Wood Panel Industry

Roger Williams Excerpts

Wednesday 16th March 2011 Westminster Hall

[Mrs Anne McGuire (Stirling) (Lab)]

It is a pleasure to take part in this debate under your chairmanship, Mr Weir. I do not think that I have had the pleasure of being on a Committee that you have chaired. We go back a long time in this place, so I am delighted to see you here today. I am also very pleased to see both the Minister, with whom I have had conversations on this issue in other parts of the Commons, and my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger), who is representing the Opposition.

I am delighted that we have secured the debate, because we are at a crucial juncture for the wood panel industry. It is the UN international year of forests, which presents a good opportunity to review policies that affect our forests and associated industries. Last week’s announcement on the renewable heat incentive was a great blow to Norbord, a panel manufacturer in my constituency and one of seven plants that constitute the UK’s wood panel industry. The industry produces, wholly from UK-sourced wood, two thirds of the UK’s consumption of wood-based panels—chipboard, MDF and oriented strand board. Much of that wood is post-consumer waste wood, with Sonae UK in Merseyside now making chipboard from 98% recycled material. All virgin material is certified by the Forest Stewardship Council. The industry plays a valuable, if somewhat understated, role in carbon abatement, by locking carbon into the product, often for decades, as is the case with housing.

Norbord plays a vital role in my constituency. It employs more than 250 people directly and is one of the few large private sector employers in the area, offering a valuable apprenticeship scheme in addition to manufacturing. Its campaign to highlight the detrimental impact of large-scale biomass energy is fully supported by the workers at the factory, under their trade union Unite.

Let me be very clear to the Minister from the outset: neither Norbord nor the wood panel industry has any objection to the aims of the RHI. Indeed, the sector accounts for a third of the British industry’s generation of renewable heat. However, that huge contribution is threatened by exclusion from the RHI of the industry’s existing capacity. This is, in many respects, an issue that does not gain the headlines, so I want to put on record the fact that we have support from organisations such as the United Kingdom Forest Products Association, Timcon, Valpak and other wood supply outlets that have fears about some of the issues that I will raise this afternoon.

As the Minister knows full well from meetings with the industry and with the all-party group for the wood panel industry, of which I am chair, biomass is unlike any other major form of renewable energy because of the ongoing fuel costs involved and the potential for serious distortion of the wood market. I appreciate that the Government do not want to support all early adoption of renewable technologies. That is perfectly understandable, but I hope that the Minister recognises that the industry has an important contribution to make to renewable heat. If we do not get some resolution to the current situation, that important contribution will be jeopardised by subsidies to new entrants to the wood market, and by the arbitrary nature of the July 2009 cut-off date for installed installations.

I have to be frank with the Minister. The wood panel industry feels particularly aggrieved by the apparent lack of consideration given by the Department of Energy and Climate Change to its well-evidenced arguments about the impact of subsidised biomass demand on the UK wood market. I would, therefore, like the Minister to tell us why the wood industries are not even mentioned in the RHI impact assessment, despite the submission to his Department of data on timber prices and availability. The four paragraphs devoted to competition assessment make no mention of the wood market, which, as the Minister knows full well, will be the source of most of the biomass feedstock. There appears to be little point in conducting an impact assessment when adverse impacts that are clearly detailed to the Department are, apparently, studiously ignored. If assessments are not objective, who will trust them? I am sure that my all-party group colleagues who are here today can, like me, attest to the clarity of information and evidence that the Wood Panel Industries Federation has produced for the Department’s scrutiny.

I am not sure whether the Minister heard the recent BBC “Today” programme’s coverage of the RHI announcement. It picked up on the sustainability question: will biomass demand prove as unsustainable and environmentally damaging as biofuels? Roger Harrabin, the environmental analyst, raised the important issue of the double-counting of land when assessing potential biomass availability. That relates not just to the UK; it appears to be the case across Europe as well, where the combined biomass demand from EU member states, as declared in their national renewable energy plans, is just short of 1 billion tonnes of wood every year. That would require the total global harvest of wood to increase by a third. Does that sound sustainable?

On the renewables obligation, although the Government’s decision on the RHI is a further crushing blow to the competitiveness of the sector, the core problem remains the unsustainable and flawed support for large-scale electricity from wood. The wood panel industry has long argued that the renewables obligation has had the unintended consequence of distorting the UK wood market. That was not done deliberately, but we now have to deal with it. Several cumulative factors contributed to the distortion. First, demand for UK wood is beginning to outstrip supply; secondly, energy crops have not been planted in significant volumes, despite there having been generous incentives for a decade; and finally, the scale of biomass plants is huge. For example, Port Talbot’s Prenergy plant will burn about 3 million green tonnes of wood per annum, with no guarantees that the material will be exclusively imported. That represents close to a quarter of the biomass available today in the UK. The consequences for the wood-processing industry are extremely serious, and will only be compounded by the introduction of an RHI that does not support the industry’s existing renewable heat generation.

I hope that the Minister will accept that one of the most important myths that has to be confronted is that biomass plants will satisfy their demand from overseas—from imports. That is hugely inaccurate, misleading and irresponsible for three main reasons: first, the global pressure on wood supply; secondly, the differential in price between imported and domestic wood fibre; and thirdly, the fact that biomass plants are not committed to any supply chain when they receive planning permission.

Let me start with global wood supply and demand. Investment in biomass and biofuels is increasing significantly around the world, as the Minister undoubtedly knows. Canada and the US, which are frequently cited as potential sources of fuel for the UK, are seeing more and more biomass plants proposed, as the cost margin between energy generation from oil and from wood decreases. The Government know well how difficult it is to estimate how much wood will be available from abroad in the next 10 or 20 years, yet they are somehow confident that energy companies will be able to secure imports and will, therefore, not impinge too greatly on domestic wood. Many organisations are a great deal more sceptical about the sustainability of such global demand. They include Friends of the Earth, WWF and BirdLife International, to mention but a few. Furthermore, does the building of numerous import-reliant biomass plants not have serious ramifications for UK energy security?

The second factor undermining wood imports is price. As long as domestic wood is significantly cheaper than imported wood, which is currently about double the price, any energy company worth its salt will source as much cheaper UK wood as it can. That is just business. Forth Energy, for example, which is trying to build four large electricity plants close to my constituency in central Scotland, has been more open than most in stating that it intends to burn as much indigenous biomass—that is British wood—as possible.

The consultancy E4tech produced a report for DECC’s renewable energy strategy in 2009 that considered international biomass supply. E4tech concluded that the UK could import significant volumes of woody biomass to supply UK demand, but that import costs would remain high. It predicted that in 2010, all imported material would be more expensive than domestic wood, and would still be more expensive even by 2030. That was true in each of the four scenarios that the report used, from business as usual to high growth.

E4tech produced another report for DECC earlier last year on biomass prices in the UK electricity and heat sectors. On wood chip prices, the report concluded:

“In 2020, imported chips are estimated to be much more expensive…than chips from UK energy crops…hence are unlikely to be used for heating. The UK biomass heating sector is therefore likely to only see the UK energy crop chip prices.”

I hope the Minister will accept that that goes to show that the RHI will only add to pressure on domestic wood supply and drive up prices above levels that the wood panel industry can absorb or pass on to customers. Biomass energy companies will buy wood from established wood markets, such as the market for small roundwood, unless they are specifically encouraged not to do so. Why would they seek out twisted branches, stump and brash when they can outbid existing industries for small roundwood, sawdust and even logs?

The final and crucial factor concerning imports is that biomass plants, once built, can source material from wherever they see fit as long as the wood is certified under a forest management scheme. The fact that many such plants are situated at ports does not mean that they will not buy huge amounts of wood from the UK. As I have explained with the aid of DECC-commissioned reports, there is no prospect of international woody biomass becoming cheaper than domestic wood.

On carbon balance, my fundamental question to the Government is this: what is the best possible environmental outcome for this precious and limited resource? The Government must not simply weigh the carbon balance of energy generation from fossil fuels and wood; they must also consider the environmental benefits of competing uses of wood. It is a well-established fact that wood products are an important carbon sink that can be burned for energy after their useful life.

According to the Forestry Commission’s Biomass Energy Centre, direct CO₂ emissions from combustion of wood chips for electricity in a large-scale plant are more than five times as high as emissions from the combustion of hard coal. I acknowledge that life-cycle CO₂ emissions from large-scale wood-fired electricity production are considerably less than coal, but there is a considerable and crucial time lag, or carbon debt. It will be between 30 and 40 years before new plantings in coniferous temperate forests can reabsorb the carbon released through combustion. I represent a constituency with large forests—a landscape you will recognise, Mr Weir, as someone from Scotland—so I know that is not a short-term fix. In the short to medium term, new large-scale biomass plants will massively increase carbon emissions. If climate change is to be taken seriously, how can we be comfortable with such a perverse outcome?

[Roger Williams (Brecon and Radnorshire) (LD)]

I congratulate the right hon. Lady on securing this important debate. She is making a powerful case for which I have a lot of sympathy. A lot of wood ends up in landfill that could be used in biomass facilities, which would be of benefit in reducing carbon.

[Mrs McGuire]

That chimes with the views of the industry. Some of that wood could easily be used for biomass energy generation, instead of the wood currently used by the wood panel industry and other industries. The hon. Gentleman makes a powerful point. An appropriate comment might be that we must look beyond the trees so that we can see the wood.

The Environment Agency’s 2009 report “Biomass: Carbon sink or carbon sinner?” got to the nub of getting the best environmental outcome from the material. Although I accept that the introduction of a heat incentive is a good step in principle, wood will continue to be consumed in massive quantities for electricity production as long as financial incentives make it attractive. Because wood supply is limited and displacement of the wood panel industry is a realistic outcome, it is vital to compare the carbon emissions of electricity from biomass with those produced by panel board manufacture.

A study by Carbon River submitted to DECC last year demonstrated that CO₂ emissions from the wood panel industry equate to 378 kg of CO₂ per tonne of timber processed. By comparison, CO₂ emissions from the biomass industry consuming domestically sourced timber equate to 1,905 kg of CO₂ per tonne of timber processed. The wood panel industry’s annual consumption of timber is between 4 million and 4.5 million tonnes per annum. If it were displaced by the biomass industry, the increase in net CO₂ emissions would equate to 1,527 kg of CO₂ per tonne of timber processed. That works out at about 6 million tonnes of CO₂, or a 1% increase in the UK’s net CO₂ emissions each year.

If the UK is to burn 50 million tonnes of timber a year to satisfy its energy requirements, direct CO₂ emissions could increase by 95 million tonnes per annum. Will the equivalent capacity of fossil fuel plants be retired to compensate, or will the carbon reduction policy in fact increase our carbon footprint? Large-scale growth of biomass usage for electricity production will not only be detrimental to the wood processing industries, including sawmills; it is also likely to put even greater pressure on land in the UK and abroad that is currently used for farming food crops.

I hope that the Government can accept some responsibility for elements of that powerful challenge. In response to a Channel 4 news exposé of biomass and timber prices last week, the Government stated:

“It is not our intention for our renewable support mechanisms to adversely affect other industries. We believe this can be minimised by increasing the supply of wood and forestry residues available, better management of our waste wood”—

that chimes with the comments of the hon. Member for Brecon and Radnorshire (Roger Williams)—

“and the increased use of other biomass resources such as food waste and perennial energy crops.”

Frankly, it is not good enough for the Government to say that it is not their intention to affect industry. If they are interfering in the market, which they are, they must make certain that they obey the golden rule: do no harm. Therefore, I respectfully suggest that it is negligent of the Department to omit the industry from its RHI impact assessment.

The Government’s answer to concerns about the sustainability of biomass energy is to cite the proposed sustainability criteria. With regard to wood, those are simply measures of good forest management and in no way provide a picture of sustainable levels of demand and supply, or of the impact that biomass will have on carbon sinks and recycling. The Government say that they will act if distortion occurs, but frankly, any action will be far too late. Distortion is occurring today, and these industries are already at their competitive limits.

No one doubts the complexity of the problem. However, we have to recognise that there is a better way of making decisions about the use of wood. At present, no other country in the European Union encourages wood-fired electricity generation on the scale seen in the UK. Countries with much greater forest cover, such as Germany and Austria, have sensibly instituted minimum efficiency standards that preclude electricity generation from wood alone, thus encouraging the development of high efficiency heating and small-scale combined heat and power. The Minister does not even need to look beyond these islands. You will love this sentence, Mr Weir: we could follow the lead of the Scottish Government, who have expressed a preference for those processes over large-scale electricity from biomass. I am pleased to tip my hat, on this occasion, to the Scottish Government’s lead on the issue.

Despite the introduction of the RHI, the Minister cannot deny that the current incentive regime still makes burning virgin timber for electricity an attractive proposition. The best way to end market distortion and to achieve the best environmental outcomes is to end support for electricity-only generation from wood, and to exclusively support quality CHP, heat generation and energy from treated wood waste. That would ensure high energy efficiencies, protect current and future wood recycling, and reduce landfill. It would also greatly reduce the impact on wood processors, who play a vital role in carbon abatement, through the manufacture and recycling of low-carbon, sustainable construction and furniture materials.

If the Minister recognises the valuable contribution made to the carbon agenda by the panel board industry, will he please comment specifically on how the creation, through a subsidy, of a four to fivefold increase in the demand for limited biomass cannot but distort that market and impact detrimentally on that industry? Finally, does he feel that the loss of the UK’s wood panel industry is acceptable collateral damage for hitting renewable targets? That is what appears to be happening. It would be a sad conclusion, not just because of the jobs and skills that would be lost in a rural industry, but because, perversely, such displacement of wood would actually increase carbon emissions, which is the very thing that I am sure the Minister would not want. I welcome this opportunity to put these issues to the Minister and look forward to the response of my hon. Friend the Member for Liverpool, Wavertree for the Opposition, as well as that of the Minister himself.

[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.