Energy Bill
Debate between Lord Grantchester and Lord Flight
Lord Flight
My Lords, Amendment 21 is in my name. I apologise that I was unable to attend Second Reading. This is an empowering amendment to address an issue that could be of benefit to government going forward. As many noble Lords may be aware, an economically viable and clean fuel solution for HGV fleet operators has been pioneered by a company called Gasrec, and is now being followed by others. I should make it clear that I have no interests to declare, and gain no remuneration from these sources.
The new fuel is bio-LNG, which is an alternative to diesel. It is gaining significant support in the logistics sector, with Tesco, Sainsbury’s, Waitrose, UPS, DHL, B&Q and Eddie Stobart all participating. It is a blend of liquefied biomethane and liquid natural gas, and it is cheaper than diesel. It is also sustainable and fully compliant with the sustainability criteria for biofuels, as per the EU renewable energy directive 2009. It has the lowest carbon intensity of any vehicle fuel and, so far, the LBM in the blend remains the only way to address CO2 emissions in HGVs. It is therefore rather concerning that the delivery of bio-LNG production is currently undermined by the UK subsidy system.
As noble Lords will be aware, over the past 10 years the incentive schemes for bioenergy have offered different levels of incentive, depending on end use. Bio-LNG has been available only for the past 18 months, and its feedstock for production—biogas from large anaerobic digestion plants—is likely to be diverted by the terms of the existing renewable heat incentive regime away from bio-LNG to renewable energy and heat, for which of course there are many alternative renewable energy sources.
The RHI regulations adopted in 2001 create a system of incentives designed to promote renewable heat, including in particular the injection of biomethane into the gas grid. The threat to bio-LNG production arises from the current higher incentives for developers of large AD plants to inject biomethane straight into the gas grid. The RHI is set at 7.1p per kilowatt hour for direct injection, with no reduction for larger AD plants benefiting from economies of scale, compared with only 2.18p per kilowatt hour for LNG production.
The effect of these incentives is to encourage large operators to plunder the RHI pot for super-profits, somewhat reminiscent of solar FIT tariffs back in 2011, at the expense of smaller AD developers and farmers, for whom the RHI funds were particularly intended, and the loss of biogas from larger AD plants that are ideal for the production of LBM and thus bio-LNG fuel because of their scale. It is not practical or economical to source an aggregate biomethane from small AD developers for bio-LNG because of the logistical problems with collection. It is thus impossible for producers of bio-LNG to offer large AD developers financial super-returns, which are presently available from direct grid injection as a result of the subsidy regime.
The 2001 regulations notified by the Government to the European Commission under Articles 107 and 108 of the Treaty on the Functioning of the European Union, covering state aid, were amended in 2012 and final approval was given this year. However, development of bio-LNG was not contemplated at the inception of the RHI programme. The Commission was not aware of the distortion of competition that subsidies would lead to in the market for AD biogas, particularly regarding large producers, or of the super-returns large AD developers would enjoy for grid injection at the expense of the taxpayer and smaller developers, for whom the subsidy was essentially designed and approved by the Commission.
The distortions are now clear and ought to be notified to the European Commission but there is a better solution for the Government to address the distortions of competition, which normally would necessitate further secondary legislation, in the opportunity provided by the passage of the Energy Bill to re-establish the principle of a level playing field. The level playing field principle in the 2011 regulations could be established without significant impact on the architecture of the Bill.
Following establishment of the principle of non-distortion, the Secretary of State would have to consider how regulations might be amended to reflect it. This is what Amendment 21 is designed to achieve. I hope that the Government will take heed of the points that I am making and might consider adopting this amendment. If not, as is likely to be the case, I am seeking some undertaking from the Minister to introduce the Government’s own amendments or other measures to achieve the desired outcome. Refusal to address this issue would be commercially foolish and certainly anti-green in terms of what the Bill is seeking to achieve overall.
Lord Grantchester
My Lords, Amendments 18, 19 and 20 all deal with the way in which the Secretary of State will come to a decision on the target level to set, and the level of scrutiny given to this process.
We agree that a greater degree of transparency and independent underpinning is needed in this process. We have already debated amendments in the name of the noble Lord, Lord Oxburgh, and my noble friend Lady Worthington that would ensure this decision is guided by the highest level of independent expert advice—that of the Committee on Climate Change. These amendments would also ensure that should the Secretary of State not follow the scientific advice, the reasons for this decision would be publicly available for scrutiny.
However, Amendment 20 seems to suggest that another independent study should be made. The noble Viscount, Lord Ridley, did not make it clear who would undertake this independent study and what would be the situation were it to come to a conclusion that was different from that of the Committee on Climate Change. But, of course, the Committee on Climate Change already produces the data and it is undoubtedly independent. One only has to look at its continued calls, in the face of government opposition, for a resetting of the decarbonisation target now to secure investment. We are certainly interested in what the noble Viscount believes would be lacking from the advice of the Committee on Climate Change that could feasibly be provided in an alternative independent study, albeit he may claim such a study would be more rigorously scientific and independent in nature.
I humbly suggest that Amendments 18 and 19 are unnecessary and misguided. The Climate Change Act enacted by the previous Labour Government was the first legislation of its kind anywhere in the world. It provides concrete, legally binding evidence to the market and the rest of the world about the UK’s commitment to achieving its climate change mitigation targets. Earlier, the noble Lord, Lord Deben, spoke powerfully about climate change and said that the global network on climate change has shown that 33 countries have already passed climate change legislation, and that this number is growing. The United Kingdom is the world leader in climate change legislation and we must send the strongest possible signal to the market that we wish to continue to lead in low-carbon power by legislating for a decarb target that would bind the Secretary of State and provide certainty for investors as soon as possible.
The extent to which other countries are implementing their carbon reduction strategies is, of course, a concern in global emissions terms, but it should not be a block on the UK taking action. It was said earlier that China is not interested in climate change strategies. However, we contend that it certainly is and is investing huge resources in developing and commercialising low-carbon technologies, as is America. We only have to look at President Obama’s words last week, when he stated that,
“we have to look after our future; and we have to grow the economy and create jobs. We can do all of that as long as we don’t fear the future; instead we seize it”.
On Amendment 21 in the name of the noble Lord, Lord Flight, our understanding is that there is an issue regarding the potential overpayment of support for producers through the RHI, and therefore of funds not flowing through to the transport market. Producers claim that there is an imbalance with an excess going into the natural gas grid. Clearly, it is regrettable that renewables and low-carbon producers should feel at odds with each other in this situation. Therefore, we will be very interested to hear the Minister’s response as to whether any more could be done through the RTFO to support and incentivise the use of biomethane as a transport fuel.