New Clause 7 — Imposition of renewable transport fuel obligations

Energy Bill [Lords] – in the House of Commons at 4:45 pm on 13th July 2004.

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'(1) The Secretary of State may by order impose on each transport fuel supplier of a specified description the obligation mentioned in subsection (2) (a "renewable transport fuel obligation").

(2) That obligation is an obligation, for each specified period, for the supplier to produce to the Administrator, by the specified date, evidence which—

(a) is of the specified kind and in the specified form; and

(b) shows that during the specified period the specified amount of renewable transport fuel was supplied at or for delivery to places in the United Kingdom.

(3) An order under subsection (1) is referred to in this Chapter as an "RTF order".

(4) Before making an RTF order the Secretary of State must consult such persons appearing to him to represent persons whose interests will be affected by the order, and such other persons, as he considers appropriate.

(5) The power to make an RTF order is subject to the affirmative resolution procedure.'.—[Mr. Timms.]

Brought up, and read the First time.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

I beg to move, That the clause be read a Second time.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following: Government new clause 8—Administrator.

Government new clause 9—Further provision relating to RTF orders.

Government new clause 10—Renewable transport fuel certificates.

Government new clause 11—Discharge of obligation by payment.

Government new clause 12—Imposition of civil penalties.

Government new clause 13—Objections to civil penalties.

Government new clause 14—Appeals against civil penalties.

Government new clause 15—Interpretation of Chapter 4 of Part 2.

Government amendments Nos. 18 and 19.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

I think that everybody recognises that renewable transport fuels have an important part to play in our efforts to tackle climate change. In the short term, that means biofuels—we have already discussed biomass—but in the longer term it may well mean other fuels such as hydrogen produced from renewable electricity. We have already taken steps to promote the take-up of biofuels, including the 20p a litre duty incentive that the Chancellor has guaranteed for three years, but we also have to consider carefully options for the longer term and a form of renewable transport fuel obligation is a serious possibility.

An amendment for such an obligation was tabled in the other place at the beginning of the year. A lot of constructive discussion and debate took place and the outcome was a permissive clause in the Bill. I confirmed in Committee that we were content in principle with that clause, but that it needed further work on the wording to cover some of the practical issues. I tabled those Government amendments last week, and hon. Members will have noted that this has involved transforming one clause into nine, entirely replacing the current clause 125. That reflects some of the complications that had to be faced in retaining the principle behind the original clause, while ensuring that it was legally and practically robust. I believe that we have achieved that objective and I hope that the House will welcome the seriousness with which we have taken it forward.

The new clauses will allow the Government to require designated transport fuel suppliers to demonstrate that their total UK fuel sales in a given period included, in aggregate, a specified proportion of renewable transport fuels. That is broadly analagous to the current renewables obligation with which we are familiar. Renewable transport fuels would cover biofuels and other non-fossil fuels, such as renewably produced hydrogen.

The detail may seem extensive, but we need to allow flexibility in respect of how precisely a future obligation might operate and we need to consult extensively with industry and other interested parties on the scheme's final design. We have also had to deal with complications because we do not have an existing regulatory body to help run the scheme. A number of clauses relate to the appointment of an administrator, funding issues and a penalty and appeals regime.

In general, the drafting reflects electricity legislation on the renewables obligation. It allows for the issuing and trading of renewable transport fuel obligation certificates; provides a buy-out mechanism to add flexibility in meeting the obligation and to protect against unacceptably high costs to consumers; and makes different arrangements for different fuels based on their comparative benefits. We have not taken a final decision on precisely how a scheme might operate. A scheme that we chose to introduce might be a very simple one or a more complex one. All that would be a matter for detailed consultation.

Photo of Mr Richard Page Mr Richard Page Conservative, South West Hertfordshire

I am intervening now because, in view of the time, I will not make a contribution. Will all the steps that the Minister is outlining allow biofuels to be produced in the United Kingdom, so that we do not create a regime whereby those come in from abroad? The biofuels manufacturers feel that the 20p support is not enough. It is satisfactory for processing chip oil and for rendering, but for other purposes it is not quite enough.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

The obligation will be helpful in that respect. We need to build up a scale of demand for renewable fuels in the UK that would justify investment in the UK to provide the biomass that would allow the fuels to be produced. The obligation has the potential to deliver that. The detail will need to be decided as a result of consultation, and the issues relating to benefit to the UK economy will need to be addressed.

The clauses allow for the appointment and funding of an administrator, an appropriate penalty and appeals regime, and requiring fuel suppliers to provide information in connection with the obligation. I hope the House will agree that the clauses fully reflect and build on the principle of the amendment tabled earlier in the year. There has been a good deal of constructive debate on the matter, and I believe the end result is a testament to that. I commend the clauses to the House.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

As the Minister says, this group of new clauses is a response to pressure put on the Government in another place over the introduction of a renewable transport fuel obligation. It is also a response to the requirements of the EU biofuels directive, which requires the Government to demonstrate how they will increase the use of biofuels.

Given that requirement, it is a little surprising that the Government's new clause only gives the Secretary of State the power to introduce an obligation. It does not require the Secretary of State to introduce that obligation. It would be interesting to have on record the Government's plans in this respect. How do they intend to fulfil the requirements of the directive? Will they indeed introduce the obligation?

As with the process of generating electricity, there is a need to cut carbon emissions from transport, which are significantly high, as well as to move towards a position of security of supply of fuel for transport. As we have already discussed, we remember the problems that an over-dependence on oil brought to this country and others.

The use of sustainable primary sources of fuel might have the added benefit of assisting our farmers at a very difficult time for them. As my hon. Friend Mr. Page suggested, we must ensure that any potential benefit that could come to farmers actually reaches them, and does not merely benefit companies that might be commissioned to bring in such crops from abroad. That is an important point. I am sure it is not beyond the scope of joined-up government to bring it about.

One of the questions arising from the introduction of such an obligation is how it should be approached. I note that concerns are being expressed—for example, by the United Kingdom Petroleum Industry Association, to which I spoke this morning. It complains of

"the complete absence of consultation" during preparation of the amendments,

"and hence any consideration by those most affected by them."

That is of concern, especially given that, as the Minister said, these new clauses set out various aspects of the obligation in some detail. It is unfortunate that the discussions with the industry did not take place before new clause 7 was introduced. As my hon. Friend the Member for South-West Hertfordshire noted, it is a shame that the new clause was not tabled in Standing Committee, when there would have been more time for discussion. We are rushing the proposal through the Chamber this afternoon, and there is only one hour left to debate many other important matters. It would have been useful if this new clause had been introduced in Committee, after discussions with the industry had taken place.

I hope, therefore, that the Government will consult with the industry before filling in the finer details of the obligation. Industry representatives have raised questions about how much the administrator will cost, who will pay for him and monitor him, who is a supplier and on whom the obligation will be placed. They want to know at what point the amount of biofuel will be measured and how quality can be assured, and they also need to be informed about the details of penalties and about who will get the certificates. The Government may feel that they have covered those issues, but the industry representatives who raised the matter with me this morning, and previously, are not satisfied.

That said, we support in general terms the concept of a renewable transport fuel obligation, and look forward to seeing how and when it will be implemented.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I shall not detain the House, but I want to say that I welcome the extended version of the obligation, which the Government have introduced after undertaking to do so in Standing Committee. However, I imagine that the obligation would apply, in the first instance, to bioethanol and biodiesel. How can we ensure that the industry, and those who supply the biomass from which those substances are derived, produce amounts that are relevant for conversion into biofuel? The extended version of the obligation does not make that entirely clear.

Mr. Page asked how can we ensure that bioethanol and biodiesel are made in the UK, rather than imported. I note that new clause 9 contains a provision that means that biofuel produced outside the UK would not count for the purposes of the obligation. I imagine that that would enable the administrator and the Minister to specify, essentially, that biofuels are made in the UK.

I shall set out my understanding of how an obligation might work. In California, a similar provision was limited to ensuring that a certain number of cars should have the opportunity to run on biofuel. I believe that, under the proposed obligation, biofuel should be an essential component of the fuel that goes into cars from the pumps. That would mean that biodiesel would have to be mixed with diesel in a certain proportion, and the same condition would apply to bioethanol and petrol.

What would be the relative proportions in those mixtures, and what would be the relevant period as specified? Those are the important questions. I should be grateful if my hon. Friend the Minister, when he replies to the debate, would clarify what is meant by the phrase "for each specified period" in new clause 7. Various new clauses are being introduced to make the obligation possible, but it appears that a separate order would have to be laid before the House for each type of obligation being placed on the industry.

I suggest that the right way to go about introducing an obligation such as this is to ensure that the industry has certainty in the long term about what it is letting itself in for. That has been mentioned several times in this Chamber today. The industry needs to know how the obligation would be introduced, and over what period.

If we are to make sure that the supply of renewable fuel comes from within the UK and not from outside it, we must be certain that the industry has the necessary production capacity in the first place. Therefore, a form of escalator, whereby the obligation was introduced at perhaps 1 per cent. in one year, 2 per cent. the next year, 3 per cent. in a third year, and so on would seem the most appropriate way forward. I am not certain whether a separate order for each percentage increase would need to be introduced or whether an escalator could be introduced within the terms of the new clauses as they are set out.

I have raised a minor concern against the background of a warm welcome for the fact that we will now enshrine in statute the possibility of introducing an obligation. I believe that it is likely to be introduced shortly, bearing it in mind that an obligation working in the way that I have described would save about one third of the carbon dioxide emissions that are envisaged in the transport section of the climate change plan without having to put in place new infrastructure or to consider different forms of engine design or manufacture or development of supply at the pumps. I welcome the new clause and hope that, with the clarification that I have sought, it will be supported by the House.

Photo of Andrew Stunell Andrew Stunell Shadow Chief Whip (Commons), Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Chief Whip, Liberal Democrat Spokesperson (Environment, Food and Rural Affairs) 5:00 pm, 13th July 2004

The terms of the new clauses are substantial and very necessary, but I echo the comments made by Mr. Robertson when he said that they had been introduced at the last minute. It is a great pity that we did not have the opportunity to look at them in the detail from which they would have benefited.

We broadly support the intention in the new clause. Transport uses 25 per cent. of primary energy in the United Kingdom and there is plenty of scope for reducing carbon emissions in a pain-free way. We are not talking necessarily about restricting people's access to transport so much as giving them a carbon-free or, more accurately, a carbon-neutral source of energy. In so far as the fuel obligation can work towards achieving that, we welcome this mechanism.

However, the Government have introduced nine pages of new text that I suspect will translate into about 20 pages of Bill material. I was notified of it by a letter sent to me on 6 July. That act has cut out of the process the opportunity to raise a number of legitimate concerns and questions.

In common with a number of other hon. Members, I have received a briefing from British Sugar, which is one interested party. I do not know whether the points that it makes have legitimacy or not, but we have not had the opportunity to test them out or to allow the Minister to respond to them. Other possible consultees in the industry and those who would like to be part of that industry have been left out of the process. I have a concern about inserting such an amount of material into the Bill raw and unexamined. I hope that the Government will be open to further consideration in the Lords because there are obviously matters of detail, in some cases quite significant ones, that need to be sorted out.

British Sugar refers to the fact that any such fuel has to be derived wholly from biomass, which rules out any mixing procedure, which is often used when the product is used. Even at the most basic definition level there are serious questions to which I as a Member of Parliament do not know the answer and will not get the opportunity to test the Minister on.

On a slightly wider platform, we have an opportunity here to develop a new production industry in this country and contribute to creating a cleaner economy. Therefore, the foundations that we lay in the Bill are important to ensure that that is achievable. One of the issues is to what extent the raw product will be grown in this country. I made the point in Committee that at present much of the biomass material that is the subject of experiments by, for instance, the electricity generating industry is imported from overseas, primarily from tropical and sub-tropical countries, where growth rates are higher and labour costs are lower and, therefore, the material is more readily available.

The material does not primarily come from UK farming sources, and there are ways in which the amount that does come from such sources can be maximised. However, we need to be fully aware of the fact that such material comes from overseas at present. The largest producer of biofuel is Brazil. It is worth noting that the most efficient way of bringing the product to this country is not bringing the agricultural product here and processing it in this country, but processing it at the point of growth and importing the fuel. In terms of carbon reduction, I have no objection to that, but the Minister needs to recognise that it would not benefit UK agriculture or UK industry, either in producing the plant to do the processing or in providing the labour and investment for the processing to take place. That is not a reason to oppose the proposal, but it is a reason for taking time to think through the mechanics of the fiscal and regulatory system that the Minister intends to introduce, so that we do not face unintended consequences. We might reduce carbon emissions from vehicles but fail to maximise the economic and social benefits that might otherwise be available.

We will support the new clauses, but we are concerned by the lack of opportunity that the House has had to bring to bear its critical faculties—and that the industry has had to bring to bear its knowledge and experience—to improve the proposals.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

I am pleased that the new clauses have attracted the support that they have, although it is slightly churlish to complain that it has not been possible to consult as widely as might have been ideal, because the proposals were not in the Bill when it started its journey through Parliament. They have been added since, and much credit is due to officials for their efforts in providing a worked-up set of clauses to add to the Bill. Of course, we will need much consultation and discussion beyond this stage about how the framework will be put into practice.

Mr. Robertson is right to say that the new clauses contain a permissive power: the Secretary of State will not be required to introduce a scheme but may decide to do so following consultation. My hon. Friend Dr. Whitehead described a model for the obligation that sounded very similar to the renewables obligation, which has an increase each year and a future period during which the obligation applies. As I said in opening the debate, the clauses are closely modelled on the renewables obligation, so progress could be made on such a model using these clauses. We want to have a full discussion with the industry and others—including the association mentioned by the hon. Member for Tewkesbury, for example—to ensure that we get the details absolutely right before we decide whether to proceed. The new clauses would allow us to do that.

Mr. Stunell asked about biofuels produced using some fossil energy. We can address such details in secondary legislation, and we will consult on them, but in principle the clauses would allow blended biofuels of the kind that he mentioned. Time has been tight, but the benefit is that we have worked-up clauses that will, if we choose to do so, allow us to introduce an obligation for which I sense there is wide support on both sides of the House.

On the question put by Mr. Page about imports and domestically produced material, the answer will depend in part on how the obligation is framed. We shall certainly have to take account of that when we undertake the work, but the hon. Member for Hazel Grove is right: the main aim of the measure is to achieve carbon savings, whether the biofuels are made in this country or elsewhere. There could be a big prize for UK agriculture and industry, and if we decide to proceed I hope that we shall be able to realise it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.