Renewable Transport Fuel Obligations (Amendment) Order 2011

Lord Berkeley Excerpts

Monday 5th December 2011 Grand Committee

On the question of mandatory sustainability criteria, the papers in front of us state that we do not have them yet. Although we are bringing in this instrument because we might worry about infraction if we did not, we are still working on what the mandatory guidelines should be and we are not at all sure when we will have them worked out. It would be best if this instrument were taken away and thought through again. We should have serious discussions with the Commission and come to a different position in six months’ or a year's time. It is no surprise that we are looking at 3.5 per cent of fuel coming from bioenergy; we are miles away from 10 per cent and nobody wants to get there.

[Lord Berkeley]

My Lords, I support the Government’s intention behind the order. However, the fact that it is 20 pages long and that a number of noble Lords have made some pretty wide-ranging comments about its effectiveness indicates just how difficult the system is. Clearly the Government’s heart is in the right place but I think there is a bumpy road ahead, and maybe not just on these regulations.

In transport, we all know that the intention, and the policy, is to reduce CO₂ emissions by 80 per cent in 40 years’ time, by 2050. We are a long way from that, as many noble Lords have said. It is very easy to say, “We should do this and we should not do that”, and come up with a black-and-white approach. We need to have a more rounded approach and do everything possible because otherwise there is no chance at all of meeting those targets.

I worry about whether there is any joined-up government going on here. I read last week that the UK was the only EU member state to oppose the Commission’s plan to put a premium on CO₂ emissions from the oil sands that are produced in Canada because of the additional CO₂ produced as a result of that process. If we are trying to balance what is produced and how it is produced with the CO₂ that comes from it, surely the Commission’s plans are very fair and reasonable. We can argue about the percentage but it appears to have a pretty disastrous effect on the environment there and if it is going to produce a great deal more CO₂ as well, that should be reflected. I know that that is some way away from these regulations, but it is an example of how one can get tripped up by a policy, possibly without realising it.

The noble Lord, Lord Palmer, talked about some of the other issues to do with the change in policy. We have seen a change in policy recently on solar panels and the grants available for those. Again, it is probably fair and reasonable given the reduction in the prices that the panels are sold for, but it does not help industry invest in the right equipment for reasonable long-term production of whatever we are trying to produce. Again, several noble Lords have mentioned this in respect of the various feedstocks that we are considering today.

I recently came across a plan in Cornwall, where I live, to export domestic waste in 1 metre cubed blocks to Sweden for incineration and creation of electricity. At the same time, there is a plan to build an incinerator in Cornwall. Whether it goes ahead or not does not really matter, but why export it to Sweden when it can be burnt locally? Apparently it is a different type of waste, but if we are going to have to have different types of processing plants for all the things listed in these regulations, and if Government, for whatever reason, are going to change their policies on subsidies or feed-in prices or whatever, it is going to be quite difficult to get companies to invest in it. I question why we want to encourage the burning of sustainable waste from fisheries. There are enough problems with overfishing at the moment and we should not encourage anybody to fish more than they need to and say, “We will make some money out of burning it”.

I fear there are going to be a lot of unintended consequences out of this order and other ones. I do not have a solution. We can try to burn less fuel by using electricity for those vehicles that can be powered electrically, if that is generated in a carbon-free manner. That cannot be done so easily for big trucks. My solution, as chairman of the Rail Freight Group, is to send much more long-distance stuff by rail. However, that is not the only answer. We must try all these different solutions. I plead with the Minister to try to end up with a policy that is as consistent across all the different modes of transport as possible and that will give the businesses that will do this work as much confidence as possible that their investment will get the rate of return that they were promised by government policy when they started down the road.

[Lord Reay]

My Lords, the two great drivers—to use modern administrative jargon, as the Minister did—of our ruinously expensive renewable energy policy, which is still subscribed to by the leadership of both the Government and the Opposition in this country, are the Climate Change Act 2008—which, it was estimated by the Government of the time, will cost more than £400 billion by 2050—and the EU renewable energy directive of 2009. The Climate Change Act deals with emission reductions; the renewable energy directive provides for increasing proportions of used energy to come from renewable sources. Of course, renewable excludes nuclear.

As was explained, under the directive the United Kingdom has a target of 15 per cent of its total energy and 10 per cent of its transport fuel to come from renewable sources by 2020. The renewable transport fuel obligation has been in place since 2008, and under it an increasing proportion of road transport fuel must take the form of biofuel. According to figures provided by the Department for Transport to the Merits Committee, this has now reached 3.1 per cent. This order amends the RTFO to bring into effect various requirements of the directive that were described by the Minister.

In the various impact assessments provided with the amendment order, there is no assessment of the costs hitherto of the obligation. I find this to be a sorry omission and would be grateful if the Minister will in due course supply the figure. As the Explanatory Memorandum makes plain, supplying biofuels is more expensive than supplying fossil fuels. As to the expected costs of the amendment order over and above the costs of the order unamended, the Explanatory Memorandum offers an estimate of £324 million for the years 2012 to 2030. However, the overarching impact assessment states that the figure falls in the range of £100 million to £800 million. In other words, the Government have very little idea of what the cost will be.

The amendment order will be popular with no one except the Greens. The Government state that of the 4,600 replies to the consultation from members of the public, the majority called for the biofuel targets to be scrapped. This is not surprising as the effect is to add to the cost to the motorist. Given that the Government have just felt the need to postpone an increase due in January on fuel duty amounting to an extra 2p a litre, they will not make their life any easier by increasing in this way the price of fuel. In the sustainability criteria impact assessment, it is assumed that the additional cost to the motorist will peak at 0.4p per litre in 2017 for diesel and 0.1p per litre for petrol. The assessment goes on to state that any further costs will be capped by the buyout price. However, this is set at 30p per litre. I wonder whether that is really the price at which the cost to the motorist will be capped. Perhaps I do not understand this and the Minister will explain how a buyout price set at that level will effectively cap the price to the motorist.

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[Earl Attlee]

My Lords, I would not imagine that it impacts greatly on pump prices. I will see if inspiration comes to me in due course. However, the cost is in the impact assessment.

The noble Lord, Lord Palmer, asked how we could support UK production. The RTFO seeks to increase biofuel use. We want sustainable biofuels. The RTFO allows sustainable biofuels to count. We cannot exclude biofuels because they come from outside the UK. If we did, we would face competition issues from the WTO and no doubt from the European Commission as well. Also, such anti-competitive behaviour would be against the interests of UK consumers. The key is sustainable feedstock.

[Lord Berkeley]

If we have one of the “big four” accounting firms doing the verification and the material is coming from South America or the Far East, will they go there to check it or will they rely on local certification?

[Earl Attlee]

My Lords, it is up to the supplier to convince the authorities that their fuel is sustainable.

Many noble Lords asked about advanced biofuels. A number of commercial activities are developing advanced biofuels. BP is involved in a joint venture to develop biobutanol. Double counting of waste-derived biofuels and advanced biofuels will increase the financial incentive to invest in advanced biofuels.

My noble friend Lord Eccles asked number of questions. Many of them are key to the debate, so I will go through them and I hope that the answers will cover many other noble Lords’ concerns. He asked about UK production. The UK is currently the largest single supplier to our market. Volumes from the UK have increased over the years. The market share is currently around 23 per cent. The detail is on the department’s website. The noble Viscount asked whether our 10 per cent was not all tallow, et cetera. Tallow and used cooking oil account for a significant proportion of UK feedstocks. Some fuel comes from agricultural feedstocks. Again, the detail is on the website. He asked what happens to our oilseed rape production. We do not have the figures to hand. The statistical data are on our website.

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[Earl Attlee]

My Lords, it is standard procedure to write to all noble Lords who have taken part in any of these debates.

The noble Lord, Lord Reay, asked me several interesting questions. First, he asked if there were any suggestions that adding biofuel to fossil fuel reduces fuel efficiency. Yes, biofuel is less energy-dense but we are blending only low volumes. He asked about the proportion of biofuels supplied today under the RTFO that comes from crops. The latest published figures indicate that two-thirds comes from crops. He also asked about the cost to the motorist to date, which has been between £300 million and £400 million per year at current market prices. He asked whether, after consulting on a number of options, we are keeping the buyout mechanism. The answer is yes. For those who are unfamiliar with the system, the buyout mechanism is in place to provide a safety valve that will protect both industry and the consumer from spikes in the cost of supplying biofuel. It will allow obligated suppliers to buy up part or all of their obligation, rather than meeting it by redeeming the RTFCs that are issued to those supplying sustainable biofuels. The cost of buying out is 30p per litre of fuel that the supplier would otherwise have been obligated to supply.

The noble Lord also asked about the efficiency and effectiveness of biofuels, and whether there were any problems. He will recall that I recently answered an Oral Question in the Chamber about ethanol and petrol, which can cause some problems. However, they are not insurmountable.

The noble Lord, Lord Grantchester, asked me what I would say in response to industry concerns that there has been inadequate time to prepare for this and that consultation on the RTFO guidance has been very brief. We have no intention of delaying transposition and implementation. The renewable energy directive was published in 2009 and set mandatory sustainability criteria for biofuels. The implementation of the criteria should not come as a surprise to industry. Those companies that have taken the opportunity to report on a voluntary basis and to establish a sustainable biofuel supply chain will be well placed to meet the requirements of an amended RTFO.

[Lord Berkeley]

Before the noble Earl winds up, perhaps I could try a variation on the question that the noble Lord, Lord Bradshaw, posed. The Minister said that processing and selling biofuels was a good investment. He then said that there were no targets for the volume or the price—the sale price or the costs—beyond 2014. Would he recommend anybody to invest in this, or would he rely on the advice of the verification schemes of the big four, who of course will not have a conflict of interest?

[Earl Attlee]

My Lords, there is a target of 5 per cent in 2014 and each year thereafter. I remind the noble Lord that we will be consulting on the future after 2014.

This is the right time for this order. We did not allow ourselves to be rushed, as we wished to ensure that the legislation was built on robust evidence. The Committee will be aware that there were a number of policy shifts relating to biofuels in the past. We wanted to be clear that this order was based on clear facts and sound science.

We have also taken steps, both with the order and through earlier work, to ensure that industry has been given adequate time and information to prepare for the change. The RED was published in 2009 and there have been regular meetings since then between departmental and industry representatives to discuss the sustainability criteria. The RTFO has been in place since 2008, and those companies that have taken the opportunity to report on a voluntary basis and to establish sustainable biofuel supply chains will be well placed to meet the requirements of an amended RTFO.

I have tried to answer as many questions as possible. I will write to noble Lords on any major points that I have not addressed, and I have already undertaken to discuss one matter with a ministerial colleague. I hope that I have addressed the key issues raised today and that the Committee will agree that the order is the best way to proceed with our UK biofuel policy.