Clause 10 - Bioethanol
Finance Bill
11:00 am
Mr Andrew Tyrie (Chichester, Conservative)
This is a much more substantial clause, and it has potential long-term implications for a major section of the market. I am sure that the Economic Secretary has become one of the country's leading experts on the subject, but, luckily, we already have another of the leading experts present in Committee, my right hon. Friend the Member for Fylde. I have no doubt that he will have some thoughts to pass on about bioethanol, as he has in past Finance Bills, so that makes me chary about making too many points that he can make far more forcefully.
The clause creates a new reduced rate of 28.5p per litre for bioethanol when used as any type of engine fuel. It currently attracts about 47p, so the clause creates a 20p differential, which will come into force in January 2005. Its purpose is to encourage a sharp increase in the exploitation of bioethanol as a fuel, and in that respect it is well behind biodiesel, the rates for which we briefly discussed on clause 5 on the Floor of the House.
I am a bit worried about the measure, not because I disagree with the direction of policy in principle, but because I am not sure that the decisions that have been taken relate successfully and directly to the policy intentions. First, where has the justification for 20p
come from? After I consulted the industry, it told me that to get the market going we need a differential of between 28p and 34p—a good deal more than 20p. The industry sometimes overcooks the books, but that is a very big difference in estimated costs, and the Government could have analysed them.
One industry expert told me that the extra cost of refining and delivering bioethanol to the forecourt would be more than the 20p differential, so his company did not intend to develop it at this stage.
A major Government document has been produced on the subject, and it was also briefly discussed on the Floor of the House. Entitled, ''Towards a UK Strategy for Biofuels'', it just so happens to produce a justification for the figure of 20p. If one looks carefully at the justification, they realise that it is not a coherent argument for 20p. Frankly, it is difficult to come away with a view that it does anything other than cook the books.
I wonder why the Government did not decide to kick-start use of the fuel with a figure of at least 30p. One possible explanation is the cost. I have been given several estimates that indicate that that would cost a great deal. We must take into account behavioural effects, but I would be grateful if the Economic Secretary could give an estimate of the cost of introducing it at 30p, given some intelligent behavioural assumptions. I am worried that the measure is much more a sop to the environmental lobby than a fundamental shift in policy that will radically alter the market. I cannot be sure; all of us are guessing, but that is a major concern.
I have another concern that appears to point in the other direction. It relates to what I have consistently said about cost-benefit analyses. I worry that many changes are put through on alleged environmental grounds, yet the environmental arguments are far more complicated than what has been set out in consultation documents made available to the wider public, inasmuch as such documents are available. For example, I have been told that it would be far better if biomass were used for power generation rather than for biofuel, given the overall effect on carbon dioxide emissions.
I do not know whether that claim is true, nor do I know which numbers were involved in working out the overall economic and environmental effects, bearing in mind that CO2 emissions are only one part of the much broader environmental assessment that must be made. Again, the Economic Secretary did not really respond when I raised the point on another clause. Government policy, and public policy more generally, would benefit hugely if the Treasury—this will have to come from the Treasury—would give much more emphasis than it has hitherto to cost-benefit analyses of environmental measures in order to reassure the public that the Government are going in the right direction. Such analyses should be sufficiently robust intellectually and economically to convince doubters.
I do not believe that such information is in the public domain at present. It may be in some cases, but
in many cases it is not. The regulatory impact assessment and cost-benefit analysis process has become a bit stylised and lacks real clarity of thinking from first principles. I would be grateful if the Economic Secretary would comment on that.
There are one or two other points that I could make on bioethanol. I may come back to them, but I suspect that they will be made before very long by my right hon. Friend the Member for Fylde.