Wood Panel Industry

Susan Elan Jones Excerpts

Wednesday 16th March 2011 Westminster Hall

[Susan Elan Jones (Clwyd South) (Lab)]

I am delighted that we are holding this debate on the wood panel industry. I congratulate my right hon. Friend the Member for Stirling (Mrs McGuire) on securing time for it. I thank the hon. Member for Hexham (Guy Opperman) for his thoughtful contribution and the hon. Member for Brecon and Radnorshire (Roger Williams) for his thoughtful intervention.

The wood panel industry is represented in my constituency by Kronospan, which is based at Chirk. The factory is a key employer in the area and is one of the largest in north Wales, with around 600 direct jobs on site. Those are highly skilled comparatively well-paid jobs that make a huge difference to the economy of the area. Kronospan worldwide is the number one producer of medium-density fibreboard and particleboard, and it operates in 24 countries. Locally, it is impossible to overestimate the massive economic impact that that company has. It spends in the region of £30 million a year on local suppliers and close to £ l million in rates. I am extremely concerned to hear that support for large-scale wood-fired electricity generation is threatening the very survival of that sustainable and crucial business in my constituency.

Let me make it clear—this point has been previously made by hon. Members—that we recognise that what is happening is an unforeseen consequence and we also recognise the reasoning behind support for what was the fledging biomass industry. It is not our place to be critical of that. However, we recognise the reality of what is happening to the wood panel industry as a consequence of that position. Wood supply and the best use of wood have suffered in policy making because of the way those issues fall between three Departments—DEFRA, the Department of Energy and Climate Change and the Department for Communities and Local Government—and their respective agencies. I know that DEFRA is well aware of both the limits of domestic wood supply and the extreme inefficiency of burning wood purely for electricity. For example, it is worth noting that the Environment Agency’s report, “Biomass: Carbon Sink or Carbon Sinner,” explicitly calls for a

“strong presumption in favour of combined heat and power”

over electricity-only generation. DCLG certainly supports the use of wood products for construction as a low-carbon alternative to other materials, but the policies that will most affect how wood will be used are the most lucrative ones, namely renewable energy. That is partly because DECC is doing its level best to achieve extremely ambitious renewable energy targets.

The industry has long suspected that information sharing between the Forestry Commission and DECC and its predecessors is simply not up to scratch. The commission undoubtedly has a good grasp on the availability of UK wood. However, for a variety of reasons, it does not have an equivalent expertise in forecasting wood demand. It is the wood industry’s belief that DECC’s understanding of wood fibre streams, uses and demands is totally inadequate, considering the impact that the Department’s policies have on the wood market. The renewable heat incentive’s timber coverage is a case in point. The RHI document states:

“We do not expect significant quantities of prime timber to be diverted into energy as a result of the RHI. However, should evidence show that high grade timber is being diverted into heat use, and that turns out to be a perverse outcome from a greenhouse gas lifecycle perspective or causes concerns about deforestation, measures will be introduced to prevent it.”

That is the sum total of the policy’s attention to the largest source of biomass in the UK.

The industry is most interested to know what DECC means by “prime” or “high grade” timber, as the RHI document provides no explanation. We already know that energy companies are seeking long-term contracts for the supply of small round wood, which is the core feedstock for the wood panel industry. The Department seems to be ignoring the fact that that distortion is happening today. Wood pellet plants, such as the one near Inverness, are using high-grade timber in the production of pellets. That trend will only increase with the additional incentive of the RHI. Will the Minister comment on what he deems to be prime timber? What evidence would his Department wish to see to convince it that such an outcome is already a reality? Does a wood panel factory have to close before measures are introduced to prevent that happening? I sincerely hope not. The Minister needs only to look at the experience of German and Austrian wood processors, which have suffered greatly as the result of massive increases in timber prices in 2004 and 2005.

Of course, this debate is also about the crucial issue of jobs, particularly but not exclusively in rural areas. If an overly generous biomass subsidy continues to be given to electricity producers, wood panel manufacturers will simply be priced out of the domestic wood market on which they rely. It will then become uneconomic to produce wood panel boards in the UK. A report on the wood panel industry by Europe Economics produced last year and submitted to DECC estimated that the loss of the industry would risk more than 8,500 full-time equivalent jobs. Taking the Government’s re-absorption rate into consideration, that still means the estimated loss of well over 4,000 jobs. The displacement of the industry by large-scale biomass would also cost nearly £1 billion in lost economic activity across several industries, as calculated using basic input-output measures.

It is extremely significant that six of the seven panel plants we are discussing are in rural areas with moderate to high unemployment rates. We are speaking of rural or semi-rural communities with at most one or two large-scale employers; indeed, many have no such employers, which is why the employment we are discussing is so vital. In some places—Hexham, Ayrshire, Chirk, which is in my constituency, in north Wales, and South Molton, which is in Devon—the plants dominate the economic landscape, and their loss would be devastating for local communities. Whatever one’s political persuasion, and whatever one’s views on the wider macro-economic debate and on what will happen at this point in our economic history, such losses do not bear thinking about.

I recognise that we are not talking about one of the largest industrial sectors, but the Europe Economics report that I cited earlier said that the sawmilling industry would become vulnerable if biomass demand continued to increase and generators looked to buy the whole tree. The Forestry Commission estimates that the sawmilling sector accounts for about 12,000 employees, and the Government would surely be worried about the loss of that employment.

Biomass plants frequently cite green jobs in applications for planning consent. In reality, however, the number of such new jobs is minimal—on a plant-to-plant comparison and per tonne of wood consumed—compared with the number created in the paper and panelboard sectors. On any objective analysis, biomass plants are less green. I am, of course, extremely concerned about the potential loss of a major employer in my constituency, and I trust that the Government will be, too.

The risk to the industry has been recognised right across Europe, with panel companies shutting down production lines or whole factories in Belgium and Germany because of a lack of wood. In 2009, the EU officially recognised the wood panel sector as one of several industrial sectors exposed to carbon leakage—the risk that companies might relocate outside the EU to countries with less onerous environmental regimes, thereby increasing global emissions. How can that recognition by the EU be reconciled with the RHI impact assessment for the panelboard industry?

As all Members present will recognise, the wood panel industry faces an extremely serious situation unless such consequences are foreseen and dealt with.

--- Later in debate ---

[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.