Wood Panel Industry

Guy Opperman Excerpts

Wednesday 16th March 2011 Westminster Hall

[Guy Opperman (Hexham) (Con)]

Thank you for the opportunity to speak in this debate, Mr Weir. I apologise for being late, but I was detained briefly in another meeting.

I will begin by giving some background to the debate. I have 49,000 square hectares of forest in my constituency, which has at least six major forests. I have three times more than anybody else in the House of Commons. I did not vote for the Government’s forestry proposal. I abstained and did so for a number of reasons, not least because I did not think that it was the best way forward for individual forests to be assessed. I also abstained because a significant number of jobs were under threat—one must not diminish the numbers involved. I agree almost entirely with the comments of my friend the right hon. Member for Stirling (Mrs McGuire), because the law of unintended consequences may be relevant. We have a significant supplier in the form of Egger, which has more than 400 people involved in the forestry business. A second supplier, SCA Timber, has another 400 people. The third supplier is the Forestry Commission, which, along with others, is associated in a multitude of different ways.

I am talking about the most sparsely populated part of England, and it is hard to think of what else individual people could do to make a living. They have eked out a good, successful niche business, based around the forestry proposals. The difficulty is that the wood, and the approach to it, is what binds those people together. It is the glue that holds the community together. I do not want to overstate this, but it seems that we are approaching a crucial decision on the way forward. To that end, I am surprised that there is no mention of the wood panel industry’s views in the RHI consideration. Will the Minister comment on that when he responds? I fully understand that the RHI has been delayed and accept entirely that there are many difficult problems, but the fact that the views of the wood panel industry have been ignored is important. The impression given is that the wood panel industry will survive with or without RHI. In fact, one could go further and say that that implies that the wood panel industry will survive in the absence of RHI.

I remind all parties involved of the huge amount of capacity involved in wood biomass. The forestry industry believes that one of the core problems is the Department’s optimism about wood biomass supply. I grant that a modicum of extra material could be brought to market, but even the most optimistic estimate of the Department for Environment, Food and Rural Affairs is an extra 2 million tonnes a year. Last year’s report by John Clegg Consulting categorically states that current wood demand is in balance with wood supply. In other words, the demand and the amount in this country—give or take a little either way—are, effectively, the same.

[Roger Williams]

I apologise, Mr Weir, that I will have to leave shortly, so I will not be able to make a speech. I, too, represent a constituency that has a lot of forestry and a lot of people employed in forest jobs. Eighty per cent. of the forestry estate in England is in private hands, and of that 80%, only 60% is properly managed. If the other 40% were brought into proper management, that would generate more wood fibre and deliver more public good.

[Guy Opperman]

I am glad that the hon. Gentleman raised that point because it is absolutely key. It is often argued in relation to these particular environments that wood capacity will increase—we could market it better, find it better and produce it better—and we can then find the supply we need. Even allowing for the hon. Gentleman’s argument, given the amount that we will have to find, there is a massive disparity between what the Minister will say and the point we are trying to make.

I shall give one example in relation to the Drax argument. The level of wood demand will be approximately 40 million to 50 million tonnes a year if various things go forward, but we must bear it in mind that we are at a level of just over 10 million tonnes, going up to 12 million tonnes on an ongoing basis, so there is a massive disparity. I flag up the point that if Drax gets its way in the next renewables obligation review and the co-firing cap is removed, it could consume a further 10 million tonnes. I hope that that is not the case because it would mean that a standard wood producer—an owner of a supply—would struggle in terms of their contribution and ability to function. The Government have to respond to the industry’s extremely reasonable argument that biomass electricity plants will consume the cheapest and most easily available material—namely, virgin timber from UK forests.

I urge the Government to reform the renewables obligation before it is too late, so that biomass energy is proportionate, sustainable and highly efficient. At the moment, there is a real danger that if someone is involved in this particular product, they will face the issue of overseas supply. I cannot see how we will be able to produce this type of work, and this amount of wood, on an ongoing basis without there being significant overseas supply, with all the environmental factors that are attached to that. The statistics are effectively unarguable. I would welcome the Minister’s views on the matter.

Given that we have a very successful ability to produce good jobs in a competitive economy on an ongoing basis—1,000 people are employed in the industry in my constituency—it is odd that we are trying to pass legislation, which, as my friend the right hon. Member for Stirling explained very eloquently, will cause long-term difficulties. If we do not address the matter, we will end up with problems.

--- Later in debate ---

[Gregory Barker]

I will develop my theme in my speech, but I think that there is a genuine point of disagreement in our approaches. I agree with the right hon. Lady; there is absolutely no excuse for not publishing the account that we take of the impact on the wood panel industry in the impact assessment, and we will address that. I am sure that there are ways that we can improve measures to mitigate the impact on the wood panel industry, and we are keen to see more wood used in houses. However, the difference between us may lie in the fact that, fundamentally, we believe that the market will respond with more supply, both domestically and globally. This is an immature market—this is a theme that I wish to develop—and the biomass industry in the UK has fallen to a very low level. Historically, we powered the country on biomass. I represent a constituency in East Sussex, the most wooded county in England. I know, just from my own experience, that the vast majority of woodland in that county has fallen into a state of disrepair and is not actively managed. There is significant scope to bring in new supply, both globally and in the UK, and I will come to that in more detail if I may.

[Guy Opperman]

Does the Minister not see that there is a real risk of the law of unintended consequences? If he does not address the problem of subsidised biomass and its effect, then the impact on the wood panel business will be significant and severe, and until he says something on that issue, we will struggle.

[Gregory Barker]

Let me make a little progress with my speech. I am getting slightly ahead of myself, and I will address those issues in the course of my remarks.

On Thursday, as hon. Members have said, we launched the world’s first incentive for renewable heat. That was an important step forward for an Administration who claim they want to be the greenest Government ever, and a genuine, tangible sign of walking the walk as well as talking the talk, of putting investment—money—where our mouth is.

The scheme will provide long-term support for renewable heat technologies, from ground-source heat pumps to wood-chip boilers. It will help drive a sevenfold increase in renewable heat over the coming decade, which will help shift what currently is a fringe option firmly into the mainstream. We expect the RHI to deliver an additional 57 TWh of renewable heat, bringing the total to 68 TWh by 2020 and saving 44 million tonnes of carbon by that year. It is part of a bigger picture, in that we expect 500,000 jobs to be created by the end of the decade in the renewables industry across heat, electricity and transport. The RHI alone could potentially stimulate billions of pounds of new capital investment.

We are reviewing the incentives for renewable electricity under the renewables obligation. The RO banding review will ensure that the level of support for biomass electricity reflects industry costs. It will also reflect the UK Government’s ambition for large-scale bio-electricity, which is being considered through an evidence-based review of biomass resources and their use, to be published in 2011. Analysis of the best use of biomass will form an integral part of that work. I would certainly welcome further contributions to it from hon. Members and the interests that they represent, because it needs to be evidence-based, and we are genuinely open-minded about it.

As I have just mentioned the RHI, I would like to take the opportunity to address the question of why we have decided that only renewable heat installations installed after 15 July 2009 will be rewarded. The RHI is a mechanism designed deliberately to bring forward sufficient new renewable heat to meet our renewables targets. The design was begun by the previous Government—I have to give them credit—and is not something that we dreamed up. It is not intended to be a retrospective reward mechanism for early adopters or existing users of renewable technologies. The justification for it was to pull in renewable heat technologies and renewable heat users that otherwise would not have moved in this direction.

Moreover, in the context of the current economic climate and the huge deficit that we inherited from the previous Government, it is vital that we maximise the value for money delivered by public expenditure. Existing renewable heat generators have already invested in the new technology without needing or expecting the support of a financial incentive, so while I can see why they could make a case for it, I am afraid that we would not consider extending the RHI to include installations prior to July 2009, as that would not be a prudent use of taxpayers’ money.

--- Later in debate ---

[Gregory Barker]

Let us be absolutely clear: the coalition values the jobs in the wood panelling industry, as we value all jobs. It is certainly not our aim—unintended or otherwise—to see those jobs disappear. That neatly brings me on to my next point, which is about the impact of other wood-using industries on wood prices and trends, and competition for a limited resource.

We recognise that the increased use of wood for energy risks negative impacts on other potential users of wood. We understand that the wood panel industry is facing more competition for their raw materials. We also want more wood to be used in the construction of homes. Our analysis shows that the deliveries to wood fuel markets are increasing from a very low base. In 2005, just 100,000 green tonnes of softwood were delivered to fuel markets, accounting for just 1.2% of total softwood deliveries. In 2009, that had increased to only 600,000 green tonnes, less than 7.5% of total softwood deliveries.

In real terms—perhaps this is the most telling point—the price of softwood saw-logs increased by 14% over the five-year period ending in September 2010. I have not done the arithmetic, but I would have thought that the rise was below inflation over that period. I apologise that I do not have more recent statistics. Obviously, this is a dynamic model, and we will continue to inform Members. I do not think anyone could argue that that represents significant inflation in costs. If there were a problem of the magnitude hon. Members have described, it would be reflected in the price, but, clearly, we have not seen that to date. However, I accept that that is clearly something that we will have to watch.

[Guy Opperman]

Surely it is unarguable that prices have risen, and it is surely without doubt that the opportunities to proceed on the basis that the Minister is talking about, although entirely laudable, as we all accept, are limited by the amount of wood in this country that can be produced and sold on.

I have one final point, but I will be brief—

[Gregory Barker]

I will not have time to finish.

[Guy Opperman]

The Minister has plenty of time. What is his expectation of how much wood will be sold?

[Gregory Barker]

I do not agree with my hon. Friend. Yes, there has been a rise in wood prices, but my maths tells me—I am happy to be corrected if I am wrong—that it is below the inflation rate. Wood is a commodity like everything else, but a 14% rise over five years is not alone a cause for concern. Over 20 years, the real-terms price of softwood saw-logs has fallen by almost 46%. The lowest value was reached in March 2009, so the pricing indicators do not support his argument.

Price have recovered slightly since March 2009, but the bottom line is that even if prices increase—I anticipate that they will—we are starting from a very low base. In real terms, they are substantially lower now than 20 years ago.