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Biofuels — Department for Environment, Food and Rural Affairs

– in the House of Commons at 3:37 pm on 11th March 2004.

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[Relevant Documents: Seventeenth Report from the Environment, Food and Rural Affairs Committee, Session 2002–03, on Biofuels, HC (2002–03) 929–I, and the Government's response thereto, HC (2003–04) 270; and the Department for Environment, Food and Rural Affairs Departmental Report 2003, Cm 5919.]

Motion made, and Question proposed,

That further resources, not exceeding £1,251,750,000, be authorised for use during the year ending on 31st March 2004, and that a further sum, not exceeding £613,478,000, be granted to Her Majesty out of the Consolidated Fund for the year ending on 31st March 2004 for expenditure by the Department for Environment, Food and Rural Affairs.—[Joan Ryan.]

Photo of Michael Jack Michael Jack Conservative, Fylde 3:50 pm, 11th March 2004

I am grateful for the opportunity to open our debate on biofuels. The motion deals with an estimate of expenditure for the Department for Environment, Food and Rural Affairs, and the Minister for the Environment, who will reply to our debate, could deal with all outstanding issues on biofuels if the £1.25 billion mentioned in the motion, or at least part of it, could be veered towards biofuels. It is a substantial sum, and I would love to have a debate on everything that that expenditure covers. However, if a small amount could be spared for biofuels, everyone would leave the Chamber feeling even happier.

It is always a pleasure to learn that events are moving in the right direction, as was demonstrated by the front page of the business section of The Daily Telegraph. Most of the newspaper is printed in black and white, but there is a pink section in the middle covering business, where a headline said, "Whitehall warms to 'fuel from crops' initiative". I took that as an omen of a positive debate, as we consider the biofuels report by the Select Committee on Environment, Food and Rural Affairs, which is cited as a relevant document. The Order Paper says that the estimate is

"to be considered in so far as it relates to biofuels" and I am delighted by that close link.

May I put on record my appreciation of everyone who contributed to the production of the report? The subject of biofuels attracted a great deal of interest from people in the fields of agriculture and fuel, the general public, and people with environmental interests, many of whom kindly gave evidence. None of our reports could be produced without the hard work of the Clerks and others who support us, and I thank in particular our specialist, Kate Trumper, for her contribution. I am delighted that the hon. Members for Stroud (Mr. Drew) and for Sherwood (Paddy Tipping) are in the Chamber this afternoon, as they serve on the Committee and take a particular interest in the subject, as does my right hon. Friend Mrs. Shephard. She was a member of the Committee when the report was produced, and has since been a leading player in subsequent debates on the subject in the House. She serves her constituency and East Anglia well in continuing to advance the cause of biofuel, as does my hon. Friend Mr. Paice and other Select Committee members who have worked hard on the issue.

The timing of our debate is propitious, because it is just a week before the Budget. We live in hope that the Chancellor is prepared even now to say something about further encouraging the use of biofuels. Far from holding out the begging bowl to the Treasury, I want to set out an alternative strategy for developing a genuine biofuels industry in Britain. As I shall outline, the transformation of oilseed rape—raw material which is indigenous to the United Kingdom—into biodiesel is sadly almost non-existent. Production plants currently in operation use the residues of cooking oil to produce biofuels. It is good that some biofuels are produced, but given that British agriculture would benefit from a revolution in fuel production, we appear not to be taking advantage of opportunities to produce and develop a facility for biofuels in this country.

The first comment in our report is that biofuels

"are the only source of renewable power currently suitable for road transport".

Given the Government's understandable commitment to reducing carbon dioxide emissions, we would say that the two naturally go together. In a moment I shall review what the Department for Environment, Food and Rural Affairs says by way of justifying further activity in this area.

I remind the House of a second and crucial conclusion that arose from our report. We pointed out that

"the Government's biofuels policy, to the extent that it has one, appears muddled and unfocused."

It is important to see what the Government said in reply to our Select Committee report. They did not address the issue, apart from disagreeing with us in the nicest way. They stated:

"The Government does not accept that its policy is muddled and unfocused", yet one has only to consider the number of Departments with a finger in the pie—the Department for Transport, the Treasury, DEFRA and the Department of Trade and Industry. There appears to be no champion of biofuels. Perhaps when the Minister replies, he will put on the champion's hat and tell us how he intends to translate his Department's very positive view of biofuels into a UK biofuels industry.

When Lord Whitty came to give evidence to the Committee, he made it clear, with his usual remarkable candour, that his Department was not only in favour of biofuels, but frustrated at the barriers to developing an indigenous industry that were being put in place by the Treasury.

DEFRA, together with Peter Clery of the British Association for Biofuels and Oils, have produced an excellent little leaflet, which begins by reminding us that biofuels

"can cut emissions of carbon dioxide, a greenhouse gas, by 50–60 per cent. compared to fossil fuels and so can contribute to meeting UK targets for alleviating climate change."

The document goes on:

"The production of biofuels from arable crops would provide a useful new market for rural Britain".

Well, we are cheering, and we have only got to page 3. Then we come to some more telling analysis. Under the heading "Are they available?", the document reports:

"About 700,000 litres (around 600 tonnes) of biodiesel are currently sold each month"— then comes the let-down—

"produced mainly from recycled cooking oils and available as a 5 per cent. blend from around 100 filling stations. No bioethanol is yet available commercially."

In the same document is a beautiful picture, probably taken in a field in the constituency of my right hon. Friend the Member for South-West Norfolk, of a sugar beet harvesting machine, giving the impression that that is the way forward, but sadly there is no facility to take that harvest of sugar beet and turn it, in this case, into bioethanol.

On the following page the document continues:

"Producing biofuels costs (pre-tax) about twice as much as fossil fuels, depending on the cost of feedstock and crude oil."

DEFRA recognised the need for help, but as our report pointed out, a 20p duty derogation was all the help that came. We put that to the Treasury Minister, the Economic Secretary, who came to speak to the Committee. That number was selected—it was not worked out. I received a parliamentary answer that said that it was chosen—it was selected. The figure could have been 19 or 21, but the Treasury selected 20 because it wanted to give some encouragement, but not to encourage a biofuel import industry.

I am a simple man, and I looked at the logic of that. If there is no indigenous industry, where will biofuel come from as the country moves towards meeting its EU obligations? By definition, it will be imported. Can we not make a virtue out of the necessity of the DEFRA analysis, and start to find ways of producing an industry at home? The document goes on to say:

"In the wider context, the EU has adopted legislation which will require the UK and other European countries to set indicative targets for the use of biofuels. The EU's reference targets are 2 per cent. by 2005 and 5.75 per cent. by 2010."

It is not long until 2005. The Department for Transport, which is in charge of the consultation exercise on the targets for biofuels, knew last May that such an exercise would be held, but nothing has been produced.

Photo of Mark Francois Mark Francois Opposition Whip (Commons)

I thank the Chairman of the Select Committee for his courtesy in giving way. May I lend weight to his arm by telling him that farmers in Essex, not least in my constituency, are keen to encourage biofuels? Does he agree that, contrary to the claims of some lobby groups, most farmers are environmentally aware? They care about the environment; the beauty of that is that it represents a win-win for farming and the environment.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am delighted that Essex farmers are so perceptive. They recognise the potential of their set-aside land to grow the crop. I am sure that they are aware of a key finding in the Select Committee report: we asked DEFRA to do more work on the environmental impact of increasing the amount of oilseed rape that is grown under the circumstances that I outlined. I am also sure that perceptive Essex farmers realise that there is more work to do on that. My hon. Friend's comments show the genuine enthusiasm of British farming, at a time of immense change and transition, to seek new opportunities.

The challenge for farming—the Secretary of State referred to it in Question Time—of having to think through more carefully what it will do in the regime of the single farm payment means that farmers will look to the marketplace for opportunities. Here is a gigantic opportunity. Biodiesel production in the United Kingdom is currently approximately 25,000 tonnes a year. Half of that comes from cooking oil and the balance from imports. That clearly shows that we have the potential to do something about the matter.

Photo of David Heath David Heath Shadow Spokesperson (Home Affairs)

I am listening to the right hon. Gentleman carefully. Does he agree that one of the prerequisites of a viable agriculture industry is a secure market to which to sell? Does he believe that, for bioethanol, a component of that might be a regulatory approach to substituting it in conventional petrol rather than fiscal support, which is the alternative mechanism?

Photo of Michael Jack Michael Jack Conservative, Fylde

The hon. Gentleman makes an important point, which I want to develop shortly. There are several ways of achieving the objective that I hope we all share, and they do not necessitate a high cost to the Treasury.

Let us put the production and the targets to which I referred earlier into some sort of context. Cargill produced some interesting data. A document that it sent to me stated:

"If the Government were to follow EU guidelines targeting 2 per cent. biodiesel by 2005, this 400,000 litres per month must be expanded 80-fold to 32 million litres per month."

The first figure reflects the current position. The document refers to the plant in Motherwell where some production of biodiesel will take place. The document states that

"the Motherwell plant will add some 4.5 million litres per month, leaving a further requirement of 27 million litres" in the United Kingdom to meet the 2 per cent. EU target by 2005. Again, to provide some context, Germany already produces 700,000 tonnes of biodiesel.

The Motherwell factory is an investment by the Argent Energy Group, which has a turnover of some £230 million. The plant is designed to produce 45,000 tonnes a year of multi-feedstock biodiesel. Unfortunately, it will use cooking oil and fats as the initial feedstock. There are signs of investment in the capital to produce the product, but not sufficient to persuade the industry in the United Kingdom.

How do we persuade the Government to move the argument forward, given the targeting required by the European Union, the enthusiasm of UK agriculture to produce the feedstock and the desire of companies such as Cargill and British Sugar to invest respectively in biodiesel and bioethanol? I shall rehearse with the House an argument that I first made last year during debates on the Finance Bill, in which I applied the logic that is used on the renewables obligation in electricity to the parallel situation in road fuels. The House might recall that the renewables obligation requires electricity producers to take a proportion of their generated output from renewable sources, blend it with electricity from other sources and sell it at a uniform price. Although consumers cannot distinguish the sources, because electricity is a homogeneous commodity, they thereby encourage the renewables because of the slightly higher total electricity price that they pay.

My first thought was that the Treasury could apply the same logic to fuel. If there were a derogation of 30p to encourage more investment—which the industry deems sufficient—let us consider what the cost per litre at the pump would be if the Treasury spread out the costs of providing biodiesel. Concentrating first on biodiesel, the 2 per cent. target, with a 30 per cent. derogation, would have a duty cost of £120 million a year, which would in effect require the pump price to rise by 0.6p per litre. If we did the same with bioethanol and petrol, the total cost at the pump would be a further 0.6p per litre. With the 5 per cent. diesel target, we would be looking at a cost increase of 1.6p per litre if the £300 million cost were funded through duty derogation.

That simple piece of mathematics would in effect provide the Treasury with a free good because the users of fuel would pay, as do the users of electricity, for the renewables obligation. However, the argument may have moved forward, because a further development has now been suggested in the context of the Energy Bill that is before the other place. Although the amendment to that Bill to which I am about to refer has been withdrawn, the Minister might care to know that it will return on Report.

The amendment, which has all-party support and was tabled by the noble lords, Lord Ezra, Lord Carter and Lord Palmer, has at its heart an obligation that would

"require all producers selling road transport fuel in the United Kingdom to show that over the course of a calendar year a specified proportion of such fuel was biofuel."

The novelty of that amendment is that it would not legally require blending but would set a target with the force of law behind it, leaving the fuel company to decide in what way it wanted to fulfil the obligation. Users would have to accept an uplift in the cost of the fuel, but it would be up to the fuel company to decide what that would be, commensurate with the inevitable additional costs and investments.

Evidence supplied to me ahead of today's debate suggests that such a move would not attract a tidal wave of imports, and that imports might move to easier fuel duty markets than the United Kingdom. That simple amendment none the less raises the possibility of having biofuels—both bioethanol and biodiesel—at a cost that would be paid by the user, not the Government, although the Government's support would be required to put the obligation to meet the target into law. That possibility should be investigated very carefully.

I return to my starting point, because in his comments on recent meetings with Treasury Ministers on that matter, Mr. Peter Clery, the chairman of the British Association for Biofuels and Oils, has said that he was encouraged by those discussions, in which he had something of a meeting of minds with the Economic Secretary to the Treasury. It seems that this possibility was considered feasible and that the Government may have indicated a degree of support for it. I should be grateful if the Minister would be kind enough to address that issue when he winds up.

On the implementation of the biofuels directive, the European Union has said in a letter to Mr. Clery dated 8 March:

"Member States are free to require each fuel supply company to achieve a given proportion of biofuels relative to the quantity of petrol and diesel fuels that it places on the market on the Member State's territory (without specifying how this should be achieved in terms of blending)."

There we have permission to say to member states, "This is a possible way forward." In simple terms, the Government could adopt the amendment that might come back on Report. The reason why it could come back is that a penalty clause could be applied to fuel companies that do not meet their obligations, and the resulting revenue could go back into a pot to help those that do. It seems simple that all users of road fuels could, through a modest increase, pay for the generation of a new industry in British farming and the production of a fuel that would help us further to reduce CO2 emissions and meet our global obligations on greenhouse gases, particularly through the reduction of road fuel gases. That would give biofuels a kind of parity with what appears to be the Government's favoured choice, liquefied petroleum gas, which has a 40 per cent. derogation.

I campaigned for assistance with the development of LPG on health grounds. The Government, by giving 40p a litre for LPG, seem to be saying that they value those gains at a greater monetary amount than they value the reduction of CO2. I find that a difficult intellectual position to accept, when both objectives appear to be of equal merit.

Photo of Andrew Miller Andrew Miller Labour, Ellesmere Port and Neston

I have been listening to the right hon. Gentleman very carefully. In the context of the comparison with LPG, does he agree that there is one fundamental difference, namely the massive infrastructure costs that will have to be borne by the vehicle companies and the fuel distributors? There is therefore justification for a differential.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am not going to disagree with the hon. Gentleman's line of argument, save to say that the current derogation on biofuels is 20 per cent., while that on LPG is 40 per cent. It is difficult to explain why one is twice as much as the other, in the face of the two sets of important objectives.

We now have the potential to use agricultural set-aside land productively, to do much to generate new activity in rural Britain, to safeguard companies such as British Sugar that wish to pioneer bioethanol production in this country, and to give a further boost to manufacturing jobs by virtue of producing our biofuels. At a time when we are considering important issues of energy security, we would have the potential for a further secure supply. When all that beckons, and when DEFRA produces arguments that are irrefutably in favour of this proposition, it is time for the Government to be bold, to take up these ideas—which might well not cost them anything—and to give biodiesel the chance to be developed for the benefit of us all.

Photo of Paddy Tipping Paddy Tipping Labour, Sherwood 4:14 pm, 11th March 2004

I am extremely pleased to follow the Chairman of the Select Committee, Mr. Jack, and I do not disagree with one word that he said. The strength of the campaign for biofuels is the strength of support that exists on both sides of this Chamber, in the other place, and among the people outside the Palace of Westminster who work in this indigenous industry. I have looked at this issue fairly closely, and there are very few people who oppose the argument advanced by the right hon. Gentleman.

The Government face a serious challenge, which they are indeed taking extremely seriously. They have a good record in moving towards a low carbon economy, and in terms of Kyoto they have been a leader in the field. We will meet our targets, but they will be achieved on the back of reductions in the manufacturing and electricity generating sectors and in the coal industry. If we really are committed to a low carbon economy, the essential task before us is to tackle the transport sector across government.

Despite a fine record in other fields, this Government—and previous Governments—have fought shy of tackling carbon emissions in the transport sector. That is the big challenge that confronts us all. It is a difficult one, and one of the few tools available to us in the short term is the development of biofuels: biodiesel and bioethanol. The problem, which has already been spelled out today, is that myriad Government Departments are involved in this discussion.

The Government helpfully replied to the Select Committee report on 21 January, and the opening page of that response makes interesting reading:

"In common with other policies and issues which are wide-ranging in their impact on the UK, there are a number of Government Departments with an interest in biofuels."

The rest of that page spells out the involvement of those Departments. It is clear to me that despite the Government's response, there is insufficient joined-up communication, and particularly leadership, in respect of biofuels.

I say directly to my good friend the Minister, who is keen on this issue, that throughout the world—in France, Germany, Italy, Spain, north America and, particularly, Brazil—biofuels are taking off. By way of comparison, what do we have in the UK? Let me put it crudely: some chip oil recycling. We must do better than that. I am absolutely convinced that if we are to tackle the transport sector, we need to introduce firm policy proposals for biofuels.

The European Union gives us an opportunity to make some progress. A biofuels directive was published on 8 May last year, but it is still not clear—perhaps the Minister can answer this question today—when the long-awaited Department for Transport consultation document on how we are to achieve our targets will be published. The story is that it will be published in late April. There will be a 13-week consultation period, and the Government should respond to the Commission by the summer, setting out a policy on how we are to achieve our targets of 2 per cent. by 2005 and 5.75 per cent. by 2010. Given the very slow start that has been made in introducing that consultation document, it is clear that we will fall at the first hurdle. We must do better than this.

Photo of David Heath David Heath Shadow Spokesperson (Home Affairs)

Why should this have anything to do with the Department for Transport, given that a motorist using petrol with a small substitution of ethanol will not know the difference? Surely it is a matter for Departments dealing with the environment and agriculture, and for the Treasury. Waiting for the Department for Transport to come up with its reasons is clearly a superfluous exercise.

Photo of Paddy Tipping Paddy Tipping Labour, Sherwood

That may well be so. What is essential is for all the Departments involved to work together. Next week's Budget statement will give us an opportunity to make some progress, and the energy White Paper and the pre-Budget report published last autumn gave biofuels the amber light, but at present we are not moving off the grid. As the hon. Gentleman says, the Department for Transport has yet to issue its consultation paper.

We need, in fact, to go beyond consultation. We need firm policies to deliver a British biofuels industry, and that could be done in a variety of ways. So far, the focus has been on a 20p duty derogation, although the industry says that another 6p or 8p is necessary. Another approach, which may well be feasible, is to consider capital grant and capital allowance. I have discussed that with the Treasury, and it seems to be a possible option.

The real option, though—the option that a sensible Government ought to choose—has already been mentioned today. I refer to the notion of a road transport fuel obligation. It is clear to me that our entire existing fleet could run with an admixture of 5 per cent., or perhaps 10 per cent., with no engine modification. That alone would bring about amazing carbon reductions, at no cost to the Treasury.

We consumers—we who use the car—know, or ought to know, that we are causing serious environmental damage. It must be right for the consumer to bear part of the cost. A small addition, a growing addition, of biofuels creating a fuel mix must be the answer. I have looked carefully at the Lords amendment that has been mentioned. Its content is reflected in early-day motion 538, signed by a number of Members on both sides of the House. It is supported by people throughout the country, throughout the sector and throughout industry.

I think that there is a danger of sucking in imports from, say, Brazil. Adopting a renewable transport fuel obligation with an escalator attached would give us an opportunity, over a period of years, to move from 1 per cent. to 2 per cent., 5 per cent. and even larger percentages. I am indebted to my hon. Friend Dr. Whitehead, who began to advocate that approach five years ago. At the time it was dismissed with derision, but I think we have moved beyond that now. I think the Government are now committed to a low-carbon economy. They must take up the challenge, and move into the transport sector. I envisage no cost to the Treasury. Consumers—drivers—should carry the cost, and it is a small cost indeed. I hope the Minister will take account of what is said here today, of the voices of those in the other place, and of the emerging consensus across the sector in favour of a fuel obligation.

It cannot be right for us to use biofuels imported from abroad. Throughout my county of Nottinghamshire, farmers can produce the goods. At Newark, British Sugar has a factory that could be converted to bioethanol production. We can add value to the rural economy. One of the issues facing the Government, on which they are fighting strongly, is that of helping rural economies to emerge from a tough time for farming. By any measure, biofuels bring together a series of policy objectives to meet our need to create that carbon-reduced economy. Let us stop talking about it, and do it.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes 4:25 pm, 11th March 2004

First, I congratulate Mr. Jack on his introduction to this debate. His argument was most convincing, and unanswerable in its logic. I hope very much that the Minister will agree with the sentiments expressed and the logic deployed.

I also hope that the Minister will notice that three speakers, from three different parties, have—or will have—taken the same line. The difficulty is that while in the Chamber this afternoon we will agree on the way forward, and even the Minister may agree on it, those who are of a different mind for whatever reason, or who are unable to make the connections, are not present. No Ministers from the Treasury, the Department for Transport or the Department of Trade and Industry are present. The Minister may report back to his colleagues that there was unanimity in the debate, but will that be enough to convince the relevant Ministers and Departments that they must take the necessary action?

I hope that I am not being too pessimistic, but over the years I have come to conclude that the Department for Environment, Food and Rural Affairs and its Ministers have put forward some good ideas and thoughts, which then seem to run into the sand somewhere in Whitehall and Westminster. Far too often, DEFRA Ministers defend the logical position, but it is not one that they are able to deliver. At DEFRA questions today, the Secretary of State set out a sensible policy on Nirex, which the DTI tried to stop, a sensible policy on abandoned cars, which the DTI is trying to stop—

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

Indeed. The list of sensible policies put forward by DEFRA to which it secures agreement from all three main parties, but which suddenly disappear—we know not why—is almost endless. We all need an assurance from the Minister as to what process will take forward in Government what I think will be the view of all three parties represented in the Chamber today. How will we learn the responses from the various Departments involved to the comments that will have been made today?

In particular, I am concerned that we will in no way meet the EU targets—not the 5.75 per cent. one, and, if we are not very careful, not even the 2 per cent. one, which, as the Minister is muttering from a sedentary position, is due shortly. I am not clear as to whether we will meet that, and it would be helpful if the Minister set out the steps that he intends to take to meet that target.

The Minister has had number of useful suggestions from Members who have spoken so far. I am particularly attracted, as, I think, is Paddy Tipping, to the idea of a road transport renewable fuel obligation. He was much too modest to say that he tabled the early-day motion on that, so I put that on the record now. He is right that it has attracted all-party support, however, and that it has a large number of signatures in support. That proposal seems to me the way forward and the way to achieve the objectives. There are difficulties with the alternatives—that of capital grants has merit, and it may support the domestic industry better than any other alternative, but clearly there is a cost to that. There is also the differential, but again, I am not quite sure what its impact would be, and it would cost money, so it is less attractive to the Treasury. The fuel obligation is a simple proposal that delivers the goods, and I hope very much that that will be taken forward.

Genuine concern exists, and not just in the House, about the likely failure to meet that target. Members will have received a letter from the National Farmers Union in advance of this debate.

It states:

"As things stand, there is every likelihood that this target—

2 per cent.—

"will be completely missed, due to the Government's policy on biofuels."

Sadly, I suspect that that is accurate.

There are two reasons for making progress on biofuels to a greater extent than in the past. The first is the environmental argument. I was going to refer to the Government's response, but I should say: the response of the Department for Environment, Food and Rural Affairs, which is what we are debating today, and I wonder how much influence the Treasury and other Departments had on it. DEFRA's response, on behalf of the Government, to recommendation 9 is that

"capturing the environmental benefits of biofuels is the principal policy reason for Government support with duty initiatives. Other considerations such as economic and social factors, though secondary, are also taken into account in the Chancellor's fiscal decisions."

That makes sense—the main objective is indeed environmental. We must do something about climate change, but there is no one big lever we can pull to deliver all the benefits. A selection of levers has to be pulled across various sectors, which all do their little bit to meet our Kyoto targets.

In the road transport sector, we are clearly in some difficulty. Industry has done quite well at cutting its carbon emissions, but the same is not true of road transport, where emissions are rising rapidly and, frankly, the Department for Transport has no plan to deal with them. The 10-year plan, which talked about road traffic reduction—we should remember that that was a Government commitment—has all gone, and we are now seeing big increases in road transport throughout the country. The last figure I saw was about 7 or 8 per cent., and in a parliamentary answer of a couple of weeks ago, the Department for Transport projection was for a 25 per cent. increase in road traffic by 2010. That is in free fall; there is no handle on that from the Department at all. If it cannot control the number of vehicles, then my goodness, it must control the emissions from all the vehicles on the road, if there is any chance of reducing—or even levelling out—the carbon emissions.

If I went on for long about aviation, you would rule me out of order, Mr. Deputy Speaker, but I want to say that our previous debate was a disgrace in respect of the Government's commitment to dealing with carbon emissions from aviation. It is another matter that must be taken into account.

I pay tribute to the Environment, Food and Rural Affairs Committee for its extremely well argued and sound report, which demonstrated that considerable CO2 emission savings could be achieved through bioethanol. The representations from British Sugar—I imagine that many Members will have received them for today's debate—referred to a possible 70 per cent. saving of such emissions, so there is a great deal to play for. These are big games; I only wish that we move forward and accomplish them.

The Under-Secretary of State for Environment, Food and Rural Affairs probably articulated the Department's position when, in a debate of 15 October 2003, he said:

"Biofuels can provide significant life-cycle reductions in carbon dioxide emissions".—[Hansard, Westminster Hall, 15 October 2003; Vol. 411, c. 89WH.]

Those were his words, so DEFRA is clearly signed up to the concept that it could be a sensible way forward to tackle the problem of climate change. If so, however, we have to ask why we are not making more progress. That is the key question for this afternoon's debate.

I have talked about the environment, but there are also benefits for agricultural and rural communities. The right hon. Member for Fylde said that there would be a marginal increase for road users—frankly, it would not be much, but even a marginal increase would have to be offset by the gains to the rural economy from the creation of many jobs. It is not clear precisely how many jobs might be created, but in a previous debate of 20 November 2003, the Minister for the Environment estimated that 6,000 jobs would follow from meeting the 5.75 per cent. target. That is not insignificant for rural communities. The European Commission report of 2001 said that a UK biofuels industry could create 20,000 to 30,000 new jobs, and my hon. Friend Norman Lamb has been particularly active on that issue. There is some uncertainty about the exact scale of the jobs that will be created, but no one is in any doubt that they will be—and often in areas of deprivation or of hidden rural unemployment. We should not lose sight of those benefits.

We are always encouraging farmers to diversify, and biofuels represent a classic way for them to do that. Biofuels are good for the environment, and diversifying into them would help protect rural industries and the rural economy. We should encourage that.

The Minister will be familiar with the Curry report, from both his present and his previous roles. That report states:

"England needs a long-term strategy for creating and exploiting opportunities in non-food crops, including starch and oils".

There are therefore two reasons why DEFRA should be active in this area. The first has to do with the environment, and the second with the rural economy. The Department has two main responsibilities, and both would benefit from adopting such a policy, but it is not being introduced in a coherent way. The exasperation felt by Paddy Tipping at the failure of the Department for Transport to start even a consultation process was evident. It is shared by many other hon. Members, but why is the process so slow in starting?

No one so far has referred to the Environment, Food and Rural Affairs Committee report. The summary states:

"The Government's biofuels policy, to the extent that it has one, appears muddled and unfocused."

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I am aware that the right hon. Member for Fylde referred to it and used the word "muddled", but I was quoting directly from the report. In any case, if the right hon. Gentleman did mention the same passage, I am happy to repeat it, as I entirely agree with it. The summary goes on to say:

"Different Government departments disagree about the main reason for increasing use of biofuels and about what level of Government support is necessary."

That is the problem. As the hon. Member for Sherwood said, a great many different Departments are involved, including DEFRA, the Department of Trade and Industry, the Treasury, the Department for Transport, and Customs. There are probably a few others as well, and I would not be surprised if the No. 10 policy unit was one of them.

The fact that there is no lead Department in this area is a recipe for chaos and inaction. The same problem was evident in the previous Parliament, in connection with animal welfare. The breadth of responsibilities on that issue was huge: it was spread across many different Departments, and I was one of those who told the Government that they needed to sort the problem out.

To the Government's credit, they brought under DEFRA everything to do with animal welfare apart from experimentation, which is a Home Office responsibility. I hope that a draft Bill on animal welfare will move matters forward, but that example shows that changes can be made and a lead Department identified.

What is the solution in respect of biofuels? Who will bring matters together and identify a lead Department with the clout to take all the measures that the House considers necessary? If we do not give responsibility to a lead Department and sort out the mess in Government, the brutal reality is that the use of biofuels ain't going anywhere.

If biofuels policy is taken forward, I predict that, very late in the day, someone in Government will say, "We're going to miss this EU directive target. We're on the skids and nowhere near it." That will lead to sudden, jerky decisions being taken, with the inevitable result that imports will have to deal with the problem. We will therefore miss the opportunity to help Britain's rural economy.

Photo of Roger Gale Roger Gale Conservative, North Thanet

Does the hon. Gentleman agree that the driving force in this matter is the Treasury, which is patently not enthusiastic? Nick Tapp is a farmer in my constituency, and his enthusiasm for biofuels has enthused me in turn. I raised the matter with the Treasury, and the Economic Secretary wrote back to me to say that, even with a discount of 20 per cent. per litre, 30 per cent. of such fuels were being imported. The implication was that increasing the discount would lead to higher imports and higher feedstock exports by farmers to Germany, with the result that there would be no gain. Does the hon. Gentleman agree that economies of scale will never be achieved as long as that attitude prevails?

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I entirely agree. That argument is covered in the report and in the Government's subsequent response.

Of course, the Treasury is behind everything that the Government do. It need not be worried about biofuels, for the reasons given by the right hon. Member for Fylde. However, if it is going to make decisions on taxation for environmental reasons, it needs to conduct proper analyses of what will happen as a result of the decisions that it takes.

When the Treasury introduced taxation differentials for liquefied petroleum gas, its motives were good. It felt that it had to respond to pressure for taxation differentials for cleaner fuels, but it did not think through the consequences or weigh the advantages of LPG by comparison with biofuels. The Treasury does not feel able to back down on that, because the LPG industry is saying, "You promised us the differential. We want some certainty, and you can't move the goalposts." The Treasury has some sympathy with that view. As a consequence, it has got into a bind that it cannot get out of.

Photo of Andrew Miller Andrew Miller Labour, Ellesmere Port and Neston

The hon. Gentleman must take another factor into account. LPG is particularly popular in some rural communities such as those in Cornwall, where it is more readily available than in many other counties.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I take that into account, and it is only right that, having been given some signals, the LPG industry should not be left high and dry. My point is that the Treasury is allowing that particular consideration to get in the way of a biofuels policy.

Photo of David Heath David Heath Shadow Spokesperson (Home Affairs)

I do not want to depress my hon. Friend or the House too much, but I fear that the sclerosis on that particular topic has being going on for some time. I clearly remember a similar debate in which the hon. Members for Southampton, Test (Dr. Whitehead) and for Sherwood (Paddy Tipping) participated. In that debate, there was also consensus from both sides on the way forward. In the last Parliament, when Joyce Quin was Minister of State in the Ministry of Agriculture, Fisheries and Food, MAFF expressed a clear view that it wanted to progress the issue, yet nothing has happened in the intervening period that could be construed as a viable policy for biofuel, and that is the problem.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I agree with that statement, which brings me to my final point—I am conscious that other hon. Members want to contribute, and rightly so. The Minister must tell us what will happen at the end of this debate and what he will do with the consensus that he will take away from it. What is the relevant mechanism in the Government? How will he deal with his Treasury colleagues? What clout has he got with other Departments? What will the outcome be? We need to know the process—if he does not know the outcome, at least he can tell us about the process.

I regularly say that I have got a lot of time for the Minister—I am sure that he welcomes my saying that in front of his parliamentary colleagues. If I can use a metaphor, however, I fear that he has been put at the wheel of this particular vehicle but other Departments have not put the fuel into it, and he must sort that out.

Photo of Anthony D Wright Anthony D Wright Labour, Great Yarmouth 4:42 pm, 11th March 2004

The biofuels sector is the least developed part of the sustainable energy industry, largely because the current price of fossil fuel has made further development uneconomical to date. It is essential that we do as much as possible to reverse that. We must ensure that biofuels are supplied quickly and effectively to the transport market where there is significant demand for them. I therefore call on the Government to provide more resources for the development of a fledgling industry.

Although it is essential that individual biofuels are viable in terms of their environmental impact and the net environmental gain of their large-scale production, we must not undermine the many benefits that such fuels could bring to our environment and economy. As I have said before, the use of bioethanol and biodiesel as fuels for road vehicles could have a large-scale impact on reducing carbon emissions and greenhouse gases in the UK. Bioethanol produces 50 per cent. fewer carbon dioxide emissions than other fossil fuels. According to the Sheffield Hallam study, Biodiesel from oil seed rape produces savings of 72 per cent. to 86 per cent. in carbon dioxide emissions and 56 per cent. to 80 per cent. in greenhouse gas emissions compared with ultra low sulphur diesel. Such savings are in line with the Government's commitment to reducing CO2 and greenhouse gas emissions by 12.5 per cent. by 2008 to 2012.

The transport sector contributes nearly a quarter of the UK's emissions of CO2, and it is imperative that we set up an effective emissions reduction strategy to counter the 5 per cent. growth in emissions from 1990, cut CO2 emissions and meet urban air quality standards. That strategy must include a greater focus on the potential of biofuels.

A commitment to fuel diversification through biofuels would lead to the development of a vibrant new industry with a consequent increase in economic activity, job creation—estimated by a June 2003 report by the East of England Development Agency to be in the region of 12,000 new jobs—and associated socio-economic benefits. Fuel diversification in favour of the sector could provide an alternative avenue to already depleted North sea oil reserves, leading to greater fuel security. That all depends on the sector's growth and the Government's commitment.

I welcome the fact that the Government will introduce a new rate of duty for bioethanol from 1 January 2005, set at 20p a litre below the rate for sulphur-free petrol. I also welcome the alternative fuels framework introduced in the 2003 pre-Budget report that outlines a clear set of principles to determine future decision making for the development of biofuels across Departments. The rolling three-year period of certainty in the differentials in duty rates for alternative fuels is another welcome and transparent part of that framework. I would also like to note that the Government's reply to the Environment, Food and Rural Affairs Committee's report on the matter is encouraging.

I was pleased to note that the Government fully accept the Committee's recommendation that DEFRA should, as a matter of urgency, carry out an economic appraisal of the effect that a UK-based biofuels industry would have on farming. Further, I am pleased that DEFRA will publish detailed workings of that evaluation. DEFRA's central science laboratory has already assessed the impact of biofuels on habitats and biodiversity in the UK. It states that

"biofuel production from a broad mix of arable crop feedstocks will have a neutral effect on the farmed environment".

However, more scientific evidence must be collected on the effect of the large-scale production of biofuels on the environment and biodiversity.

I encourage the Government to look for new and innovative ways to turn the sector into a vibrant new green industry in the UK. We must meet the EU Commission's target of 2 per cent. for the volume of biofuel to be used in the UK by 2005, and of 5.75 per cent. by the end of 2010. I hope that DEFRA—and the Department for Transport—will take those targets into account in consultations on meeting those requirements and will provide more resources for the industry, because time is of the essence. We need effective and proactive joined-up Government, not a lack of support for the admirable goals that I have laid out.

The Government have stated, in response to the Committee's report on biofuels:

"The Government fully agrees that fiscal incentives should always be considered alongside alternative methods of support, such as capital incentives, grants or regulatory solutions. The Government keeps all types of support under review."

Clear steps can be taken now by the relevant Departments, in consultation with each other, to build the industry through such measures, quickly and effectively.

Most important for DEFRA to consider, in my opinion, is the fact that the current regional selective assistance provided by the Department for Transport, while perfectly sensible in its own right, is not flexible enough to encourage national growth of the biofuels industry. It would be far more advantageous to establish a scheme similar to that which is already in place for bioenergy and wind farms. I would be interested to know what the Minister believes the potential of such a national scheme might be, as opposed to the regional assistance that can be provided at present.

Other problems that must be thought through relate to the common agricultural policy, which allows payments of Euro45 a hectare for growers of energy crops. That will not have any significant impact on bridging cost differentials between bioethanol and fossil petrol. In its consultation with other Departments on that matter, DEFRA must also consider the benefit of other initiatives, such as the renewable transport fuel obligation. That scheme, if introduced, would require producers selling road transport fuel in the UK to show that a specific proportion of each fuel sold over the course of one calendar year was a biofuel. Such a step would be a bold and successful move and must be thoroughly assessed. According to the estimates of British Sugar plc, such a scheme could have a starting proportion of biofuels of 1 per cent. for 2006, increasing annually by 1 per cent. until 2010. The mandatory inclusion of that quota would ensure that the requirements of the EU directives were met, that there was a market for the new product and that oil companies played their part in the development of a new UK industry.

While the Government should be congratulated on introducing a new rate of duty reduction for bioethanol, they should be bolder in setting a duty reduction in the region of around 30p a litre on that fuel. While it is true that such increasing duty reductions will lead to greater importation of biofuels, a measured introduction of further reductions over time, in conjunction with the establishment of the industry in the UK, would have a positive effect. Certainly, the lack of such an incentive is hampering the industry's growth at present.

The threat of imported biofuels with lower environmental credentials could seriously undermine the fledgling industry. The real risk, however, is that UK producers with strict environmental standards will be undercut by less satisfactory non-EU imports. I find unsatisfactory the response of the Government to that threat, as outlined in the seventeenth report from the Environment, Food and Rural Affairs Committee. The Government state that they

"anticipated that there will be limited international trade in refined liquid biofuels in the medium term. However, the Government has always considered that a higher level of duty derogation on biofuels could encourage imports of biofuels."

They add that

"auditing the environmental impact of biofuels in the countries in which they are produced is extremely problematic and it is unlikely that a cost-effective and robust system of regulation could be introduced."

I do not criticise the Government on the specific issues raised in those two comments but question their willingness to consider how to alleviate the threat of an influx of imported goods if the duty reduction is increased. It seems that there is more willingness to forgo the idea of a larger reduction than to tackling the problem head on.

As to the current exclusion of ethyl tertiary-butyl ether from the fuel duty rebate, experience in other European Union member states indicates that the preferred method of introducing bioethanol into the fuels market is by converting methyl tertiary-butyl ether to ETBE plants. Currently, the 47 per cent. bioethanol that makes up ETBE is not covered by the fuel duty rebate. Does my hon. Friend the Minister believe that addressing that anomaly would be another positive step in developing an effective biofuels market?

There must be an increase in Government resources for the development of a strong UK bioethanol industry, whose development could be quick and successful. The production technology for such an endeavour is well known, and the industrial will is present. I encourage the Minister to take on board the comments raised today and to examine ways in which more resources can be freed up, to put the bioethanol industry on a sound footing for the future.

I also hope that the draft transposition strategy for the biofuels directive, including targets for the level of biofuels used in the UK for 2005 and 2010, will indicate clear Government support for the development of the industry. We are not looking for excessive subsidies in the long term but for a promising start. The Government must act expeditiously to ensure that farmers and processors are sufficiently pre-warned of future biofuel targets.

Photo of Mrs Gillian Shephard Mrs Gillian Shephard Conservative, South West Norfolk 4:53 pm, 11th March 2004

This debate illustrates perfectly the cross-party alliance on this issue. The Select Committee report was unanimous, the issue has stimulated several early-day motions and there have been well-supported debates in this Chamber and Westminster Hall. The Minister can be in no doubt about the size of the political lobby in favour of more help for biofuels. Treasury Ministers have also received many delegations. Last week Paddy Tipping and I met the Economic Secretary, and an all-party lobbying group has been formed in Norfolk, of which Mr. Wright is a valued member. That group is supported by Members of the European Parliament, all Norfolk local authorities, the University of East Anglia institute of food research, British Sugar, hauliers, fuel and petroleum companies, the Royal Norfolk Agricultural Association, and others.

The Government say that they support the case for more help for biofuels. After all, they introduced the 20p a litre reduction in the 2003 Budget, which will be implemented in January 2005. The Government's own Commission on the Future of Farming and Food recommended in the Curry report that duty on biofuels should be reduced.

The Government have signed up to the European Union biofuels directive, which requires the UK to notify the EU Commission in just four months from now the volume of biofuels that it will use by the end of 2005. The Department for Transport has provided rather coy answers to questions on how it proposes to meet that timetable but it is there. Then there is the Government's energy White Paper, which refers to a commitment to produce

"an assessment of the overall energy implications of a hydrogen economy and of large scale biomass-based fuels".

There is no lack of Government commitment but a lack of action. All their commitments and the 20p duty reduction have resulted in very little. Indeed, one witness to the Select Committee rather shamingly described the results as

"an extremely small cottage industry."

That is correct. We make biodiesel from used cooking oil, and there is no bioethanol production for road use. That is the situation after all those commitments and the 20p reduction. The system does not work.

What will happen? It is useful that we are holding this debate a week before the Budget. In his pre-Budget report, the Chancellor indicated that there might be some movement in the Budget. He said:

"I propose also to consult on a new framework for the tax treatment of green fuels: that we make a commitment to prior announcements, three years ahead, of incentives to increase usage and thus promote investment in new fuel-efficient technologies. The Budget will announce the way forward on that measure."—[Hansard, 10 December 2003; Vol. 415, c. 1066.]

Everyone in the House is already in agreement on this matter, so I am sure that we all expect next Wednesday to be an extremely positive day. Let us hope that will be the case.

The Government could do several other things, as other Members have outlined; they could introduce duty reductions, capital grant schemes or mandatory inclusion levels, which is the subject of an amendment in the other place to the Energy Bill, of which my right hon. Friend Mr. Jack spoke so fluently. Some of us who lobbied the Economic Secretary gained the impression that the mandatory inclusion route might be announced next Wednesday. In passing, I pay tribute to the patience and courtesy of the hon. Gentleman in his dealings with the many, many lobbying groups that he has met in connection with the issue.

It is clear that the Treasury has taken charge of the matter, and I have no doubt that the Minister for the Environment will want to explain the strength and vigour of the arguments that he has used, face to face with the Treasury, in advancing the case for biofuels. I hope that he will also be glad that there is such strong cross-party and national support for such moves.

The Select Committee report had to point out that

"the departments involved do not speak with one voice . . . we deplore the fact that the Government has not nominated any one Department to lead on biofuels and consider that this is a prime reason for the slow progress that has been made".

It noted that the Government had

"expressed support for biofuels but the mechanisms used to promote their use have had little effect so far".

That is indeed the position.

Despite the fine words and the commitments to environmental goals that are repeated so often, production of biodiesel is a cottage industry, and we have no bioethanol production at all. Meanwhile, our competitors are forging ahead and rapeseed is exported from the UK to be re-imported as biofuel—at what cost to the environment, no one dare calculate.

Next week's Budget will give the Chancellor the opportunity to put all those things right. Time is running out. Imported biofuels are already on sale on our forecourts. I know that the Minister is with us in spirit, and even in action and in bio-spirit. The time for pronouncement is over. He is persuaded of the rightness of the cause, in terms of sustainability, security of supply and consistency of action with the Government's objectives.

As I said, the time for pronouncement is over—the time for action was yesterday. That should be the message from the House to the Chancellor.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test 4:58 pm, 11th March 2004

I think that it was Peter Bottomley who said in a newspaper article some while ago that to get the attention of the House for an idea, one has to enunciate it at least six times. This will be the fifth time that I have spoken in this place about an ethanol escalator, so I am optimistic about the progress of the idea.

I am gratified that everyone in the Chamber agrees that some such device—an obligation for an escalating mix of biofuels with conventional fuel—might be a way forward.

The word that has been used this afternoon is "action", but perhaps the right word is "traction". How do we get traction for a series of proposals that perhaps now have the merit of being obvious? That is, farmers can grow biofuel crops; a European Union directive is coming forward; there is a pressing and urgent need for further action on transport with regard to climate change; and we have an industry that in principle could make both biodiesel and bioethanol. The issue is one not of experiment, but of making these things happen.

The alternative fuels market has been a little confused about what will be the winning fuels. Hon. Members may share my experience of wondering which car to buy in order to be a "goodie"—in order to drive a car that is environmentally more sound than one that I might have possessed before. The messages that have emerged over the past few years would have caused one to buy a different car every six months.

Simply placing bioethanol into existing petrol tanks and driving about in the same cars, with the immense gain that that would represent in terms of CO2 emissions and all the other benefits, is perhaps a much more stable and secure way forward in making a change in fuel. We do not need to imagine that, because we have the experience of Brazil. In its first attempt to introduce ethanol into its market, Brazil set up separate petrol pumps, made arrangements for new cars to be produced and introduced 85 per cent. ethanol into petrol pumps across the state. That did not work very well overall.

What has worked much better is the escalator method that Brazil has introduced, increasing the amount of ethanol in petrol to, I think, 23 per cent. to 24 per cent.—far greater than anything proposed today. That has been a success, whereas the attempt to introduce a parallel system of fuelling vehicles was not. Therefore, I believe that the escalator that has been suggested this afternoon, and which we have discussed previously, is the right way forward.

Ethanol is also the right way forward in that it can be not only a fuel in its own right, but a transitional fuel towards a long-term hydrogen fuel economy. When we envisage such an economy, we realise that one of the problems is that many people who talk about it neglect to say that one of the prime ways of making hydrogen, at least for the foreseeable future, is from mineral fuel. Therefore, one does not solve the problem of CO2 emissions; one simply places it one stage up the chain.

Recent work at the university of Minnesota has demonstrated methods of making hydrogen directly from ethanol. Among other things, the use of hydrogen for fuel can be reduced by using ethanol to create it. Therefore, any investment we may make in introducing it now also leads in the long term to a hydrogen fuel economy, if that is the direction in which we are going.

The other advantage of an ethanol escalator of perhaps 1 per cent. a year over a period of time, as my hon. Friend Mr. Wright suggested, is that it would gear up the industry to create the ethanol that can go into petrol. Indeed, bioethanol can be made from a variety of sources and in a variety of ways. Sugar cane is used in Brazil. Sugar beet or wheat is used in the UK. A company called Iogen has recently proposed setting up a plant in the UK—it might not do so because of problems with the market—to make ethanol from the fermentation of straw. So an escalator that would bring that industry on stream and give it the traction needed to bring its products to market would be the right way forward.

In talking about possible ethanol imports, we might reflect for a moment about the fact that, for a number of years, we in the House have happily talked about importing large quantities of mineral fuels to run our vehicles. We are about to become a net importer of mineral fuel again, yet we do not seem to find that particularly remarkable. Even if we did import some ethanol, it would not come from oil-producing countries. The pattern of importation would be different. Indeed, that could support some economies that are not oil rich and do not have the ability to take oil out of the ground.

For all those reasons, I believe that an ethanol escalator represents the right way forward. The Government are seriously thinking about those issues, and I am proud of the fact that the energy White Paper identifies, for the first time, the need radically to reduce our carbon dioxide emissions as part of our energy policy. An escalator would be a way to ensure that that policy is pursued in respect of road transport, and I hope that it comes to fruition shortly.

Photo of James Paice James Paice Shadow Secretary of State (Home Office) 5:06 pm, 11th March 2004

Unsurprisingly, I will join the general consensus about the need to support biofuels, but I want to address the issue from a slightly different angle, by pointing to a fundamental inconsistency in the way in which the Government have dealt with the correct obligations that they undertook at Kyoto.

My main thesis is my concern about climate change and the need for this country to do all that it can to help to minimise its impact, so I want to consider biofuels as part of the whole energy scenario, rather than concentrate on the narrow issue of road transport. We risk getting it wrong by narrowing our focus to road transport. I want to consider biofuels straightforwardly against the fundamental objective of reducing the impact of climate change. Of course we cannot ignore other issues, such as the security and reliability of supply, the environmental impacts of whatever steps we take and the economics—the cost of saving carbon dioxide and the impact on the rest of the economy of whatever decisions we take—but I start from a fundamental belief that biofuels have a significant role to play.

The energy White Paper shows that the Government are planning a massive expansion of wind power for electrical generation, yet on 17 September in evidence to the EFRA Committee, the Economic Secretary said that the likely cost per tonne of carbon saved through offshore wind generation is the same as for biofuels. I ask the Minister to take back to the Government a question: why is there such a rush for wind power, yet such reticence about biofuels? Wind power is highly inefficient and unreliable—no one can guarantee that the wind will always blow in any location—and it has high maintenance costs. Most importantly, it has an atrocious environmental impact.

The environmental footprint of wind power must be considered. I am glad that Mr. Wright is here because his constituency contains one of the earliest fleets of windmills, which I have seen on several occasions, and they have a significant impact on the environment. I defy all those hon. Members who represent constituencies where planning applications for wind farms are in the pipeline—there are many of them—not to say that there is huge local resistance to them. They are all opposed.

There is also the issue of substitution. The Government are running down nuclear power and replacing it with wind power, but they are not actually reducing carbon dioxide emissions at all. Whatever one's views about nuclear power, it does not generate carbon dioxide. I happen to be pro-nuclear but, even if one is not, one cannot pretend that running it down has an impact on the global environment. The rush to wind power is singularly unwise.

Hon. Members have rightly referred to bioethanol and biodiesel and about the levels that can be put into existing engines. The figure is between 5 per cent. and perhaps 15 per cent. for bioethanol, but I understand that there is no upper limit for the maximum inclusion rate of biodiesel. We have discussed the duty derogation and, although I know that I am probably renowned as a bit of cynic, it really is a piece of green trickery by the Government.

By introducing a 20p derogation, the Chancellor is able to claim green credentials in the full knowledge that that would not cost him anything. The derogation is not enough to trigger a realistic industry. As Paddy Tipping neatly said, all we have got is a bit of chip oil. We have not got a serious industry, and we will not have one with the derogation that we have at the moment.

The Economic Secretary, in his evidence, seemed to be very worried about sucking in imports and subsidising industries elsewhere. We have discussed agriculture and there has been a substantial increase in food imports, but the self-same Minister said that security of supply was not an important factor. I think he is wrong, but that is what he said. Therefore, worrying about whether the supply is from imports or domestic production would not seem that important. I passionately care about domestic production and, given the right incentives, I am convinced that we could have one.

Photo of James Paice James Paice Shadow Secretary of State (Home Office)

I am sorry, but I shall not give way because other Members wish to speak.

I wish to turn to a point that my right hon. Friend Mr. Jack covered in a different way—the fundamental difference between the Government's policies for power generation and for road transport. The consumer pays for the introduction of renewables for power generation—whether that is wind power, wave, solar power or any other method—but, in the case of biofuels and road fuels, the Government wish to use a duty derogation. That is a total inconsistency from a Government who go on and on about joined-up government and working together.

Cargill plc has said to me and, I am sure, to other Members that a 2 per cent. market share for biodiesel with a 28p derogation would cost £108 million, whereas a derogation of just 1.5p on a 95:5 blend would cost the same, but would satisfy 37 per cent. of diesel requirements. I put it to the Minister that there are alternative ways of addressing this fundamental problem without necessarily going down the wholesale route of a massive derogation.

I want quickly to touch on the agricultural impact of an expansion of biofuels. Much has been said about that, and some environmental bodies have questioned whether that would be in the interests of our national environment. My principal concern is climate change, but I shall not debate issues involving the common agricultural policy. However, I believe that the reforms that are in train are, in principle, going in the right direction.

If we have biofuels, there will obviously be a new market for wheat, sugar beet and oilseed rape. That must be good. Whether it would have a significant impact on the price—that is the fundamental issue for whether there is large-scale expansion in the acreage of those crops—is more questionable. In the past two years, the wheat price has varied by 100 per cent. Two years ago, it was £55 to £60 a tonne, but the price reached literally double that even though it has fallen back a bit now. It is therefore difficult to foresee what will happen to prices, and that is the case without a biofuel industry. It is difficult to be precise.

For sugar beet, we are looking at the seed quota, but that is a wholly unsubsidised element of the sugar beet crop, so it is not a serious issue. The situation might have the greatest impact on the ultimate price of oilseed rape, but if we went down the derogation route, its price would be constrained by the duty relief. However, it would always be open to the Government to reduce the derogation if that were the way in which things went.

Dr. Whitehead referred to our mineral oil imports. No Minister of any Government can ever forecast what the oil price will be, so the questions of the economic impact on agriculture, whether the acreage would expand and the likely cost of developing the industry depend on crystal ball gazing into what the real price of oil will be. If any hon. Member can say what the oil price will be in the next five years, they frankly deserve to be awarded everything available—none of us knows.

I know that other hon. Members wish to speak. It has been said over and over again that the Minister is on our side, but he must take a message back to the Government. It is his bad luck that he is here to account not only for himself, but for the whole Government's woeful response thus far to biofuels. He must go back to his colleagues and say, "There is great inconsistency in how we are approaching the use of energy vis-à-vis its impact on climate change." It does not make sense to encourage the widespread use of wind power that will be paid for by the consumer—it will not necessarily reduce global warming one iota because it will be introduced largely at the expense of nuclear power—yet at the same time to refuse flatly to do what is necessary to generate a market for biofuels.

At the end of the day, I do not mind whether the market is achieved through a duty reduction rather than a renewables obligation, although I personally prefer the incentive approach to that of regulation. I do not like the idea of using capital grants because they tend to be regionalised and we are not considering a regional issue, but a national one. Additionally, East Anglia, which is the biggest arable area in the country, receives little money through capital grants because it is reasonably economically prosperous. I am not raising that as an issue, but it demonstrates why regional capital grants are not the way forward. I do not mind which of the other two ways forward the Government ultimately choose, but for goodness' sake let us choose one and get on with it.

Photo of David Drew David Drew Labour/Co-operative, Stroud 5:17 pm, 11th March 2004

I shall make three main points in the small time available, but first I congratulate the Chairman of the Select Committee on the way in which he presented the case in the report. The Committee has a reputation for churning out a certain quantity of reports, but this report shows that we can also produce the quality. The debate has been useful.

My three points are fairly simple. I want to touch briefly on imports. There is a danger that the Government seem to be uniquely capable of achieving a lose-lose situation. When we heard evidence from the Financial Secretary—I do not want to chide him specifically—we were told that the market was seen to be the main determinant of the best way to produce biofuels, and that if that meant through imports, so be it. That is not good news for the domestic industry. The Government's response to the report, through the Department for Environment, Food and Rural Affairs, argues that it is not terribly interesting to consider the environmental audit of what happens in other countries. We are signed up to Kyoto, which is an international agreement, so perhaps we should take account of not only our domestic industry, but the damage that we might do to other parts of the world. That is a problem, and we should have the strength of our convictions to do things locally—the Government also argue that—and perhaps more effectively.

For the fifth time of asking, I congratulate my hon. Friend Dr. Whitehead on pushing forward the bioethanol escalator, but I wish to counterbalance the idea that we can achieve what is possible by simply blending that in with existing supplies of fuel.

My hon. Friend Paddy Tipping and I visited the BMW plant in Sao Paulo, where we learned that biofuel production kick-started the Brazilian motor industry. Brazil will have a great hegemony in future vehicle production, because it is the first country to invest in such fuel. It has proved that biofuels work, and we should learn a lesson from it. However, we should opt for blending, and not pursue biofuels as an alternative.

As Mr. Paice said, biofuels provide an opportunity to overcome our reliance on traditional forms of energy. The Brazilians, of course, were not environmentally driven initially—they were scared to death that the Americans would turn the petrol pumps off, and wanted something else to increase their energy supply. We should not underestimate either the physical need for such fuels or the need for fiscal incentives.

Other hon. Members have skated over the need for stability, but I shall be blunt about it, whether it is achieved through financial incentives or exhortation. I visited the Arbre plant with the all-party group on renewable and sustainable energy. We have gone backwards, as we had a state-of-the-art biomass plant near Doncaster, which failed because there were no incentives for farmers to supply raw materials. There were no stable contracts, and we need to overcome that problem. We have taken a backward step, but we need go forward. My hon. Friend the Member for Southampton, Test and I have worked together, and have discovered problems with renewables obligation certificates. We must give producers a guaranteed price so that there are stable conditions for trade and investment in future. That is crucial to biofuels, as it is to other forms of renewable energy.

Photo of Mr Richard Page Mr Richard Page Conservative, South West Hertfordshire 5:22 pm, 11th March 2004

I should declare an interest, because for a couple of years I had ministerial responsibility for renewables until I was given a little more time with my family, although not quite as much time as some of my hon. Friends. I am very much in favour of renewables, provided they are introduced in a sensible way and not at a completely uneconomic cost.

Dr. Whitehead is quite right—hydrogen is the way forward, and the electricity supply need not be a problem. All we need do is introduce a sensible programme of nuclear power. We would then have a base load, and would never have a problem with the electricity supply again. The Government are blinkered about anything to do with nuclear power, but it would be contentious to develop that argument.

Biofuels form part of the energy pie, but the flipside of that pie, if there can be such a thing, are the costs of pollution, CO2 and global warming. I promise not to be diverted down the route of making general points about renewable energy production, but biofuels play a part in such production. I welcome initiatives to reduce pollution and CO2 to achieve climate control, but they should involve an appreciation of the commercial world in which our industry competes. It is fine to say that we want reductions in emissions and carbon trading, but not if countries from which we import do not impose the same burdens—responsibilities may be a better word—on production. If we do not acknowledge that, it would be small wonder if plants continue to relocate to countries that do not operate such levels of control. Do we wish to increase the number of our industries that relocate overseas? Over the past seven years, more than 600,000 manufacturing jobs have gone abroad, and we should consider whether we want gratuitously to increase that figure.

Hon. Members have pointed out that biofuels have the virtues of a closed carbon cycle. The crop is grown, thanks mainly to the sun, which itself is a diminishing resource. There is not much we can do about that, but it should not worry even the younger Members of the House. The carbon from the atmosphere is locked into the crop, burned and locked in again—a balanced cycle and everything is hunky-dory. The process has the advantage of low pollution, it does not add to present CO2 levels and it can usefully employ set-aside. It could have dramatic price advantages, subject to Exchequer approval. As my right hon. Friend Mr. Jack said, there is sufficient tax headroom on the cost of fuels to allow the Chancellor to be quite generous.

The Government have helpfully signed up to the target for biofuel usage of 2 per cent. by the end of 2005. Unfortunately, that is the end of the good news. The target of 10 per cent. renewables by 2010 is, to put it bluntly, for the birds. It is completely unrealistic, unless the Government suddenly announce some secret scientific advance, such as that photovoltaic cells will have a conversion rate of three times the present level, or that after all these years a way has been found to harness wave power. I even heard one Minister, who had better be nameless—enough Ministers are in trouble already—say to an audience of energy enthusiasts that if we do not reach the 10 per cent. target by 2010, it will be the responsibility of everybody in the energy business, not of the Government.

I think that there is a reasonable chance that we can meet the target of 2 per cent. for transport usage in 2005, but if we miss it, I put the blame squarely on the shoulders of Government. The 10 per cent. level for renewables by 2010 is capricious; the 2 per cent. target is achievable. I shall not repeat what my right hon. Friend the Member for Fylde said about the Government's present position, other than to endorse his words when he called it muddled and unfocused. I say amen to that.

The NFU brief issued to hon. Members has been mentioned. The union believes that farmers, who have had a very rough time, could take advantage of the move to biofuels and put their set-aside land to productive use to reduce pollution levels. I support that.

How do we go forward, following on from what my right hon. Friend Paddy Tipping called us used chip oil recyclers, and he is not far off the truth. Burning fuel oil is not the cleanest activity. As someone with some experience in transport oils, I would regard it as a positive sales pitch to be able to say that there were biofuels in the mix, and that customers would be helping the environment. My hon. Friend Mr. Gale mentioned the problem that the Exchequer has with a product going abroad and coming back in the form of biofuel. The DTI has grant facilities and support facilities, and I see no reason why it does not start—through the challenge process, say—competitions to build plants in the UK. Once there were plants, the feedstocks would come to this country, go through those plants and be sold in this country. That would be the start of a virtuous circle.

We have done that in the past. I remember that we gave support to chicken dropping electricity manufacturing—I think chicken litter is the polite word, although in the Department we used another word, which had better not be used in the Chamber. It works, and we exported some of those plants abroad. Why not support the bioethanol and biodiesel plants? It would overcome the problem of going abroad.

I should have liked to spend considerably longer on this important subject, but the fact that we are under time constraints shows Members' interest in it. I hope that the Minister will take note of that. I am sure that my right hon. Friend the Member for Fylde is right. Let us blend the biofuel with fossil diesel, with a price obligation in place; let the Government positively support biofuel production plants in the United Kingdom, and—who knows?—they might meet a target. That must be a bonus.

Photo of Andrew Miller Andrew Miller Labour, Ellesmere Port and Neston 5:30 pm, 11th March 2004

I thank my hon. Friends in all parties for their courtesy in allowing me time to contribute. I want to begin by considering the phrase, "muddled and unfocused" debate, which many hon. Members used. It understates the complexity of the picture.

I should perhaps technically declare an interest because I shall comment on the benefits of liquefied petroleum gas, from which I benefit as a user. I have also contributed to creating a new carbon sink in my area by planting 850 trees last year. I therefore have a reasonable track record in making some positive contribution.

We all agree that there is no such thing as clean fuel. Even solar energy requires large amounts of glass to produce it, and that involves energy costs. We must exploit the best available technologies and, in the context of fuel that is used for generation, we must consider a balanced fuel policy. I believe that attempts in the vehicle industry to move towards becoming carbon free can technically succeed. I have had the privilege of driving two hydrogen-powered vehicles. One was a concept vehicle but the other was derived from a body that is used for a people carrier today. I am pleased that it will be in the United Kingdom next month. I hope that members of the Select Committee on Environment, Food and Rural Affairs will look at it. It is a Vauxhall-built vehicle.

I praise the work of Mr. Jack and my hon. Friend Dr. Whitehead. However, I want to criticise one sentence in the Select Committee report. Paragraph 53 states:

"In our view, the environmental performance of biofuels is at least as good as that of liquid petroleum gas."

That does not compare apples with apples. I am grateful to the right hon. Member for Fylde for acknowledging that differences, including the distribution costs of LPG, need to be taken into account.

I am proud that my constituency makes a big contribution to the good aspects. People view it as the dirty constituency, which makes all the things that pollute. However, recent work by the Environment Agency—it has not yet been published but I have permission to cite it—examines the total local impact figures of several vehicles that are currently on the roads. I am pleased that the first seven models on the list are Vauxhalls, which are built in my constituency and powered by LPG. Those are the cleanest vehicles available today, using today's technology. Taking into account overall pollution, not simply carbon issues—a whole well-to-wheel analysis has to be done—those vehicles come out on top in an urban environment.

I am certain, on the basis of my knowledge of the industry, that there is an important place for the biofuels technologies that have been discussed today. We need to support those technologies, and I accept the Select Committee's analysis in that respect. However, on our route to an affordable hydrogen economy—I am told that I could not afford to insure the two vehicles that I have driven because their capital costs run into millions of pounds—we must ensure that the transitional steps work. There is a problem with that, because we need to incentivise vehicle manufacturers, fuel producers and consumers, but at the same time, the Treasury has to raise income from somewhere. I say openly that I was delighted that the right hon. Member for Fylde was frank and honest about the possible increased costs of his proposal, but it was only a couple of years ago that Brynle Williams—who is now a Conservative Welsh Assembly Member—and his crew were leading protests against fuel duty. We will have to deal carefully and sensitively with the market issue, but I acknowledge that the right hon. Gentleman's point is important.

During the past few years, we have achieved just over 1,000 LPG filling points around the country. There are still gaps: LPG is not available down the Worcestershire stretch of the M5, for example, and it is also thin on the ground in rural Worcestershire, as I have discovered when trying to visit my daughter. However, as I said in my intervention on Norman Baker, it is readily available in Cornwall. The gaps need to be filled, and we need to keep the incentives going to fill them.

I am anxious that we should not allow this debate to submerge the importance of maintaining another good, clean, proven technology that involves vehicles made here in Britain and supports British jobs. Just like the jobs in East Anglia that Mrs. Shephard mentioned, those are British jobs, and we must support them. We must ensure that we do not incentivise one part of the market in a way that damages another. We must get the balance right, and the concept that my hon. Friend the Member for Southampton, Test dreamed up, and which the Committee has developed, might provide us with a route forward.

I urge my hon. Friend the Minister to acknowledge that in determining the best way forward we must continue to provide incentives to both LPG and the other fuels that we have discussed. I have already made that point to my hon. Friend the Economic Secretary. Those incentives must take into account the driving forces—if hon. Members will excuse the awful pun—that encourage fleet buyers to buy, and must also ensure that the costs surrounding the distribution of the fuels are met. If we get those parts of the equation right, we will continue to encourage important work, which UK plc can capture ahead of many of our European competitors, on the transition to a hydrogen economy. I am certain that we can deliver that transition.

Photo of Caroline Spelman Caroline Spelman Shadow Minister (Women), Shadow Secretary of State for Environment, Food and Rural Affairs 5:39 pm, 11th March 2004

I should like to begin by paying tribute to the work of the Select Committee in preparing this report, and to all hon. Members present for speaking with such a high level of understanding on this subject. I feel that I am among cognoscenti. Also, I think that this is the first time I have spoken at the Dispatch Box on an occasion when no one has dissented on the matter under discussion. That is quite extraordinary.

If I were to summarise the debate, I would have to say that there has been a tangible sense of frustration on both sides of the Chamber at the lack of progress in this area. Paddy Tipping said that we were in danger of falling at the first fence, in terms of making progress on biofuels. My right hon. Friend Mrs. Shephard said that at present we have nothing more than a cottage industry and that the time for action was yesterday. Mr. Drew said that we were in danger of ending up with a lose-lose situation. All those remarks sum up our real frustration. I shall be adding a very positive view of biofuels, so I shall wait with great interest to hear whether the Minister is going to dissent from the consensus that has broken out to the effect that action is long overdue.

I should also like to make it clear that I stand at the Dispatch Box having spoken about this issue to my colleagues on our DTI and Treasury teams, as well as our Transport spokesman, who is part of my multi-departmental team. We speak with one voice on this subject, and I think that that is what is lacking elsewhere. The Chairman of the Select Committee, my right hon. Friend Mr. Jack, called for a champion on the subject. The Chamber seems to be full of such champions, but we have one very big opponent. It is pretty clear that the opposition is coming from the Treasury. All the other Departments have said very nice things about bioethanol, but the plain fact is that they are in hock to the Treasury. This reality reminds me of an old adage that sums up exactly why there has been such inaction: when everyone is responsible, no one is responsible. That certainly seems true in this case.

I must declare an interest. Twenty years ago, I wrote my PhD setting out the economic case for bioethanol. I said at the time that the price of oil would have to rise to $35 a barrel before bioethanol could ever be economic on straight competitive terms. It is a sad fact that that situation has not changed. I can hardly believe that so much time has elapsed without any underlying movement in the fundamental economics between the fossil fuel and its equivalent alternative of biological origin.

Some important facts should lead the Minister to do all that he can to persuade the Chancellor not to dismiss the case for these biofuels on purely economic grounds. The biofuels are from a renewable source, while fossil fuels are not. The incredible reluctance in this country to explore biofuels more positively undoubtedly stems from the fact that we are in the quite luxurious position of having our own indigenous source of fossil fuel. We are therefore in a somewhat different position from our European competitors. It is therefore all the more surprising that one of the economic barriers to considering the opportunity for biofuels should exist in the context of our having the highest percentage of tax on gasoline of any European Union member state, despite our indigenous fossil fuel supply resulting in our having the lowest pre-tax cost of gasoline in the European Union. That seriously reduces the Treasury's room for manoeuvre when considering the biofuels option. Such a contradiction is worth mentioning in this context.

One of the reasons given for the long-standing resistance to biofuels is the fact that we are a major oil producer. However, it is worth noting that in January this year, the UK trade in oil was at a deficit of £37 million for the first time for more than 12 years, and that a deficit has been recorded showing a decline of £416 million from the previous month. So the situation is changing. That underlines the point that biofuels offer a strategic, if not immediately cheaper, alternative. That is another strong reason for their serious consideration.

Several Members have pointed out that biofuels give the Government an opportunity to reduce carbon emissions by offering a closed carbon cycle. According to British Sugar, a saving of up to 70 per cent. can be achieved through the use of biofuels. The Government signed us up to Kyoto—a decision that my party entirely supports—but as a result of going beyond the Kyoto requirement to cut carbon emissions by 12.5 per cent., to 20 per cent., we as a nation will have to work much harder to find where these carbon savings can be made. That is another reason to look closely at the biofuel option.

Instead of being clear on this issue, the Government have set this higher target—a gold-plated target—without giving any real thought as to how to achieve it. That is at serious odds with important decisions taken in other departmental areas. For example, we should consider the implications of the aviation White Paper, which will blow our Kyoto compliance right out of the water.

Today, I received a very interesting answer to my parliamentary question to the Minister about the impact that the aviation White Paper will have on our capacity to reduce carbon emissions. It stated:

"International flights from the UK do not currently count in the national inventories of greenhouse gas emissions as there is no international agreement yet on ways of allocating such emissions between countries."

So we have an extraordinary situation whereby all aircraft emissions released into the atmosphere above this country simply do not count. So that's all right then, is it? It clearly is not, and a source of real concern to many Members is how on earth the Government will square the circle of their plans for expansion and their commitment to reducing carbon emissions.

We have had a substantial discussion, and if we are all agreed that biofuels offer the way forward, the next question is whether they should be imported. It is clear from what a number of Members have said that if nothing more is done, the most likely scenario is that the fuel will be imported from Brazil, where the sugar plantations are enormous and the wages are lower. Because of those factors, it will be very difficult for us to compete, notwithstanding the freight costs. I support those Members who have called for an opportunity to secure a domestic source of biofuel. There is a very real opportunity for diversification that is not to be missed, at a time when farmers face the most radical reform to the common agricultural policy that I can remember.

We must however heed the National Farmers Union's warning that set-aside payments and payments for the growing of energy crops will simply not be enough to kick-start the domestic industry. It will take more than that, and the Minister has heard a number of constructive suggestions as to how that can be achieved. We urge him to seize the opportunity to get this point across to the Chancellor just before the Budget, because it is clear that that is where the sticking point lies.

I cannot complete my contribution without pointing out that, if we are all agreed that biofuels offer a way forward for strategic, environmental and wider rural and economic reasons, we must acknowledge that the way in which the crops are produced is very important to the overall economic argument. There are concerns that if biofuel feedstocks are grown en bloc in a concentrated manner, some of the environmental benefits that can accrue could be undermined. I want to pay tribute to the work done by English Nature and the Royal Society for the Protection of Birds in looking at biofuel production's impact on biodiversity—both plant and animal diversity. It is right to record that the question of how we produce such crops is just as important.

Let me end by challenging the Government. I entirely agree with my hon. Friend Mr. Paice, who criticised the Government for their obsession with wind farms as renewable technology to the detriment of biofuels. Why the rush to wind power, and why the reticence on biofuels, he asked? There is a distinctly un-level playing field. There is no doubt that wind farms are increasingly unpopular, partly because they seem to cause environmental damage. It is not just a question of their appearance in the countryside; as ScottishPower made plain to me, linking them to the grid would require the building of swathes of pylons. No one could argue that that has no environmental implications.

I urge the Government to seek the opportunity provided by next week's Budget statement. I urge them to think again about adopting the comprehensible, comprehensive policy on renewable energy that is currently lacking, and to give biofuels the chance that has been ignored for far too long.

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs 5:51 pm, 11th March 2004

I congratulate the Select Committee on its report, and echo the comments that have been made about the effective way in which its Chairman, Mr. Jack, put its case. I can honestly say that I have attended few debates during which the case has been made so persuasively, and Members have spoken with such authority. We heard from my hon. Friend Paddy Tipping, Norman Baker, my hon. Friend Mr. Wright, Mrs. Shephard, my hon. Friend Dr. Whitehead, Mr. Paice, my hon. Friend Mr. Drew, Mr. Page, my hon. Friend Mr. Miller and, of course, Mrs. Spelman. All their contributions made a great deal of sense, and I shall try to respond to them. One or two specialist points were made, and I shall deal with those if I have time.

The right hon. Member for Fylde set the scene very effectively. I was particularly interested to hear what he said about sugar, but let me put this to him and to the right hon. Member for South-West Norfolk. Has the present sugar regime been unhelpful in terms of support for innovation and new markets such as the market for ethanol? It is quota-controlled, which is quite restrictive. Is there an argument for reform? I am thinking of the part C quota, which was mentioned earlier. I was also interested in the right hon. Gentleman's comments about spreading the costs of duty across all fuel duty. There is a good deal of merit in what he said, and I shall return to it shortly. I shall also return to what he said about the Lords amendment.

I hope I can respond to the main points made today as positively as they were made. The hon. Member for Lewes said that I had been put at the wheel of a vehicle with no fuel. Well, I am often put at the wheel of a vehicle, but it usually contains something that is about to blow up in my face as the vehicle starts moving. In that respect, this debate is a bit of an improvement.

I am sympathetic to what has been said, as are the Government. Of course some issues need to be addressed, and they are complicated, as my hon. Friends have pointed out; but the Government's objectives for biofuels were stated clearly in the energy White Paper. I agree with my hon. Friend the Member for Southampton, Test that the production of hydrogen from ethanols may have a role to play in the future, along with that of other biofuels. They represent an important potential way of achieving the goal of zero-carbon transport. We have made good progress in relation to industry, but transport poses a big challenge.

As to why we should support renewables from wind, it is that those will make a contribution. We will need a range of contributions to meet our targets for boosting renewables, to which biofuels can contribute. I do not dispute that for moment. I do not want it to be thought that wind energy is the be-all-and-end-all of the Government's approach, which it is not. Its contribution is perhaps more important than was being argued, however.

Photo of Norman Lamb Norman Lamb Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury)

Have the Government carried out a recent assessment of the extent to which a domestic industry for bioethanol will be in place when the duty reduction is introduced next January? I understand that no domestic production is anticipated with a 20p reduction in duty.

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

An assessment has been made of the potential for jobs and the economy in relation to biofuels generally, and I will come to that point in a moment.

We recognise that bioethanol and biodiesel from virgin crops can reduce carbon dioxide emissions by about half when compared with conventional fuels. In the case of biodiesel from waste vegetable oil, the life cycle benefits can be even higher. Achieving 5.75 per cent. substitution of biofuels for fossil fuels would save 2 million tonnes of carbon per annum in relation to the indicative targets that have been set by the EU. Environmental considerations are not the only issue, however. There is also the issue of new markets.

The question is: how can the Government support this process? I am glad to be joined in the Chamber by the Economic Secretary to the Treasury, my hon. Friend John Healey, which demonstrates the interest of the Treasury in these issues. Members are aware of the existing 20p per litre cut in duty, and it was announced in Budget 2003 that duty on bioethanol would be reduced by a similar amount from January 2005. Those measures have encouraged the production of 2 million litres of biodiesel per month, so it is not right to say that there has been no effect. There is a potential for 115 million litres per year from waste oils, and I am pleased to see the development of new plants such as Argent, which is producing biodiesels from tallow and waste oil, which in turn will make a big contribution. The pre-Budget report in December gave a commitment to a rolling three-year period of certainty for the reduction in the duty rate, which is important.

Duty incentives, however, are only one way. Support grants exist for capital investment, which is important in relation to new development and new plants, and those are available through regional development agencies. Under last year's common agricultural policy reform agreement, crops for biofuels continue to be grown on set-aside land and will receive payments under the new single farm payment scheme, which is a form of inducement. From 1 January 2004, energy crops grown on non set-aside land can receive an additional Euro45 per hectare energy crops payment, which is another contribution. We also want to see the development of bioethanol from lignocellulosic feedstocks such as straw and wood, as those are expected to reduce the cost of delivering the environmental benefits, which we are committed to support.

Several Departments have an interest in promoting biofuels, and we work closely together to ensure a co-ordinated approach. A number of Cabinet Sub-Committees deal with energy policy and consider the issue of biofuels and the implementation of the energy White Paper, including this issue. As to support, I have outlined exactly the kind of approach that we have taken. We recognise that the biofuels directive can have an effect, although the targets are indicative—it should not be assumed that they are currently the Government's targets. Consultation will take place; it will be available soon.

The biofuels obligation is one of the most important proposals. I want to make it clear that the case was persuasive, and although we could not support the form of the amendment tabled in the other place, the Government are not opposed in principle to some form of biofuels obligation for road transport. We will therefore have to consider the issue in more detail, and weigh the merits of the obligation against those of other possible options. We will consider that as part of the process of consulting on the implementation of the biofuels directive. When that consultation is made public, therefore, it will include the issue of an obligation, which will be welcomed by many Members. We will explore how we can take that forward. DEFRA is also doing other work on the impact of biofuels on biodiversity, conservation and farming; the central science laboratory work on estimates of jobs that could be created and sustained by the biofuels industry, including ethanol; and work on setting out how the various—

It being Six o'clock, Mr. Deputy Speaker interrupted the proceedings and the Question necessary to dispose of proceedings was deferred, pursuant to Standing Order No. 54(4) (Consideration of estimates).

Mr. Deputy Speaker, pursuant to Standing Order No. 54(5)(Consideration of estimates), put the deferred Questions on supplementary estimates, 2003–04. ESTIMATES