent target for 2020 as agreed by the European Council? Often, when energy Questions are asked in this House, they are played back with a dead bat by Ministers answering from the Dispatch Box. However, we are not asking potentially embarrassing questions about nuclear power this time, but constructive, neutral questions about how we move forward to achieve a target that we assume is already part of government policy. I do not think that Ministers can play this back by referring to the Comprehensive Spending Review, for example, which we recognise is off limits; we want positive indications in the Minister’s reply. That would be very welcome.

As has already been said, we do not want to see the self-sufficiency policy with the EEC for food abandoned, but we welcome the prospect of more land being productively and intensively used for feedstock, if that is possible. With that in prospect, it is necessary to address issues such as the transport of material to processing plants, because it is no good, for example, growing crops in Scotland if you are going to use lots of fuel getting them to the processing plants wherever those happen to be.


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