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Energy: Biofuels (EUC Report)

My Lords, I am a proud member of the EU Sub-Committee on justice and home affairs. I disagree with the noble Viscount, Lord Ullswater, in one area. I, too, am usually critical of how long these reports take to come to this House. On this occasion, however, the report has hit the spot on topicality. The first time I read it, perhaps after a difficult debate in the House, I found it quite difficult to digest. The second time, I found it particularly comprehensive and good at going through the subject. I live in Cornwall and have a diesel car. Tryingto do something practical, two weeks ago I was wondering how I could buy biodiesel to be part of this revolution. I found two outlets in the far south-west, for both of which I would have had to drive some 50 miles on a round trip to fill up the tank. By that time, I would have wasted a 5 per cent obligation just on the trip. That puts some of the debate into context. The Commission’s Renewable Energy Road Map, published in January, admitted that this area has been somewhat of a failure of European policy in the past, as many noble Lords have said. Despite the 2 per cent target of 2005, not even 1 per cent was reached. Three member states reached 1 per cent, and one—Germany, of course—accounted for two-thirds of the total production of biofuels. It has therefore been a failure to date. As my noble friend Lord Bradshaw said, the subject is in the much broader context of energy security and climate change. The report and today’s debate are particularly timely, following the troika of announcements by the European Commission last month, which included biofuels. There were only three pronouncements on the great move forward on the European climate change strategy: the 20 per cent reduction in carbon emissions; the somewhat amazing 20 per cent renewable energy proportion of consumption as a whole, not just electricity; and the target of 10 per cent biofuels use by 2020. We are discussing an important agenda. Since the report was produced, as many noble Lords—particularly the noble Lord, Lord Renton of Mount Harry—have said, biofuels have moved from being an ecological saviour almost to the devil incarnate. That change has been relatively sudden, and we must either resist or adopt a much more balanced approach towards it. A number of issues currently make this such a contentious subject. On sustainability and the energy equation, the figures for corn as an energy crop raise the issue that 20 per cent more energy is required to produce biofuel than it generates. There is the problem of the knock-on effect of deforestation, the headline issue of whether we are feeding cars rather than people and all the emotion surrounding sustainability issues. There are also the knock-on effects, which many noble Lords have mentioned, of food prices, the possible reintroduction of monoculture in some economies, land use and so forth. There has been particularly bad press recently on biofuels in the United States and the Bush strategy on energy security, which has involved high subsidies for crops, increases in feed for animals and in exported food, and a very protectionist regime, although perhaps the recent agreement with Brazil has moved that on slightly. The noble Earl, Lord Selborne, mentioned the common agricultural policy and the resistance that we naturally have in the UK to reinvent, or to take a backwards step towards, the CAP. We already have a €45 subsidy per hectare on energy crops. Do we really want to move back, given the time and energy spent and the discomfiture caused to the agricultural community and farmers, to invent another version of the CAP to which we have recently said goodbye? The other area that is well mentioned in the report and has not been mentioned in the debate directlyis the increasingly sweating brow of European Treasuries as they start to lose tax revenue on one of their strongest lines: petrol and diesel. As biofuel consumption increases, Treasury income in rebates will go down. That is only sustainable to a certain degree. That is also true of capital allowances on major capital investments, although that is important in getting this industry established. I, too, welcome the comments of the noble Lord, Lord MacGregor of Pulham Market, about British sugar. There is also the investment taking place in Grangemouth and other areas. Then there is the whole area of scale. I find this difficult to understand. I recently read an article in the New Scientist on miscanthus, the total energy of the UK and the fact that it would take 14 million hectares to replace that in bioenergy for the whole energy consumption of the UK. That is an area slightly larger than the land area of England. There are many questions about that and I am not sure that the part answer of set-asides, as raised by the noble Lord, Lord Plumb, is quite as easy as we say it is. In many areas, farmers have rightly and constructively used that set-aside for biodiversity and farm conservation areas, and if we suddenly plough all that up and replace it with biofuel crops—I am not saying that that is necessarily completely wrong—the effect would be far more localised than the effect of what happens in rainforests in Brazil or Indonesia. We should expect local reaction and we need to plan for the potential effects on land use and biodiversity in rural areas. The noble Lord, Lord Cameron of Dillington, mentioned Denmark. I was interested to hear that Denmark may have started to change its mind. When I was in the European Parliament, the Netherlands and Denmark were looked upon as the most forward-thinking in their understanding of environmental and sustainability issues. The policy of Denmark that says that this is destruction is important. What are the conclusions? It is important to remember that oil production and oil reserves are going down worldwide. We are past the peak, andwe therefore need a substitute. The most obvious substitute is not biofuels; once we are at a certain level of oil pricing, the next easiest form of substitute is the liquefaction of coal resources, which is a far more environmentally damaging technology than biofuels will ever be. We need to start now in this area; we need to take it seriously, but we also need to proceed with caution. From these Benches, we say that the important area is the sustainable certification of biofuels. That is easy to say, but I find it difficult to understand how it can happen in practice, mainly because of the knock-on effects. We can look at the supply chain, whether through the supplier, as the report suggests, or by other mechanisms, and we can see that these crops are grown in proper places and have not encroached on rainforests, but do the crops that they have substituted or the extra land needed mean deforestation elsewhere? There are knock-on effects through this holistic economic system. It is difficult to be clear about certification, but we must attempt it. As all noble Lords have said, the second generation of biofuels—cellulose-based biofuels—is the most important. They are clearly the way forward and are perhaps more naturally suited to the European climate and ecology than first-generation biofuels. We should not be overprotective. At the moment, the European Union has 45 per cent tariffs on bioethanol, though not on many of the products that feed into biodiesel. The tariffs need to come down so that we do not have a protective market in the long term. I agree with the Government’s decision, which has been widely applauded in the House, to implement the RTFO. I believe that most things should be done, if at all possible, through market mechanisms, but that is the right way to kick-start the process, ensure that we reach our targets and start this industry, which will become an important part of our economy. However, because this is a much broader issue, we need a proper price for carbon, whether through real emissions trading systems that work or carbon taxation, so that markets and people can make choices about how CO2 emissions targets are met. I have one question for the Minister: what are the Government’s proposals for a credible certification process that goes alongside the EU proposals and the RTFO when it is introduced in 2008?