United Kingdom Bioethanol Industry

Ian Swales Excerpts

Wednesday 12th October 2011 Commons Chamber

[Ian Swales (Redcar) (LD)]

I beg to move,

That leave be given to bring in a Bill to require the Chancellor of the Exchequer to lay before Parliament an independent report on methods for supporting the domestic bioethanol production industry; and for connected purposes.

The Prime Minister said last week:

“Whatever it takes to help our businesses…we’ll do it.”

Well, now is his chance. The UK bioethanol industry has invested more than £500 million over the past five years, and a lot more is planned. That is based on the UK’s commitment to implementing the EU renewable energy directive and having biofuel content in our petrol.

Ensus has built Europe’s largest bioethanol refinery in my constituency, and it started up in February 2010. More investment is planned in the constituencies of the hon. Members for Great Grimsby (Austin Mitchell) and for Brigg and Goole (Andrew Percy). However, the Ensus plant came offline at the end of May and remains shut. The situation is uncertain. The jobs of 2,000 people at the plant and in the supply chain are at risk. This is not a tale of commercial gross misjudgement; it is mostly a tale of being let down by politicians. Sadly, it is a common story. Instead of leading the world in green technology, we are way behind and playing catch-up, but other countries are moving even faster. In 2010, we slipped from third to 10th in the world green investment league.

So what are the problems affecting the bioethanol industry? First, the previous Government repeatedly delayed and watered down the renewable transport fuel obligation. They had form, with similar dithering bankrupting the early investors in biodiesel production. The original 2003 target was 8.8% by 2010-11. The target now is 5%, which will not be reached until 2013-14, so there has been major delay. That has radically moved the goalposts for an industry that has a long lead time for investments coming on stream.

Secondly, there are issues to do with UK fiscal policy, which actually discriminates against biofuels. Those fuels are, by their nature, energy products, but they are taxed by volume at the same rate as the fossil fuels that they are intended to replace. As biofuels have a lower energy content by volume, they face a heavier tax burden despite being the greener option. That is hindering the uptake of biofuels in the UK.

The EU Commission has announced proposals to revise the energy taxation directive, which are now being negotiated by the European Council. Under the revised directive, transport fuels would be taxed, at the minimum level, according to energy content and carbon content, rather than by volume. The UK should support the adoption of the revisions to the directive at EU level and reform UK fiscal policy. Transport fuels with the best carbon and sustainability performance should be available to the consumer at the pump at the lowest cost, in terms of pence per mile.

Thirdly, there are US imports. The UK market is dominated by US imports, which exploit loopholes in our tariff structure and receive domestic subsidies for their production. Bioethanol used for blending with petrol in transport fuel is imported to the UK already partly blended. It is then classified as a chemical product and dealt with under chapter 38 of the UK trade tariff. The customs duty payable is much lower than it ought to be, especially when comparison is made with many other EU member states. Bioethanol imported under that code is able to undercut the market, with damaging consequences for our industry. Many other EU states such as Germany have ensured that only unadulterated ethanol qualifies towards their targets under their renewable transport fuel obligation. That is imported under the equivalent of chapter 22 of the UK trade tariff classification, which carries a much higher tariff. Through that method, they shield their domestic market from the aggressive and unfair import of bioethanol that we experience here.

It is clear that the tariffs present a major problem for the industry. A new operator, Vireol, claims that it has already missed out on a significant multi-million-pound equity investment from a major industry player because of our approach to tariffs, as compared with the approach taken by competing member states. It sees our stance as a serious impediment to the development of a thriving industry in the United Kingdom.

There is a vote on the issue today in Brussels. It beggars belief that only last week a Department for Transport official seriously suggested that the UK should vote against our long-term national interest based on a short-term, tactical, economic assessment. That would mean supporting the US in undermining our industry, based on its subsidised material, which is chemically doctored to exploit a tariff loophole. We need real strategic thinking.

One final issue: the Department of Energy and Climate Change is not always clear about sustainability criteria. Some products are less green than others, and investors need clarity on that vital policy issue. There is a serious lack of joined-up thinking across government when it comes to green technology. The issues are very likely to involve the Department of Energy and Climate Change, the Department for Business, Innovation and Skills, and the Treasury. They will sometimes involve the Department for Environment, Food and Rural Affairs, and in this case they involve the Department for Transport.

I welcome the recent formation of the green technology council to address the problem of co-ordination. Here is what the Government need to do: I want the green technology council to look urgently at the bioethanol situation. Using this example, it should formulate how to get all Departments and the civil service joined up, fighting together ruthlessly for the national interest as we forge our green future. I want to see the Department for Transport implement the renewable transport fuel obligation as soon as possible and in a predictable way to give the industry the market that it plans for when making major investment decisions. I want to see the Treasury tax biofuels by energy or carbon content, not by volume, and I want to see the UK take action on US imports, get them properly classified and stop this material being dumped here.

There may be those listening to this debate who question the sustainability of the business. To them let me say that the Ensus business is an outstanding example of sustainability. The feedstock is animal feed wheat. The products are bioethanol for use in road fuel, carbon dioxide which, in a separate £20 million investment by another company, is collected for use in the food and drink industry, and animal feed which contains all the protein in the original wheat. It is highly valued by farmers and replaces the import of high protein soya-based animal feed from South America, which is most likely grown on former rain forest land. Those who worry about land use should remember that under the crazy common agricultural policy we are currently paying our farmers not to grow things.

The National Farmers Union has commented on the situation in a letter to the Secretary of State for Transport, saying that

“the NFU has been made acutely aware of the current damage being created to the development of the UK biofuels industry from ethanol imports which can exploit loopholes in the tariffs structure and classification definitions, undermining sustainably produced domestic biofuels.”

The NFU goes on to point out that damage to the industry will have

“additional implications for UK agriculture; reducing market diversity which supports our farm investment, agricultural jobs and rural development while additionally putting at risk availability of useful by-products such as protein for livestock feeds, continuing our increasing reliance on imported products.”

This is an excellent business to have in the UK. Our feed wheat yields are some of the highest anywhere in Europe and the high starch varieties typically grown in the UK are ideally suited—[Interruption.]

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I am sorry to interrupt the hon. Gentleman, but there are far too many private conversations going on in the Chamber. The hon. Gentleman has the Floor for his ten-minute rule Bill. Conversations should go on outside the Chamber.

[Ian Swales]

This is an excellent business to have in the UK. The wheat grown here is ideal for producing bioethanol. We can have a more efficient and cost-effective business than that of Germany, France or Belgium, yet we are significantly lagging behind those countries. The UK has a proud record in process industries and bioethanol should be a key part of our industrial future.

There are many benefits to taking action. A thriving bioethanol industry will help us meet our climate change targets. Energy security will be improved by literally growing our own. Action will encourage further investment in green manufacturing and technology development. There are already other exciting possibilities, above all growth. When fully running Ensus has a turnover of around £250 million. To supply future UK needs there is a £3 billion business out there.

The Bill should be seen as part of the Government’s vital growth agenda and requires that the Chancellor lay before the House a report on the industry. It should cover the specific tax and tariff issues mentioned earlier in my speech, how to encourage further rapid investment in this green industry so that the UK can match the activity of its competitors, and how to ensure that the UK Government and civil service are properly lined up in support. The Government now have a golden opportunity to show that they are serious about their commitments to being green, to promoting manufacturing and, above all, to growth. We should be supporting our jobs, supporting our growth and supporting our bioethanol industry.

Question put and agreed to.

Ordered,

That Ian Swales, Tristram Hunt, Andrew Percy, Austin Mitchell and Mr David Ward present the Bill.

Ian Swales accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 20 January 2012, and to be printed (Bill 233).