Wood Panel Industry

Lord Barker of Battle Excerpts

Wednesday 16th March 2011 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I am delighted to participate in the debate under your chairmanship, Mr Weir. I congratulate the right hon. Member for Stirling (Mrs McGuire) on securing the time. She has a commendable record for keeping the issue at the forefront of debate at Westminster. I had the opportunity to meet her and other colleagues in September for a productive meeting with the all-party group on wood panelling. I met industry representatives on numerous occasions before that, particularly while in Opposition.

A range of important issues has been raised, not only by the hon. Lady but by my hon. Friend the Member for Hexham (Guy Opperman), who is also an articulate champion, not just for his constituency but for this industry in particular. We also heard thoughtful speeches from the hon. Members for Clwyd South (Susan Elan Jones) and for Kilmarnock and Loudoun (Cathy Jamieson). I have anticipated in my remarks many points made in the debate and I will seek to address those questions raised as best as I can in the time that I have at the end.

I appreciate that very serious issues have been raised, and if I am not able to cover all of them in this time, I will be happy to follow up with more detailed answers. I can assure all hon. Members that I understand their concerns about the wood panel industry. The coalition Government value the significant investment made in the UK wood panel industry, and we certainly acknowledge the important benefits it delivers, including the real carbon benefits of locking carbon into new buildings. It also provides the benefit of offering jobs—skilled, sustainable jobs—right across the UK, often in rural areas where there is no alternative employment. I think it is not unfair to say that there has been an attitude of complacency in the past, and that the voice of this industry has not always been effectively heard. I am determined to listen.

The right hon. Member for Stirling raised the question at the outset of why the RHI impact assessment did not include the impact on the wood panelling industry. I would like to say, up front, that that is a very good point and I do not have a proper answer for her. She is right to raise it and I will pursue that issue as soon as I get back to the Department. I invite her to meet me so that we can go through the data. I can tell her, and the hon. Member for Liverpool, Wavertree (Luciana Berger), who also raised this matter, that in respect of the renewables obligation consultation there was a significant contribution from the wood panel industry, which set out its concerns along the lines that have been highlighted today. We are now working on guidance about what will be considered as waste and excluded from sustainability criteria. I will say more about that in the course of my remarks.

[Mrs McGuire]

I welcome the Minister’s frankness in admitting that there may have been an omission in terms of the impact assessment. I would be delighted, and I am sure that I speak on behalf of my colleagues, to meet him to see whether we can rebalance that impact assessment in a way that recognises the importance of the issue to the industry.

[Gregory Barker]

I look forward to meeting the right hon. Lady and going through those issues in more detail. Before I go into more substantive points about UK policy, may I also just echo the remarks made by the hon. Member for Liverpool, Wavertree and go on record to say that the UK welcomes 2011 as the international year of forests? This is an excellent opportunity to raise public awareness of the importance of forests—although I think that the coalition Government have done quite a good job of doing that already—and in tackling climate change, halting biodiversity loss and preserving the livelihoods of forest-dwelling peoples.

Forests have a dual role in helping us to reduce greenhouse gas emissions and to tackle climate change. First, forests act as carbon sinks, removing carbon dioxide through photosynthesis and storing it in plant and soil matter, but forests also contribute by providing wood for energy and renewable materials for construction and manufacturing, and reducing the use of fossil materials. However, deforestation is a very real risk that must be addressed. If the world’s growing demand for bio-energy and renewable materials were to lead to the clearing of forests, particularly primary forests, that would increase total global emissions dangerously and drive forward, rather than tackle, dangerous man-made climate change.

The coalition Government are committed to tackling the drivers of deforestation, in particular the global trade in illegal timber—an issue raised by the hon. Member for Liverpool, Wavertree. The international year of forests provides a useful platform to highlight our recent achievements in that area, particularly in terms of EU timber regulation. That regulation prohibits the first placing of illegal timber on the EU market, and will send a clear message to producer countries that illegal timber has no place in the UK market. That complements our wider efforts to improve forest governance in developing countries through the EU forest law enforcement, governance and trade action plan.

The international year of forests is also an excellent opportunity to promote the importance of sustainable forest management in building a greener, more equitable and sustainable future. To complement our work on tackling deforestation, the UK is working with the International Union for Conservation of Nature and other international partners to promote the role of forests in restoring degraded landscapes. The Forestry Commission is using its programme of educational, community and recreational events throughout 2011 to highlight the international year of forests. I am sure that those activities are going on in many of the constituencies of hon. Members who are present.

The hon. Member for Liverpool, Wavertree raised the issue of our clear ambition to be the greenest Government ever, which goes right to the heart of the coalition’s programme for Government. My right hon. Friend the Prime Minister has spelled that out on numerous occasions, but our ambitions go much further than our work to stop deforestation, critical though that is to us. We want to be a global leader in the world-wide transition to a low-carbon economy. We are committed to producing 15% of the UK’s energy from renewable sources by 2020, and to reducing our carbon emissions by 80% by 2050. Renewable energy, and bio-energy in particular, must play a very important role as we decarbonise our economy and seize opportunities to create new businesses, employment and long-term green prosperity in the UK.

Heat and electricity from biomass could provide nearly a third of UK needs from renewables by 2020, meeting approximately 4.5% of our overall energy demand. Bio-energy offers the rare benefit, for a renewable technology, of not being intermittent. It can generate electricity or heat on demand at any time of the day or night. The UK needs the flexibility and security that that supply brings. Moreover, bio-energy can provide significant new business and employment opportunities to the UK. For example, the expansion of biomass use in off-gas-grid areas of the UK will mean a growing order book for specialist boiler manufacturers, demand for new local businesses to provide installation and maintenance, and will create opportunities across the wood fuel supply production and distribution chain. Just last week, we set out a portfolio of major policies that will help us achieve that. Bio-energy will make a significant contribution to our decarbonisation plans, but that must not be at the expense of other jobs. I am very aware of unintended or perverse consequences and hon. Members present are perfectly entitled to raise those issues. We will work harder to look at the consequences for the wood panel industry. Many powerful arguments were made today, not least how it is better to lock up carbon rather than to burn it, and I am mindful of that.

[Mrs McGuire]

While welcoming future discussion and recognising that issues have been raised, is the Minister in a position to say to us today that he thinks there may be some flexibility in the way in which the RHI is being implemented to the current detriment to the wood panel industry? While discussions with the Minister are wonderful, I would like to push him that wee bit further to see what commitment he can give to us today.

[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.

[Susan Elan Jones]

If plants ripped out existing equipment to access the subsidy, presumably they would be eligible. Of course, that is not the sort of thing that responsible plants would do, but it demonstrates the inequity of what the Minister is saying.

[Gregory Barker]

If it were simply a dodge to try to get around the regulations, they would have great difficulty in proving their case. If they were to upgrade their plant or adopt new technologies in a new installation, that would be a different proposition.

We recognise that mainstreaming bio-energy is not without risk—hon. Members have done a good job of outlining the risks. We acknowledge the critical importance of taking action to ensure that rapid growth in bio-energy does not result in loss of important habitat either at home or internationally, or the release of more carbon than we actually save. Hon. Members raised concerns about that. Biomass can be a low-carbon energy source, as the hon. Member for Liverpool, Wavertree said, but that requires it to be grown, harvested, processed and transported sustainably.

We are introducing mandatory sustainability criteria to ensure that the biomass power generation supported by the renewables obligation is genuinely sustainable. From April, generators will be required to report to Ofgem on their performance against a target of 60% greenhouse gas emissions savings compared with fossil fuel use, and on land criteria. Following a transition phase, we intend to make those criteria mandatory from 2013 for all generators of 1 MW capacity and above. We expect that similar standards—again, mandatory sustainability criteria—will be introduced for biomass used for heat under the renewable heat incentive from 2013.

Sustainable forest management is a critical part of biomass sustainability. Therefore, the Government are actively working with stakeholders to develop an approach that will robustly protect not just UK forests but global forests, and enable UK woodlands to come under active management, with the many benefits that that will bring not just to those who use the products but also in terms of biodiversity and recreational benefits for the communities that live around them.

[Mrs McGuire]

I do not believe that any of us who are participating in this debate have any problems with some of the good things that the Minister has identified, but I would like to draw him back to the fundamental questions posed by the debate. The first is the impact when wood that could be utilised for other purposes is burned in biomass-powered generators, and the second—this was my final question—was about jobs, which the Minister mentioned. Is he willing to recognise that there will be collateral damage to an important rural industry which links into all the forestry management that he has spoken about, in order to get the other elements of his policy through? I do not believe that any of us have any problems with some of the good things that he is talking about, but we need to draw him back to the crucial question and the nub of the 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.

[Mrs McGuire]

I hope that I highlighted some of the information that DECC has on forward supply of and demand for wood. It is unhelpful to be historic about that when all the analyses show that the demand for wood will outstrip supply.

Another element is that one part of the market—the demand side—is being subsidised when other elements of the market are not. I know that the Minister is a great believer in competition, but surely the Government are putting the wood panel industry in an unfair position when its competitors are being subsidised for the same products.

[Gregory Barker]

It must be remembered that timber prices are set by global markets, not solely by national Government energy incentives. According to some sources, international energy markets are already influencing timber prices. There was a forecasted 10% drop in log prices for 2010, but instead they were higher than in 2008, which was probably due to increased demand for wood fuel. I assure the hon. Lady that we are looking at that carefully. In addition, we are very aware that wood fuel is increasingly traded as a global commodity, so UK wood supplies can and will be exported for energy use in other countries if that will deliver a better price, and we may import timber from abroad. Nevertheless, as I stated in my introduction, the value of the wood panel industry in terms of green jobs and the carbon stored in its product is significant, and we are mindful of that. That is why the Government are taking action to reduce those displacement issues.

Our actions fall into three main areas: increasing the use of biomass feedstocks that the wood panel industry has no use for; bringing more wood supplies forward; and diverting more waste from UK landfill. To increase the use of other biomass—for example, food waste and anaerobic digestion—it is important to look beyond just wood when sourcing biomass. Biomass suitable for energy generation may come from a wide range of plant and animal materials, many of which are unsuitable as raw materials for our wood processing industries. They include perennial energy crops, such as Miscanthus grass and short-rotation coppiced willow, which can be grown on lower grade land. Similarly, dry farming residues, such as straw, can be combusted for energy.

The Government support perennial energy crops, so long as they do not displace food crops. The renewables obligation provides additional support for energy crops over other biomass feedstocks. That uplift of half a renewable obligation certificate aims to stimulate interest in energy crops grown by the power generation sector, and to help to develop the fuel supply chain.

Support is also provided directly to farmers through the energy crops scheme, which is part of DEFRA's rural development programme for England. The ECS seeks to remove one of the most significant barriers for prospective energy crop growers—the high initial cost of establishing new plantations. The ECS provides grants that reimburse 50% of planting costs.

Another important area is the use of wet biomass residues, such as food waste, sewage and animal manure, that can be anaerobically digested to produce biogas, which can then be used to produce heat and electricity. The UK produces about 100 million tonnes of wet organic material that is suitable for treatment by AD. That includes up to 20 million tonnes of food waste from households and industry; 90 million tonnes of agriculture by-products, such as manure and slurry; and 1.7 million tonnes of sewage sludge. By diverting those wet organic wastes into energy, we can stop slurry surface water run-off polluting our rivers, reduce pressure on landfill sites, and avoid methane emissions, which are 23 times worse than those of CO₂ . The Government are working with the industry to draw up a joint programme to tackle the barriers to the deployment of AD. That will be published in May 2011. We are also looking at the feed-in tariff scheme to see whether the tariff rates are enough to make farm-based AD worthwhile.

What about bringing more wood supplies forward? A further key way to reduce the impact on the UK wood processing industries is to bring new supplies of wood to the UK marketplace. There is a large underused bio-energy resource in the UK. Around 40% of the UK's forest and woodlands, measured by land area, are not currently under an active management plan, as the hon. Member for Brecon and Radnorshire (Roger Williams) said. When woodland becomes overly mature, leaf cover prevents sunlight from reaching the forest floor, and the biodiversity is poor. Sustainable management would allow a wider range of shrubs, birds, trees and bees to thrive, and at the same time bring more UK timber and wood supplies to the market, and generate new business, jobs and opportunities.

The Forestry Commission is developing a wood fuel implementation plan, to be launched later this year. It will set out actions to bring forward an additional 2 million green tonnes of wood from unmanaged forests and other sources by 2020. The commission is also developing a wood fuel woodland improvement grant to assist harvesting and marketing activity. Key features of the new grant are that the wood fuel WIG will offer a 60% contribution to costs, and can support forest roads, access tracks and other related harvesting infrastructure. Further details will be published later this year.

Alongside the development of UK woodlands, developing the biomass import market and securing a healthy share of that for the UK will be essential. We have estimated that a global market of up to 50 million oven-dried tonnes annually will be available to the UK by 2020. I recognise that the wood panel industry is rightly proud of the use it makes of the UK's waste wood. It is estimated that around 4.5 million tonnes of wood waste are generated in the UK every year, of which more than 1 million tonnes, mainly from packaging waste and wooden pallets, are recycled by the panel-manufacturing industry. But we estimate that a considerable quantity is still going to UK landfill.

Wood in landfill is particularly dangerous because it decays and generates methane, so the Government are actively considering how best to make further reductions in the amount of waste going to landfill as part of the review of waste policies, which is due to conclude in the spring. It will look at all aspects of waste policy and delivery in England, including the role of energy from waste. The aim is to ensure that we are on the right path towards a zero waste economy.

In particular, we want to address the priority of moving wood up the waste hierarchy so that it best delivers the right environmental outcome. The waste hierarchy will be legally binding in the UK, so we will seek better to address the potential for diverting treated wood waste, which is not suitable for use in the wood processing industries, from landfill to energy recovery.

In conclusion, the wood panel industry has an important and valuable role to play in the UK's low carbon economy. I have set out today the proactive actions that we are taking to bring new biomass to the UK market, and to ensure that we have the supply to meet demand. We are increasing the use of biomass, other than clean wood, for energy; we are bringing forward more wood supplies; and we are diverting more waste from landfill. But we are open to new ideas. I do not pretend that we have the perfect solution yet, and DECC would very much welcome continuing engagement with the wood panel industry.

I thank all hon. Members who have participated in an important and valuable debate. The agenda will certainly continue beyond today.