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Energy: Biofuels (EUC Report)

My Lords, this has been a wide-ranging and informative debate. I am grateful to the noble Lord, Lord Sewel, for introducing it in his fulsome way. I am also grateful to my noble friend Lord Renton of Mount Harry. I record my sincere thanks to Lord Carter and the noble Lord, Lord Palmer, and other noble Lords who took part in the debates when we took the Energy Bill through. Clearly, when we started on that Energy Bill, the Government had no intention whatever of letting the obligation come into being. It was sheer persistence that enabled it to happen, so I am grateful to all noble Lords who participated in that process. This report is an important and timely piece of work. It is timely because we are dealing directly with the effects of climate change and are also looking at the diversification of British agriculture. I should remind the House that my family has farming interests. We have a farm in Suffolk where we grow wheat, oilseed rape and, because of our location, this year, we are growing a small amount of sugar beet for the first time. In his introduction the noble Lord, Lord Sewel, covered four or five of the most important things. Other noble Lords have touched on them. I shall mention them so that people do not think I have not picked up on them. First, the directive has not been effective. Other noble Lords have reflected on that. My challenge to the Minister when he responds is: what will the Government do about it because clearly there is a problem? Secondly, carbon certification was raised by noble Lords. Thirdly, there was the fair access for imported fuels. In view of the implication that has for deforestation, I shall return to it later. Fourthly, there was the question of the use of second-generation fuels and their importance. We support the development of that. Fifthly, there is the question of carbon reduction and energy security. That is crucial in the way we view future strategy. The UK’s current biofuel target stands at 3.5 per cent by 2010. That is well behind many other member states, which set theirs at 5.75 per cent. Why did the Government not set a relative value target of 5.75 per cent, which was set by the EU Commission? Did they feel that they would not achieve it and therefore set a lower target? Indeed, we are not likely to achieve that lower target either. So we are in a lose/lose situation. Noble Lords will not be surprised to hear me say that UK farmers welcome the opportunities which energy crop production brings. The NFU in its briefing states that UK farming has the ability to meet the 5 per cent demand for biofuel in petrol and in diesel markets. Bioethanol at 5 per cent equates to approximately 3 million tonnes of wheat—a matter to which other noble Lords have referred. That is the approximate annual figure of wheat export surpluses. The 5 per cent demand on biodiesel equates to2.7 million tonnes of oilseed rape. In 2005, 1.9 million tonnes of oilseed rape was produced in the United Kingdom. In that year the set-aside was 559,000 hectares, which equates to 1.78 million tonnes and also the 140,000 hectares of fallow land. In addition to the biodiesel, there is the potential for increased use of vegetable waste oil sources and tallow, to which my noble friend Lord Plumb and many others referred. These figures shows that it is possible for the UK to produce enough biofuels to meet the UK’s targets set out to 2010 without having to rely on imports. I believe that it would be naive and wrong to suggest that imports will not play their part as they do now. It is crucial that if we are not careful we will simply meet our target by sucking in ethanol from Brazil and palm oil from Indonesia. And, as other noble Lords have said, we have already watchedthe deforestation in these countries, I believe with horror, and seen the devastating consequences for endangered species, biodiversity and vulnerable communities, while totally negating support for rainforest contained so recently in the Budget speech. As my honourable friend Jim Paice said recently, "““We believe that the Government must do more to stimulate competitive, local production of biofuels and guarantee that any imports necessary to make up the shortfall do not threaten the further destruction of rainforest””." Paragraph 82 of the report reflects the committee's concerns, in that, "““steps will need to be taken to ensure that the overall environmental benefits of imported alternative fuels are properly realised””." The following paragraph goes on to talk about the difficulty of accurately monitoring and evaluating imported biofuels, as other noble Lords have highlighted. It recommends needing a certificate, "““of the lifecycle environmental performance of both imported and domestically biofuels””." Indeed, the noble Lord, Lord Grantchester, my noble friends Lord MacGregor and Lord Selborne and particularly the noble Lord, Lord Cameron, raised that issue. In a recent Written Question, I asked what proportion of biofuels in the United Kingdom is sourced from British crops and what proportion from imported commodities. I was surprised that the noble Lord, Lord Rooker, stated that current biofuels sales in the United Kingdom are from both domestic and imported sources. Indeed, but it would be good to know the proportions. Perhaps the noble Lord, Lord Bassam of Brighton, can help us with that today. Noble Lords have talked about the costings and comparisons. The costings on page 25 compare 30p to 45p for a litre of bioethanol made from wheat and sugar beet in the European Union with 6p to 11p for bioethanol made from sugar cane from Brazil. Do these figures include the cost of transporting thefuel? Do they incorporate a realistic cost for the environmental damage incurred in growing the raw material? And do they reflect adequate compensation for any damage done by the production process? Again, that is not clear. Allegations abound that it is not possible for us to produce our 5 per cent target given the current availability of land, but I hope that the figures that I and other noble Lords have given today reflect that we can. We can certainly meet the 2010 target. Given the EU policy to increase the target from 5.75 per cent by 2010 to 10 per cent by 2020, the situation can change in the long term. In paragraph 97, the committee recognises the ability to bring in more EU land, including set-aside, to grow energy crops while respecting biodiversity policies, but it goes on to say: "““However, the EU must always remain secure in its food supply””." There could be difficult decisions to take in future years, and I am sure that the committee is right. That brings us to the issue that many noble Lords have raised: the whole question of second generation biofuels. If we accept the likelihood of increasing demands, as I do, the scope for second generation biofuels becomes increasingly important and could bring greater environmental advantages than are currently provided by biodiesel and bioethanol. The committee recognised the importance of advancesin engineering and in chemical and agriculturalcrop technologies. It stressed the importance of co-ordinating, financing and organising European research and development. Indeed, there is no sense in each country doing its own thing when we could do it together much better. My noble friends Lord Plumb and Lord Ullswater referred to this. They also referred to the use of by-products and potential feedstocks that are now classified as waste. Perhaps the Minister will tell us in his reply whether the Government have changed their mind about waste and future second generation biofuels. At the Oxford farming conference earlier this year, which I attended along with one or two other noble Lords, one of the most exciting contributions came from Professor Diana Bowles, who talked about the breakdown of plants and how we can use the cellulose in the future. The noble Earl, Lord Selborne, mentioned this in his speech. I also understand that Warwick University is undertaking work on creating hydrogen from water and biomass. This work is being funded by Advantage West Midlands. I wonder whether the Minister knows of this and other similar projects that are being undertaken at this stage. I turn now to where we are and where we might need to seek greater confidence. In its excellent briefing, the NFU made nine key points. I shall not go through them all, but will pick up on five of them. The NFU believes, as other noble Lords have explained, that the Government must set a clear strategy for the UK beyond 2010 to create investor confidence to meet the mandatory 10 per cent biofuel target by 2020. It also believes that the key support policy—obligation level and fiscal support—must be in place for longer than 2010 to give investment greater certainty in the market conditions. It is also unclear as yet—perhaps we shall get clarification—whether the buy-out penalty, at 15p per litre, is sufficiently high to ensure that fuel suppliers will not simply opt out of the obligation. The Government should commit to reassess the rate and alter it to ensure that ““oil majors”” address their supply of biofuels. Fourthly, the carbon saving and sustainability reporting system for biofuels must account for previous land use and, where possible, use existing assurance schemes to reduce unnecessary costs to the industry. The UK biofuel feedstock must use adapted versions of current high food assurance standards and environmental legislation. Imports must prove similar high standards for sustainable production—again, a point raised by other noble Lords. I turn to another crucial issue. R&D and knowledge transfer must be adequately funded to allow progress in the industry. Straight vegetable oil must be recognised as a biofuel, not classified as a fuel substitute. HMRC guidance must be clarified to remove the confusion with that biofuel. We have had an extremely good debate this afternoon and I am extremely grateful to all those who worked extremely hard to produce this report. I just add one comment. The Government may well have to provide the right financial incentives, and duties and taxes on fuel may have to be rebalanced at some stage. I wonder whether the Minister would comment on that.