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Energy: Biofuels (EUC Report)

My Lords, this report is to be commended for its valuable contribution to the debate on renewable energy, carbon emissions and climate change through the increasing participation of biofuels. I congratulate the committee on its inquiry. I declare an interest as a dairy farmer in Cheshire and a director of the farmers co-operative Dairy Farmers of Britain. It is encouraging that Her Majesty's Government broadly agreed with and supported the conclusions and recommendations of the report. There is universal encouragement for sustainable renewable fuel supplies. However, we must be aware of target inflation, whereby political parties compete for the moral high ground, setting headline targets on a mound of soft aspirations. Targets must be tempered by critical and robust pathways with achievable milestones backed up by real, hard measures. Since the report’s publication, the Government have taken forward many developments. They are to be commended on their commitment to develop reliable ways of ensuring that carbon and wider environmental aspects of biofuels are properly addressed withagreed international standards regarding calculation methodologies, reporting frameworks and sustainability. They are also to be commended for not having slowed down development on the pretext that these standards should be agreed first. However, it is vital that biofuels, especially imported ones, are fully traceable and can be demonstrated to deliver a net carbon saving to qualify for inclusion in the Renewable Transport Fuel Obligation. Biofuels serve no purpose if they do not contribute to reducing carbon emissions; for example, burning rainforest to grow palm oil for biodiesel makes no sense. Fuel produced by such activities should not obtain certificates for use in the UK. Having recognised the Government’s achievement, I believe that they can be pressed to respond quicker and on a bigger scale; for example, they can be challenged to be bolder in the mixture of relative incentives—carrots and sticks. They must set out a clear strategy for the UK beyond 2010. They say that they are exploring the possibility that the level of the obligation could rise above 5 per cent after 2010. However, EU energy policy, through the biofuels directive of 10 January 2007, commits member states to levels of at least 10 per cent by 2020. Growing demand for biofuels will require significant expansion in production facilities. Clearly, investors need long-term security to reduce risk, spread costs and secure returns. The RTFO needs to be made for the same period as the renewable obligation for electricity to 2026. The Government must indicate quickly how they intend to implement this 10 per cent target to underpin investor confidence. Investment, especially in second-generation biofuels, cannot be assured. Tax incentives could be critically reappraised to draw forward more realistic supplies. A 30p duty incentive—a combined package of fuel duty saving and buyout price—has been proposed. How nearare the Government to confirming that figure? Discussions took place last summer with the Commission on the enhanced capital allowance scheme. This announcement in the budget was welcome, bringing uncertainty to an end. The motor industry needs to be pressed to respond quicker. There has to be a buy-in to a rising percentage use of biofuels backed by manufacturers’ guarantees. It is to be noted that the motor industry was initially resistant to the introduction of lead-free petrol. The current 5 per cent limit for biofuel in conventional engines now lies well within safety tolerances and could be extended significantly. Reduced car tax incentives, reduced congestion charging and other innovative incentives could all play a part. Straight vegetable oil could be recognised as a biofuel and not classified as a fuel substitute. Her Majesty’s Revenue and Customs guidance needs clarification to remove this confusion. With the changes to agriculture consequential on the reform of the CAP whereby farm payments are separated from production, land is currently available to meet the 5 per cent RTFO. It is incorrect to contend that the UK does not have the land availability to produce biofuels and food. In practical terms, after allowing for crop residues to be used for other purposes such as cattle feed, the net land requirement for biofuels is less than the area used to produce the current UK exportable surplus of wheat plus the area currently in set-aside. There are 560,000 hectares in set-aside. As part of the CAP, the scrapping of this anachronism with production subsidies needs to be addressed immediately. The East of England Development Agency predicts that, based on UK current conditions, two to five farming jobs could be sustained or created for each 1,000 tonnes of biofuel production. A 100,000 tonne processing plant could therefore mean 60 jobs, plus 500 jobs in agriculture. The ability to produce renewable energy and feed the nation can only improve agriculture’s profitability and restore prosperity to the rural economy. The report also draws comparisons between the UK and the rest of the European Union. It shows that in many areas the UK is lagging behind other countries, notably Germany, France and Scandinavia. That has primarily been through more aggressive tax policies. The Government are now addressing that competitive element, and I am confident that further strategic developments such as a mandatory reporting scheme and increasing transparency in the market, will help to put the UK at the forefront of the debate. I applaud the steps being taken, but renewable energy will remain a challenge for a long time ahead.