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Grand Committee

Monday, 5 December 2011.

Arrangement of Business

Announcement

3.30 pm

The Deputy Chairman of Committees (Baroness Harris of Richmond):My Lords, before the Motion is considered, perhaps I may remind noble Lords that the Motion before the Committee will be that the Committee do consider the statutory instrument. The Motion to approve the instrument will be moved in the Chamber in the usual way. If there is a Division in the House, the Committee will adjourn for 10 minutes.

Renewable Transport Fuel Obligations (Amendment) Order 2011

Copy of the SI
Copy of the 33rd Report from JCSI
Copy of the 44th Report from the MC

Considered in Grand Committee

3.30 pm

Moved By Earl Attlee

Earl Attlee: My Lords, the draft Renewable Transport Fuel Obligations (Amendment) Order 2011 will give legal effect to changes to an existing scheme that requires suppliers of fossil fuel for road transport to ensure that a proportion of the fuel that they supply comes from renewable sources. This is the renewable transport fuel obligation, or RTFO. The legislation before us is of key importance in our efforts to tackle climate change and will implement the transport elements of the EU renewable energy directive, or RED.

Biofuels are the only alternative to fossil fuel in transport that presently can be delivered on the scale required to meet our immediate environmental challenges. They will play a key role in allowing us to keep within our forthcoming carbon budgets and to meet our European renewable energy targets. However, biofuels are not the silver bullet that some once believed. There remain legitimate concerns about the sustainability of some biofuels. With this in mind, I make it clear that we are not setting out a new trajectory for increased biofuel targets beyond those already set under the current RTFO. The order is about making biofuels more sustainable; it is not about supplying more biofuel.

Given the environmental concerns and the need to consider how best to deploy biofuels across transport sectors, there is no proposal to increase the obligation levels already set under the 2007 order, which requires the level of biofuel to reach 5 per cent by volume of the total fuel used for road transport in the obligation

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year that starts in April 2013. The target will remain at these levels for subsequent years. This order would place a duty on the Secretary of State for Transport to keep under review the obligated levels set under the 2007 order. It is our intention to consult in 2012 on possible increases to the percentage of biofuel that will have to be supplied in the period 2014 to 2020.

It may be useful for me to provide a brief overview of the current regulatory framework so that the changes we are considering today can be better understood. Suppliers of fossil fuel for road transport have an obligation to supply a small percentage of biofuel alongside the fossil fuel: currently 4 per cent. Suppliers of biofuel are awarded a certificate for each litre of fuel that they supply. The renewable transport fuel certificates-RTFCs-can be traded on the open market. This means that entities supplying biofuels that do not have an obligation to do so may still benefit from helping obligated suppliers to meet their targets as they can sell their certificates to those suppliers that require them to meet their obligation. The buyout mechanism is in place to provide a safety valve that protects both industry and the consumer from spikes in the cost of supplying biofuel. Presently, industry also reports the performance of its biofuels against voluntary sustainability criteria. However, if we pass this order, the UK will reward only sustainable biofuel. This is the key issue today.

This amendment will introduce the mandatory sustainability criteria set out in the RED. This means that for the first time there will be a legal obligation on industry to supply biofuels that demonstrably reduce carbon emissions and can be shown to have been produced from feedstocks whose cultivation did not threaten areas of high biodiversity or damage carbon stocks. Suppliers must therefore be able to prove that their claims of sustainability are true. These sustainability data must be verified to the internationally recognised limited assurance standard by an independent third party before participants in the scheme receive the renewable transport fuel certificates that are used to demonstrate that their obligation to supply sustainable biofuel has been met. If companies continue to supply biofuels that do not meet these environmental standards, those biofuels will count as fossil fuels for the purposes of the RTFO and as such will serve to increase the supplier's obligation to supply sustainable biofuel accordingly.

Another important driver behind this amendment is to further encourage biofuels made from the most sustainable feedstocks. Fuel made from wastes and residues will be eligible for double counting, receiving twice as many certificates by volume as biofuels made from other sustainable feedstocks. This double counting would also apply to biofuels made from lignocellulosic material and non-food cellulosic material; that is, woody matter as well as stalks and the like left over from agricultural crops.

We remain concerned that there are significant indirect impacts from some biofuels that are not currently addressed by the renewable energy directive. Earlier this year the UK published research on the scale of these impacts and we have written to the European Commission reiterating our belief that this is a pressing

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issue that must be addressed robustly at a Europe-wide level. As the directive currently stands, it does not take into account these indirect effects. While the extent of these impacts remains uncertain, there is robust evidence that widespread use of some biofuels can lead to significant indirect greenhouse gas emissions through the process known as indirect land use change, or ILUC.

The Government take the issue of ILUC seriously. Earlier this year the Department for Transport published research on the scale of indirect land use change impacts and we are continuing to lead work on how to tackle these, as well as encouraging the European Commission to address this issue on a Europe-wide scale with a robust solution. My honourable friend Norman Baker, the Parliamentary Under-Secretary of State for Transport, has written to the European Commission twice, expressing the Government's concerns regarding ILUC and pressing for robust and proportionate action to be taken to address the associated impacts.

We have also been consulting on guidance that will help suppliers and others with an interest in this industry to understand better how we take technical decisions in accordance with the order and how they are expected to comply with this legislation. This RTFO guidance will update existing guidance on process, carbon and sustainability reporting, verification and process-related issues for fuel suppliers.

I will now briefly summarise other key changes that would be delivered through this order. It would require suppliers to provide additional sustainability information. It would extend the RTFO so that biofuel suppliers, as well as those supplying fossil fuel for road transport, are obliged to register with the RTFO administrator and report on their biofuels. Small suppliers will still be outside the scope of the obligation in the light of the minimum supply threshold of 450,000 litres per annum, which will continue to apply. It would expand the RTFO so that all liquid and gaseous renewable fuels of biological origin that are for use in road vehicles are eligible for RTFCs.

This approach would enable more renewable fuels such as biomethanol, and partially renewable fuels, to be eligible for reward under the RTFO.

In order to allow maximum flexibility for industry while ensuring that the sustainability criteria are met, we are allowing suppliers to carry over RTFCs from one obligation period into the next, where the fuels associated with these certificates would have met the minimum greenhouse gas requirements in both periods.

This order will remove the duty on the RTFO administrator to report annually to Parliament. This is because the administration of the scheme is now carried out by a central government department rather than by a non-departmental public body, as had previously been the case. It is therefore subject to the usual ministerial oversight of departmental business, rendering additional reporting unnecessary. We are also proposing to amend the suite of civil penalties available to ensure compliance in order to reflect the changes made to other aspects of the order.

The changes before the Committee today are intended to ensure that biofuels used on Britain's roads deliver real carbon savings and can demonstrate

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their sustainability. Through double counting, they will also encourage industry to seek out ways of delivering the most sustainable fuels. I therefore commend the order to the Committee. I beg to move.

Lord Teverson: I am happy to start, my Lords, as this is a very important area. I will start what I am about to say by showing how important it is. If you are a believer that global warming is one of the greatest challenges to this planet and to mankind, then this order is of particular importance. We often forget that transport accounts for 35 per cent of energy usage within the United Kingdom, so in order to meet our renewable energy targets of 15 per cent in 2020, and our decarbonisation targets of 80 per cent for the economy as a whole up to 2050, we obviously have to succeed in this area. If we do not, then we stand no chance of meeting our other targets. We know, however, that this has been one of the most contentious areas.

Sometimes those of us who get involved in debates about wind farms and nuclear energy think that it is one of the areas where there is most division and angst among Members of the House and the public at large. However, this is one of the areas where we are asking what is and what is not a sustainable biofuel, and whether biofuels are good or bad. As we go on, that division-which seems to have got wider-is of great importance.

We therefore have to make sure that we solve issues in this area. The renewable energy directive requires that we reach 10 per cent by 2020, and on this scale we get to 5 per cent by volume-but that is of course only 3.5 per cent by energy content in terms of that target.

I looked at one of the reports of the Committee on Climate Change. It is useful to remind ourselves as background that in terms of decarbonising this sector, as the Minister said, renewable liquid fuels are pretty well the only option in the short term. What are the alternatives? I note that the Committee on Climate Change is looking for 1.7 million electric or hybrid vehicles by 2020, which will be 16 per cent of all purchases of vehicles by that time. Frankly, we will be very lucky if we get anywhere near that figure, and we are not on the trajectory to achieving the target of having almost completely electric vehicles by 2030.

The other alternatives are hydrogen fuel, which seems to be a long way off, or second-generation biofuels. Since I have been involved in this debate, second-generation biofuels-let alone third-generation ones-have been talked about as if they are around the corner, and yet those debates have been going on for three or maybe five years, and they are still not here. What research and development and real impetus-by Europe, through the framework initiatives, and through our own government-sponsored research- is being put into these second-generation biofuels? Until we move on to those, I do not think that this issue is overly solvable.

3.45 pm

That is the background, and we need to talk about the practice of this order. Clearly I agree with the Government's sustainability criteria-that is key. However, I would like more detail about who these independent

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assessors might be and whether any bodies have volunteered yet? I presume that this is all ready to go because we have to implement this secondary legislation. I would like to understand how that works. How confident are we that that traceability can work? How do we define whether the land that is being used is the right type of land? That seems a very difficult call; I believe that sugar cane in Brazil can give us environmentally positive biofuels in the right places, but I still need to understand how we assess that in practical terms. This is all about the practice.

I would love an assurance from the Minister that not one litre of biofuel that has been produced from corn oil in the United States will enter the United Kingdom; it has been through the various subsidy regimes in the United States. Corn products produced and consumed world wide have had a disastrous effect on the environment and global food prices, particularly in underdeveloped countries.

I am very pleased that the Government have taken account of waste products such as used cooking oil and given it double points as a reward. However, in the interests of keeping the industry sustainable, and given the current 20p a litre subsidy-which cannot be there for ever; indeed, it should not be-I should like to see a transition programme. Technically, the subsidy period ends in four months' time, but I would like the Minister's assurance that we can have a transition period for at least one or two years while this new regime comes in so that we do not put that industry and investment in the dustbin at a time when we really need a renewable fuels industry.

This may be a piece of secondary legislation, but it is of the utmost importance. It is very difficult to see how we will meet our targets in this area; I welcome the fact that we have this order before us, but we have real challenges.

Lord Palmer: My Lords, I thank the noble Earl very much for his, dare I say, easy-to-understand introduction of this order. This subject is becoming more and more complicated, and when the original band of four-the late Lord Carter, the noble Lord, Lord Ezra, the noble Lord, Lord MacGregor, and myself-persuaded the Government to accept the original RTFO, little did we think that the waters would become so muddied, and the UK biodiesel industry would be in such limbo.

This is such a complex subject, covering three different government departments and, of course, not to be forgotten, the Treasury. The noble Lord, Lord Teverson, made the point about used cooking oil, so I shall not repeat that by saying what I intended to say. But it must not be forgotten that investment in manufacturing for UK biofuels has been well over £500 million in the past five years. I declare an interest as a grower of industrial oilseed rape, albeit that my wife is a fossil-fuel explorator.

Investors are ready and waiting to invest a further £200 million at least in the next year, and more thereafter, if they can get clarity on the pathway to reach the renewable energy directive target of 10 per cent by 2020. This is private sector money, and the industry does not, and will not, rely on government subsidies. It must not be forgotten that UK biofuels are among the

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most sustainable in the world and provide a vast array of jobs for United Kingdom citizens, most especially in the deprived area of the north-east of England.

The lack of clarity in policy-in particular, a dead stop in the UK's renewable transport targets at 5 per cent by April 2014-is sending a negative signal to investors and I strongly believe that we must get a commitment beyond 2014. We know that we can supply up to 80 per cent of the 10 per cent target and it is incredibly important that these are all from home-made biofuels that are sustainable. I hope the noble Earl will take this on board. If we turn investors away, we will condemn the UK road transport sector to be the greatest carbon emitter in the country for the next 20 years. Is this really what we want? I urge the Government most strongly to confirm the 10 per cent target and the pathway to reach it before investors disappear completely and the RTFO is in utter shreds.

Baroness Worthington: My Lords, it is a great pleasure to speak on this subject. I also want to make a general comment about how this order was introduced. I worked for Friends of the Earth when the original Bill was being promoted in the House of Lords, and the reason that Friends of the Earth supported this Bill then was because we could see that the overriding priority was climate change and that we needed to seek renewable energy use in all forms of energy, not just electricity but heat and transport. So this was an important part of a suite of measures to address climate change.

In general, the order put forward today is very welcome. It is necessary to have sustainability criteria. I echo the noble Lord's comments that when we started out on this track no one could anticipate the degree of complexity that would come from this order, but measures are being taken to address problems as they arise. One way to address problems more easily could be by focusing more on indigenous use, growth and production of renewable fuels in the UK, where we can control the sustainability far more clearly. I would like to see more from the Government about how we can promote UK-grown biofuels.

The great weakness in the order at the moment is, as has been mentioned, the cliff face where we have no trajectory beyond 2014. It was interesting to note that the noble Earl seemed to be presenting it as something to be proud of that we have not committed to a trajectory. That is questionable and really damages investor confidence. The obligation is phrased as a percentage of overall fossil fuels sold. This means that not only do we have no growth in the percentage but we could have a declining volume of fuels being provided from this order because vehicles are getting more efficient and we are seeing a reduction in overall fuel use in this sector, especially as we move towards electrification of vehicles.

The Government's own modelling should show declining use of fossil fuels, which therefore means that the percentage in this order is also declining. We are not even standing still. This is a really serious issue and I would like the noble Earl to address this when he responds. All the reasons given for not committing to a trajectory are to do with the volume of fuels expected

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because of concerns about sustainability impacts. However, because it is a percentage, you could have the same volume but just growing in percentage terms. That does not really work and we need to see more clarity on why there is no trajectory and the damaging effect that this has on the investment community and UK business. I really want to see something from the Government to put these fears to rest at a time when we should be seeking to encourage all investment into renewable and sustainable forms of energy.

Viscount Eccles: My Lords, this is a very difficult subject, as the noble Lord, Lord Palmer, said. It is of interest that the department has not produced its statistics up to April 2011-although we are in December. I also have a perception that the department has come to this instrument with a certain amount of reluctance-I do not think it likes it very much. The reason why it does not like it is absolutely understandable. The information upon which the order is based is very sketchy indeed. I used to be on the Merits Committee, and I probably spoke on another order on this subject some time ago. When I was on the Merits Committee I do not remember there being five impact assessments-all done during the summer holidays, I notice. That must be close to a record.

Before getting on to the instrument itself I wanted to make two points. The first one is about a holistic approach. It does not make sense, in the context of climate change, to talk only about fuel, and not about fuel consumption or about emission control coming out of modern cars. There needs to be a much more rounded approach. The European instruments which have been put into place, no doubt agreed by ourselves in a Council of Ministers, are not at all fit for purpose. In fact, I am pretty sure that they are completely unfit for purpose. There needs to be a much more radical look at how we look at the whole picture.

My second point follows up what the noble Lord, Lord Palmer, said about UK production. I think I am right in saying that at the moment, of the biofuels that we use in this country, 90 per cent is imported and only 10 per cent is produced in the United Kingdom. Those are the Department for Transport's own statistics. The great majority of that is produced from tallow and waste cooking oil. On Teesside-I come from the north-east and reject the description of it being "deprived", which is not right-there is a quarter of a million tonne plant-

Lord Palmer: I am sorry; I did not mean that in any derogatory way. I know that unemployment in the north-east is a good deal higher than in other parts of the country, which is why I was urging for more investment in the north-east. I hope the noble Viscount does not take my comments in any derogatory way, because they were not intended as such.

Viscount Eccles: I thank the noble Lord for that, but there are some people in the north-east who are very good at making the most of the difficulties that we have in the economy. It does not do us any good to overplay our hand.



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There is a very large plant, which I know. It was engineered in large part by somebody with whom I used to work, and it is extremely well engineered. The company that was going to operate it went out of business. It is now owned, and, to a certain extent-I do not know quite how much-operated by Harvest, which is one of the suppliers of biofuels. It was designed to process rapeseed oil. My information is that it is not processing any rapeseed at all. I really question the whole future of the United Kingdom's own production from the standard feedstock in temperate climates, which is rapeseed. I do not know what the position is.

It is notable that in the instrument and the impact assessments there is hardly a mention of rapeseed, and no references are made to United Kingdom production from rapeseed. Of course, rapeseed is a food; you can buy rapeseed oil in any supermarket, and it is very good for cooking. However, so is soya bean. The three principle feedstocks for biofuels-two for diesel-are soya bean, palm oil, and of course, rapeseed.

The soya bean is responsible for 50 per cent of the world's supplies of vegetable oil. How will you determine whether a particular lot of soya comes from a sustainable source? I should declare a past interest: an organisation I was involved with used to grow soya beans in Zambia. We grew about 40 per cent of Zambia's vegetable oil supplies in that area of the country-it was a very big operation. I have also been a palm oil grower. As for bioethanol, I have also been a sugar cane grower. I could volunteer to be a verifier; I would know what I was looking at. I have seen all sorts of land transferred, for example, from growing coconut trees to oil palms-but what was the land before coconuts were grown on it? My goodness, it was forest until somebody thought, "We need some food". So they cleared the land and grew coconuts. Then the coconut industry became unremunerative and the coconut trees were replaced by oil palms.

4 pm

The story is the same for palm oil. Nobody will be able to be sure that they are getting their palm oil from a sustainable place. There is absolutely no way they can be sure because certificates do not come with soya beans stating that they come from a particular field in Brazil that has just been cleared of either primary or secondary forest. The soya bean industry is enormous. Of course the growers will say that the beans come from a place where soya beans have been grown for the past 20 years.

On biodiesel, are we going to adhere to the sustainability criteria for rapeseed grown in the United Kingdom, or apply them just to overseas countries? Is this a DfID and Foreign Office matter, or does Defra come into it somewhere? There are issues around the extension of arable land in United Kingdom. There were big issues at the beginning of the Second World War. All sorts of secondary land was ploughed up that would have been better left-but we needed the food production.

On the question of ethanol, sugar cane and sugar beet are the principal sources of the bioethanol that comes here from Brazil, for example. We do not import much corn-made ethanol from the United States, but

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some corn-oil ethanol is imported from the United States. Sugar is a food. What about food supplies? Nothing in the European system deals with the threat to food supplies, which it is said will be quite serious by 2050. I make this point about the principal agricultural feedstocks. It is neither possible nor equitable to insist that fuel companies are accurate in their information and should otherwise pay penalties of up to £50,000 or 10 per cent of their turnover if they are not accurate. Since the department is not at all confident about its own accuracy-as it states clearly in the impact assessment-why should anybody else have their feet held to this fire? Secondly, all the principal agricultural feedstocks for biofuels are also food crops. That must be taken into careful consideration. Therefore, the European system is faulty. It is not fit for purpose and should be rethought and rewritten.

On the question of mandatory sustainability criteria, the papers in front of us state that we do not have them yet. Although we are bringing in this instrument because we might worry about infraction if we did not, we are still working on what the mandatory guidelines should be and we are not at all sure when we will have them worked out. It would be best if this instrument were taken away and thought through again. We should have serious discussions with the Commission and come to a different position in six months' or a year's time. It is no surprise that we are looking at 3.5 per cent of fuel coming from bioenergy; we are miles away from 10 per cent and nobody wants to get there.

Lord Berkeley: My Lords, I support the Government's intention behind the order. However, the fact that it is 20 pages long and that a number of noble Lords have made some pretty wide-ranging comments about its effectiveness indicates just how difficult the system is. Clearly the Government's heart is in the right place but I think there is a bumpy road ahead, and maybe not just on these regulations.

In transport, we all know that the intention, and the policy, is to reduce CO2 emissions by 80 per cent in 40 years' time, by 2050. We are a long way from that, as many noble Lords have said. It is very easy to say, "We should do this and we should not do that", and come up with a black-and-white approach. We need to have a more rounded approach and do everything possible because otherwise there is no chance at all of meeting those targets.

I worry about whether there is any joined-up government going on here. I read last week that the UK was the only EU member state to oppose the Commission's plan to put a premium on CO2 emissions from the oil sands that are produced in Canada because of the additional CO2 produced as a result of that process. If we are trying to balance what is produced and how it is produced with the CO2 that comes from it, surely the Commission's plans are very fair and reasonable. We can argue about the percentage but it appears to have a pretty disastrous effect on the environment there and if it is going to produce a great deal more CO2 as well, that should be reflected. I know that that is some way away from these regulations, but it is an example of how one can get tripped up by a policy, possibly without realising it.



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The noble Lord, Lord Palmer, talked about some of the other issues to do with the change in policy. We have seen a change in policy recently on solar panels and the grants available for those. Again, it is probably fair and reasonable given the reduction in the prices that the panels are sold for, but it does not help industry invest in the right equipment for reasonable long-term production of whatever we are trying to produce. Again, several noble Lords have mentioned this in respect of the various feedstocks that we are considering today.

I recently came across a plan in Cornwall, where I live, to export domestic waste in 1 metre cubed blocks to Sweden for incineration and creation of electricity. At the same time, there is a plan to build an incinerator in Cornwall. Whether it goes ahead or not does not really matter, but why export it to Sweden when it can be burnt locally? Apparently it is a different type of waste, but if we are going to have to have different types of processing plants for all the things listed in these regulations, and if Government, for whatever reason, are going to change their policies on subsidies or feed-in prices or whatever, it is going to be quite difficult to get companies to invest in it. I question why we want to encourage the burning of sustainable waste from fisheries. There are enough problems with overfishing at the moment and we should not encourage anybody to fish more than they need to and say, "We will make some money out of burning it".

I fear there are going to be a lot of unintended consequences out of this order and other ones. I do not have a solution. We can try to burn less fuel by using electricity for those vehicles that can be powered electrically, if that is generated in a carbon-free manner. That cannot be done so easily for big trucks. My solution, as chairman of the Rail Freight Group, is to send much more long-distance stuff by rail. However, that is not the only answer. We must try all these different solutions. I plead with the Minister to try to end up with a policy that is as consistent across all the different modes of transport as possible and that will give the businesses that will do this work as much confidence as possible that their investment will get the rate of return that they were promised by government policy when they started down the road.

Lord Reay: My Lords, the two great drivers-to use modern administrative jargon, as the Minister did-of our ruinously expensive renewable energy policy, which is still subscribed to by the leadership of both the Government and the Opposition in this country, are the Climate Change Act 2008-which, it was estimated by the Government of the time, will cost more than £400 billion by 2050-and the EU renewable energy directive of 2009. The Climate Change Act deals with emission reductions; the renewable energy directive provides for increasing proportions of used energy to come from renewable sources. Of course, renewable excludes nuclear.

As was explained, under the directive the United Kingdom has a target of 15 per cent of its total energy and 10 per cent of its transport fuel to come from renewable sources by 2020. The renewable transport fuel obligation has been in place since 2008, and under

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it an increasing proportion of road transport fuel must take the form of biofuel. According to figures provided by the Department for Transport to the Merits Committee, this has now reached 3.1 per cent. This order amends the RTFO to bring into effect various requirements of the directive that were described by the Minister.

In the various impact assessments provided with the amendment order, there is no assessment of the costs hitherto of the obligation. I find this to be a sorry omission and would be grateful if the Minister will in due course supply the figure. As the Explanatory Memorandum makes plain, supplying biofuels is more expensive than supplying fossil fuels. As to the expected costs of the amendment order over and above the costs of the order unamended, the Explanatory Memorandum offers an estimate of £324 million for the years 2012 to 2030. However, the overarching impact assessment states that the figure falls in the range of £100 million to £800 million. In other words, the Government have very little idea of what the cost will be.

The amendment order will be popular with no one except the Greens. The Government state that of the 4,600 replies to the consultation from members of the public, the majority called for the biofuel targets to be scrapped. This is not surprising as the effect is to add to the cost to the motorist. Given that the Government have just felt the need to postpone an increase due in January on fuel duty amounting to an extra 2p a litre, they will not make their life any easier by increasing in this way the price of fuel. In the sustainability criteria impact assessment, it is assumed that the additional cost to the motorist will peak at 0.4p per litre in 2017 for diesel and 0.1p per litre for petrol. The assessment goes on to state that any further costs will be capped by the buyout price. However, this is set at 30p per litre. I wonder whether that is really the price at which the cost to the motorist will be capped. Perhaps I do not understand this and the Minister will explain how a buyout price set at that level will effectively cap the price to the motorist.

4.15 pm

One of the costs of this policy, therefore, is the greater expense of biofuel compared with fossil fuel, which is paid by the motorist. The other great cost results from the new competition that is artificially introduced for the use of arable land, which is paid for by food consumers world wide, with the poor obviously suffering most. It is now well established that the subsidy of biofuels pushes up food prices.

Under the directive and this order, biofuels will need to be verified as passing certain sustainability criteria. They must not be sourced from high biodiversity areas, which in practice I take to be land largely under afforestation, or areas of high carbon stock, which I take to mean largely peatland. There is no mention in the order of preserving farmland or high-quality farmland for food production. However, it is our intention, by introducing the double credit for waste-produced biofuel, to relieve some of the demand for crop-based fuel. The impact assessment states:



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"Increasing the share of waste-derived biofuels in the UK biofuel mix decreases the risk of biofuels contributing to increases in food prices ...However, there is as yet no clear consensus on how to quantify and value any potential links between biofuel demand and food prices. Therefore any such possible impacts have been excluded from the analysis".

So here again we have only the vaguest idea about the cost of this order and of the RFTO.

Have the Government any knowledge of the proportion of biofuel used hitherto or used today which has been derived from crops? If they have made such an assessment, or are aware of any assessment that has been made, that would give an indication of the acreage that has been given to these crops. Secondly, have the Government received any complaints about the efficiency of fuel containing mandatory biofuel?

In conclusion, the renewable energy directive and the Climate Change Act are both used to buttress the international posture of this country and the rest of the European Union, while we forlornly seek to persuade other countries to follow us down the road of deindustrialising our economies. None is shaping up to do so. No country of significance seems to wish to adopt legally binding emission reduction targets: not the United States, China, India, Canada, Japan or Russia. They all have more sense and prefer economic growth. The loudest noise coming from the direction of Durban is likely to be made by the voices of developing countries as they call for more funds from the developed world to enable them to meet the targets we asked them to adopt-which is a diminishing prospect today.

Nevertheless, we and the rest of the European Union stand quixotically alone, insanely trying and thankfully failing to lead the world in the practice of economic suicide. Eventually this policy will collapse around our heads-and the sooner the better.

Lord Bradshaw: I will concentrate my remarks on the used cooking oil industry, which gets a rather raw deal from the Government under these proposals. We have to remember that the business is sustainable, which even my noble friend Lord Reay would admit. Basically, it uses waste products from the cooking industry to make biodiesel. It is a new business-it only really began in about 2007-so is not an industry with any great roots. It is made up mostly of SMEs-small and medium-sized enterprises-and is not dominated by big corporations. There is a real threat that the growth of the industry will be not only stopped but reversed by the passage of this legislation.

Used cooking oil is actually very green compared with fossil fuels-and with many grown crops, particularly if we are not certain of their source. One of the biggest problems in judging whether a crop has been grown in a sustainable way is that the certificates of origin provided by many suppliers are highly suspect. I ask noble Lords to reflect on the last time they bought a piece of teak garden furniture with a label on it saying, "Sourced from sustainable forests". I would say, "How do you know what went on in Indonesia?"-and I am sure that the suppliers do not, either.

We are talking about recycling a waste product, and the industry works on very tight margins. It is not an industry that has any room for manoeuvre. The Minister

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replied to a Written Question of mine about the price of a road transport fuel obligation certificate. I believe that the prices he quoted in his Answer were from a few big dealers, whereas most of the trading takes place between small industries, which we do not know anything about. However, the figures that he quoted, which indicated a doubling of the price of certificates, should be contrasted with the fact that on some occasions the certificates are worth nothing. Twice nothing is nothing, so doubling the price has not had a great effect.

This is a retrograde piece of legislation in respect of the treatment of the used cooking oil industry. I say to my noble friend that we are going to risk more unemployment and less expansion of the industry, which has the capability of expanding because there is still plenty of used cooking oil to collect and refine. I have one last question for him and I would be very interested to hear his answer. In view of the withdrawal of the tax differential and the uncertainty over the value of the tradable certificates, would he put his own money into this industry?

Lord Grantchester: I recognise the importance of this order for transport and meeting our climate change obligations. Its sustainability provisions are entirely to be welcomed. However, the lengthening of the timescale from 2011 to 2014 is a further example of the Government dissipating the momentum of the last Labour Government. This is impacting further on the confidence of the investor market, as has been identified across the renewable industry in its relationship with this Government.

I have one specific query. I understand that elements of the sustainability criteria are currently being consulted on. The consultation is set to end on 15 December, the date the order becomes operable. I understand that the UK Petroleum Industry Association has lobbied on the penalty of 30p a litre for non-compliance, stating that there is not sufficient time for its supply chains to meet the standards. The association asks that any fines should not apply before 1 April 2012, to allow supply chain purchases and contracts to catch up with the certification process for the biofuel products. The UKPIA states that it does not know whether biofuel products already contracted will meet the certification process and standards. This seems an understandable request. Can the Minister clarify his department's position?

Lord Davies of Oldham: My Lords, this has been a fascinating debate. The Minister has quite enough on his plate in terms of issues to tackle without me adding a great deal to his burden. I have some sympathy for him; he is well aware of the fact that the Merits Committee of the House expressed some criticism of the amendment order. Clearly there is also, among those in the affected industries who are directly interested in the issues, a belief that a considerable amount of backsliding by the Government is going on. This is a pretty modest measure against the background of the Chancellor's denial of environmental issues last week, and the clear indication that the Government are going to soft-pedal on planning issues, reduce subsidies to the solar panel industry and offer subsidies to some of the most polluting industries. The measure must be seen in that context. Therefore, I will give an element

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of reassurance to the Minister; we on this side support the measure, inadequate though it is. We hope that it will be the basis on which in due course something more constructive can be developed.

The Minister must know about the concerns of the industry. The issues raised by the order around verification and reporting are complex, and there is a danger that if people get it wrong and biofuels prove not to conform to the requirements, the industry will get into further trouble. However, we should look at how little notice the industry has from the period of consultation to the implementation of the order, which is only a week and a half from being part of the requirements.

The industry also indicated that there are areas to which it seems no consideration at all has been given. For example, the development of hydrogen fuel with regard to motor transport is not considered in relation to the order. From what we can see, the Minister's general perspective is that the Government will keep the issues under review. That is a long way off definitive policy, which is what the order is meant to represent. The industry deserves better from the Government. As the noble Lord, Lord Bradshaw, indicated with regard to the production of biodiesel, it is important that people know the parameters within which they will work. How can we expect them to invest, particularly in these very difficult times, against a very uncertain perspective?

I heard what the noble Lord, Lord Reay, said and I hope that the Minister will give some response. When 97 per cent of the world's scientists who are interested in this area regard climate change as moving apace and as a threat to the world, the concept of deindustrialisation may be emotive but we certainly have to change. Without change, we will face a catastrophic future.

Lord Teverson: Does the noble Lord agree that there is a big difference between decarbonisation and deindustrialisation? Probably the greatest deindustrialisation in this country was in the 1980s. Since then, industry has probably improved and got better.

Lord Davies of Oldham: My Lords, I could not put it better myself-in fact, I did not put it better myself and I am grateful to the noble Lord, Lord Teverson, for pointing that out to the Committee. The Minister must recognise that investor confidence in the industry is low. One plant has effectively has been mothballed-this represents almost one-third of the industry-and we surely need to give some stimulus if we are to hit the targets set for 2020. Of course, the Minister will appreciate just where the industry is at present: about 250,000 tonnes of bioethanol and 330,000 tonnes of biodiesel are being produced. Yet we need several millions of tonnes in order to hit the target, which is only eight years away.

I have come along, as I always do, with words of comfort for the Minister: we support this measure. However, we regard it as inadequate and we want indications from the Government that the inadequacies will be repaired.



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4.30 pm

Earl Attlee: My Lords, this has been a useful discussion on a subject that generates a wide variety of views. I will try to address some of the key points that have been raised. The number of noble Lords addressing the Committee clearly shows the importance of this order.

The noble Lord, Lord Teverson, asked me if I would agree that not one litre of biofuel should come from the United States. He tempted me but I remind the noble Lord that of course we have the 35 per cent reduction in greenhouse gas emissions test. Although I cannot meet his aspiration, the effect of the order will be very beneficial. The noble Lord, Lord Bradshaw, teased me about whether I would invest my own money in a biofuel plant. The Committee will know that I am a classic impoverished earl and I have no money. However, I am convinced that the order, as amended, will provide a good commercial and environmental incentive.

It is recognised that greater assurance of the sustainability of biofuels will help to address some of the uncertainties in this policy area. This improved auditing will simultaneously address a number of concerns about the potentially negative impact of some biofuels, while providing industry and investors with increased reassurance that the instruments to incentivise sustainable biofuels will be in place for the foreseeable future, providing the certainty needed to plan ahead. In response to the noble Lord, Lord Davies of Oldham, we are building on the work of the previous Administration, as I am sure he would accept.

Double rewards for biofuels from wastes and advanced biofuels will replace the 20p duty differential for used cooking oil, or UCO, which will expire at the end of March next year. This will mean that industry has an incentive to explore ways of delivering any of the fuels with the very best sustainability credentials, rather than incentivising it to focus on a single feedstock. This amendment will allow us to meet our EU obligations in this area and is needed to set in law the sustainability criteria required by the renewable energy directive. As an EU obligation, the same criteria will apply in all other European member states.

We recognise that the issue of ILUC is not currently addressed by the RED and are working both within Government and at a European level to ensure that proportionate and robust action is taken to address this. However, I remind noble Lords that this amendment is a continuation of our current trajectory towards increasingly sustainable biofuels. That trajectory was set out following the Gallagher review of biofuels in 2008, which highlighted the potential impact of ILUC and recommended that the rate of increase of the targeted volume of biofuels in place at the time should be reduced. It said that higher targets should only be implemented beyond 2014 if biofuels are shown to be demonstrably sustainable, including avoiding indirect land use change.

I have a number of points to cover in answer to noble Lords. Some touched on fuels other than biofuels; for example, hydrogen and the use of electricity. The Committee will forgive me if I just cover biofuels. A recurring question from many noble Lords was how industry will prove its fuels meet the new criteria. The answer is that independent verifiers will check the

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claims made by suppliers that recognised voluntary schemes that certify fuels as RED-compliant are in place. Suppliers will need to have the information that they supply to the scheme's administrator independently verified to the internationally recognised standard known as limited assurance. It is expected that many will provide evidence through certification from one of a number of voluntary schemes set up by private organisations and recognised by the European Commission. Verification has taken place since the RTFO was launched in 2008. The schemes involve companies such as Ernst & Young and PricewaterhouseCoopers.

Viscount Eccles: Does my noble friend have any information about the cost of verification? It must be enormous if it is being done properly.

Earl Attlee: My Lords, I would not imagine that it impacts greatly on pump prices. I will see if inspiration comes to me in due course. However, the cost is in the impact assessment.

The noble Lord, Lord Palmer, asked how we could support UK production. The RTFO seeks to increase biofuel use. We want sustainable biofuels. The RTFO allows sustainable biofuels to count. We cannot exclude biofuels because they come from outside the UK. If we did, we would face competition issues from the WTO and no doubt from the European Commission as well. Also, such anti-competitive behaviour would be against the interests of UK consumers. The key is sustainable feedstock.

Lord Berkeley: If we have one of the "big four" accounting firms doing the verification and the material is coming from South America or the Far East, will they go there to check it or will they rely on local certification?

Earl Attlee: My Lords, it is up to the supplier to convince the authorities that their fuel is sustainable.

Many noble Lords asked about advanced biofuels. A number of commercial activities are developing advanced biofuels. BP is involved in a joint venture to develop biobutanol. Double counting of waste-derived biofuels and advanced biofuels will increase the financial incentive to invest in advanced biofuels.

My noble friend Lord Eccles asked number of questions. Many of them are key to the debate, so I will go through them and I hope that the answers will cover many other noble Lords' concerns. He asked about UK production. The UK is currently the largest single supplier to our market. Volumes from the UK have increased over the years. The market share is currently around 23 per cent. The detail is on the department's website. The noble Viscount asked whether our 10 per cent was not all tallow, et cetera. Tallow and used cooking oil account for a significant proportion of UK feedstocks. Some fuel comes from agricultural feedstocks. Again, the detail is on the website. He asked what happens to our oilseed rape production. We do not have the figures to hand. The statistical data are on our website.

Viscount Eccles: How will my noble friend deal with the fact that the website is madly out of date?



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Earl Attlee: My Lords, I will have to write to the noble Viscount on that point. I confess to my shame that I have not personally studied the website.

The noble Viscount suggested that sustainability was immeasurable. Some sustainability is relatively easy to track. That is what we are mandating today. The issue of ILUC is unresolved and we are pushing to have it addressed.

Viscount Eccles: Perhaps I might have one more go. One of the problems is primary forest. That is forest or other wooded land of native species where at any point in time, in or after January 2008, there has been no clearly visible indication of human activity, and where the ecological processes have not been significantly disturbed. Is my noble friend suggesting that there is anywhere, in any forest, where nobody has ever been?

Earl Attlee: My Lords, the noble Viscount is asking me searching questions of great detail, and I will have to write to him.

I am just going through the questions asked by the noble Viscount. He says that we do not know where 16 per cent comes from. These are the latest published statistics for April 2010 to April 2011. He asked how we can trace biofuels and ensure that they are sustainable. Currently the RTFO has voluntary reporting in place. This reporting has enabled many suppliers to demonstrate that they can trace the production of biofuels, and that they are sustainable. This verification work has been taking place since the RTFO was introduced in 2008. It is carried out by independent, reputable companies, as I have previously mentioned.

The noble Viscount, Lord Eccles, and the noble Lord, Lord Reay, asked why the Government are supporting biofuels when doing so can push food prices up. The analysis by Her Majesty's Government concludes that biofuels were not a particularly significant driver of the 2008 food price spike, with other factors such as the price of oil and adverse weather conditions being greater contributors. However, some biofuels will put upward pressure on prices for those agricultural commodities used in biofuel production.

My noble friend Viscount Eccles also asked what the Government are doing now to ensure that the promotion of biofuels does not result in land grabs in developing countries. The Government agree that biofuel production must be socially and environmentally sustainable and should not adversely impact on food prices and availability or on local people's access to land and other natural resources in developing countries. The scale and complexity of this issue mean that it is most effectively addressed at the EU level. He also asked about the impact of biofuels on food availability. Under the RED, the European Commission must monitor and report every two years on the impact of biofuel policy and the increased demand for biofuel on social sustainability. This will include reporting on the availability of foodstuffs at affordable prices, particularly for people living in developing countries.

Many noble Lords have asked why there is no target after 2014. We need to await the conclusions of a number of pieces of work before we can set biofuel targets beyond 2014. The research we are waiting for is

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the report of the Committee on Climate Change on renewable energy, and the Government's bioenergy review. We expect to consult on targets for 2014 to 2020 next year. There have been shifts in biofuel policy in the past. We need to ensure that policy decisions going forward are robust and stable. This is an important point for industry, as many noble Lords have pointed out during our debate.

Baroness Worthington: My Lords, the point I was trying to make was that this is a percentage-based target that actually translates into volumes of litres of product. The modelling for the total volume of litres of petrol to be sold suggests that that there could be a declining volume of renewable fuels. I want the Government to acknowledge that we might not be maintaining the volumes of sales but might actually be decreasing them if we stay as we are. The important factor is that if you write a target as a percentage, you have got to think about the litres of product to enable the industry to plan. Perhaps I could have an answer on that.

Earl Attlee: My Lords, I confess that I do not fully understand the point made by the noble Baroness, but I will undertake to discuss it with my honourable friend Mr Norman Baker, the Parliamentary Under-Secretary of State for Transport.

Many noble Lords are concerned about ethanol from the United States, and what support exists for British ethanol producers. UK farmers and biofuel producers have historically been able to demonstrate strong sustainability performance for their products, which should put them in good stead once the mandatory sustainability criteria of the RED come into effect. This should help their competitiveness. Ethanol producers in the UK have also had concerns that US imports are exploiting a tariff loophole. A European Commission draft regulation addressing the loophole was considered and agreed by the EU Customs Code Committee on 12 October, and should be published soon. The mandatory sustainability criteria will allow only sustainable biofuels to be financially rewarded in the UK.

The noble Lord, Lord Berkeley, asked about oil sands. The fuel quality directive seeks to reduce the life cycle of greenhouse gas emissions of fuels used in land-based transport. We want a methodology that is able to account for the greenhouse gas emissions of all crudes, including oil sands and oil shale, and which is based on robust and objective criteria. The evidence is that fuel derived from oil sands has a high intensity of greenhouse gas emissions. However, the same is true of a number of other crude sources, such as Nigerian and Angolan crude, with their associated flaring, and Venezuelan heavy crude oil.

4.45 pm

My noble friend Lord Reay asked about fuel costs and whether we had considered the impact of the changes on fuel prices. A suite of impact assessments accompanies the two government responses to the consultation. These assess the likely costs and benefits of our proposals to the fuel industry and to fuel prices. The introduction of sustainability criteria is expected

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to result in some short-term upward pressure on biofuel prices as the necessary investments are made in supply chains and refineries. These price increases are expected to feed into final petrol and diesel pump prices. The overall impact is expected to be fairly small, peaking at 0.1p per litre for petrol and 0.4p per litre for diesel in 2017. Prices are then expected to fall gradually as market supply adapts to the requirements of sustainability criteria and as suppliers recoup money invested.

The noble Lord, Lord Bradshaw, asked why we have removed the duty incentive in respect of cooking oil. A duty incentive offers no mechanism for addressing concerns about the sustainability and sourcing of the biofuel supplier. Because it rewards both sustainable and unsustainable biofuels equally, it does not give sufficient long-term certainty for potential investors in biofuel production or an infrastructure that helps support a market for more sustainable biofuels. That is why the Government have committed to remove the duty differentials on biofuels.

Lord Bradshaw: I believed that the 20p incentive was paid to the people who refine used cooking oil. Now the noble Earl is saying it is available to a wider group of people. It has probably got through to him that the Committee is not overjoyed about this piece of legislation. Will he go back, check this and consider whether producers should be guaranteed to get at least 20 pence? If they get more, that can be offset, but they want a guaranteed floor price.

Earl Attlee: My Lords, I will write in detail to the noble Lord on the issue of used cooking oil and see if I can draft a letter that will meet his concerns. At the moment I am convinced that this is a sensible policy.

Lord Palmer: My Lords, the point made by the noble Lord, Lord Bradshaw, emphasises what a complex issue this is, because it goes back to the Treasury. When the noble Earl writes to the noble Lord, Lord Bradshaw, perhaps he could kindly copy us all in so we can be kept abreast of the situation.

Earl Attlee: My Lords, it is standard procedure to write to all noble Lords who have taken part in any of these debates.

The noble Lord, Lord Reay, asked me several interesting questions. First, he asked if there were any suggestions that adding biofuel to fossil fuel reduces fuel efficiency. Yes, biofuel is less energy-dense but we are blending only low volumes. He asked about the proportion of biofuels supplied today under the RTFO that comes from crops. The latest published figures indicate that two-thirds comes from crops. He also asked about the cost to the motorist to date, which has been between £300 million and £400 million per year at current market prices. He asked whether, after consulting on a number of options, we are keeping the buyout mechanism. The answer is yes. For those who are unfamiliar with the system, the buyout mechanism is in place to provide a safety valve that will protect both industry and the consumer from spikes in the cost of supplying biofuel. It will allow obligated suppliers to buy up part or all of their obligation, rather than meeting it by redeeming the RTFCs that are issued to

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those supplying sustainable biofuels. The cost of buying out is 30p per litre of fuel that the supplier would otherwise have been obligated to supply.

The noble Lord also asked about the efficiency and effectiveness of biofuels, and whether there were any problems. He will recall that I recently answered an Oral Question in the Chamber about ethanol and petrol, which can cause some problems. However, they are not insurmountable.

The noble Lord, Lord Grantchester, asked me what I would say in response to industry concerns that there has been inadequate time to prepare for this and that consultation on the RTFO guidance has been very brief. We have no intention of delaying transposition and implementation. The renewable energy directive was published in 2009 and set mandatory sustainability criteria for biofuels. The implementation of the criteria should not come as a surprise to industry. Those companies that have taken the opportunity to report on a voluntary basis and to establish a sustainable biofuel supply chain will be well placed to meet the requirements of an amended RTFO.

Lord Berkeley: Before the noble Earl winds up, perhaps I could try a variation on the question that the noble Lord, Lord Bradshaw, posed. The Minister said that processing and selling biofuels was a good investment. He then said that there were no targets for the volume or the price-the sale price or the costs-beyond 2014. Would he recommend anybody to invest in this, or would he rely on the advice of the verification schemes of the big four, who of course will not have a conflict of interest?

Earl Attlee: My Lords, there is a target of 5 per cent in 2014 and each year thereafter. I remind the noble Lord that we will be consulting on the future after 2014.

This is the right time for this order. We did not allow ourselves to be rushed, as we wished to ensure that the legislation was built on robust evidence. The Committee will be aware that there were a number of policy shifts relating to biofuels in the past. We wanted to be clear that this order was based on clear facts and sound science.

We have also taken steps, both with the order and through earlier work, to ensure that industry has been given adequate time and information to prepare for the change. The RED was published in 2009 and there have been regular meetings since then between departmental and industry representatives to discuss the sustainability criteria. The RTFO has been in place since 2008, and those companies that have taken the opportunity to report on a voluntary basis and to establish sustainable biofuel supply chains will be well placed to meet the requirements of an amended RTFO.

I have tried to answer as many questions as possible. I will write to noble Lords on any major points that I have not addressed, and I have already undertaken to discuss one matter with a ministerial colleague. I hope that I have addressed the key issues raised today and that the Committee will agree that the order is the best way to proceed with our UK biofuel policy.

Motion agreed.

Committee adjourned at 4.53 pm.


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