Promotion of the Use of Biofuelsin Road Transport

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The two Departments seek to do slightly different but complementary things. We must work under strict rules for the purposes of tax, whether we are dealing with a reduction in duty, capital allowances or research and development. We must also have definitions for operating that make it possible sensibly to apply the assessments of the fuels without huge burdens. That is a slightly different test to the quality test for a fuel for wider purposes.

The Government are balancing several issues within the complete perspective, which includes environment and climate change, and are seeking to make progress. I understand the hon. Gentleman's frustrations, which I share, but we can progress in a logical way that does not cause problems within the framework of other rules or lead to a challenge by those who feel that we are creating unfair competition. Other fuel producers might challenge us on that issue.

The interaction of tax and standards is complicated, but we are achieving the right balance.

Lawrie Quinn: I listened carefully to the opening remarks of the Under-Secretary on road haulage, which is an important industry. What contact has his Department made, not only with the road haulage industry but with the important public transport

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sector, particularly the bus operators and the manufacturers of their vehicles?

Mr. Jamieson: My hon. Friend raises an important point. We have regular discussions with the road haulage and bus industries, because these matters impact on them. We are trying to incentivise them to do a number of things, including making better and cleaner use of existing vehicles. The modernisation fund was for particulate traps, and to encourage better use of vehicles. We have had a lot of discussions about ensuring that vehicles travel on routes where they are more efficient as well as about the content of their fuel. A great deal is going on because they are important contributors.

We cannot escape the fact that we are setting down the standards for fuels—we are aiming for a lower carbon future. With regard to the directives, we are trying to avoid the overprescriptive model that could inhibit the indicative targets that we should prefer.

Matthew Green: I am delighted that there are Ministers here from two Departments. However, there should really be a third, from the Department for Environment, Food and Rural Affairs, because the source of most biofuels is agricultural land. I take the Minister's point that if large amounts of fertiliser are used to grow a crop, the environmental advantages might well be outweighed by the disadvantages. What discussions have taken place with DEFRA about the fact that, as subsidies move from direct production to more agrienvironmental land management, non-fertiliser-promoted biofuels would be an area to which such subsidies could be directed? I hope that the Ministers will be able to fill us in on their discussions with DEFRA on the matter.

Mr. Jamieson: Far be it from me to wish a third Minister into this debate. Having two is one thing; three would be another. We are in close communication with DEFRA and with the Department of Trade and Industry—we could have had a fourth Minister here—and the "Powering Future Vehicles" document was a joint enterprise between our Departments. Although each Department has its priorities, we co-operate closely on these matters. We have, possibly for the first time, a joined-up approach to the issues, and a high degree of agreement on them.

Mr. Pickles: I want to return to the matter of LPG. It introduces some interesting points, which I shall raise later. The Under-Secretary rightly talked about various incentives that are available. As I have written to him and tabled several parliamentary questions on the matter, he will know that my concern is the LPG restriction on vehicles going through the channel tunnel. On several occasions, his predecessors have said that they are actively pursuing the matter. If there is one block to further development of LPG, it is not allowing LPG cars through the tunnel. I can think of no reason why that should be; it restricts vehicles from continental Europe, where there is ample supply of LPG, and

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will send out a signal that LPG is an unstable fuel, and that is not the case.

Mr. Jamieson: If we go too far down that path and through the tunnel with the hon. Gentleman, you will probably call us to order, Mr. Benton, but the hon. Gentleman makes an important point. I accept that the signal given out by the fact that LPG cars are not allowed to use the tunnel is not a healthy one for promoting that part of the industry. However, I assure the hon. Gentleman that we are making the appropriate moves to see what can be done to make the appropriate changes.

Norman Lamb: May I press the Under-Secretary a little further on his previous answer to me? I fully understand that in seeking to improve environmental policy we must also ensure that we stick to the tax rules imposed from Europe. However, as I understand it, Germany and Austria have a nil tax rate on biodiesel and France has a variable arrangement, but they have still made significant increased reductions compared with the UK. If it is possible for those countries to achieve that, and for Germany to achieve a substantial level of crop production for biodiesel along the way, why cannot we do that within the same regulatory framework?

Dawn Primarolo: I thought that the Under-Secretary had already answered that question, so I will try to put the information in a slightly different way.

Mr. Jamieson: In a Treasury way.

Dawn Primarolo: I will not be tempted down that route.

The Government recognise that the production of biodiesel can provide useful greenhouse gas emission savings relative to mineral diesels, but that cannot be done at any cost. The contributory factors that need to be taken into account in considering the manufacturing of what I shall call for want of a better word alternative fuels, have been cited by my hon. Friend: water quality requirements, biodiversity, land prices, opportunity and the cost of producing that fuel vis-aš-vis the gain. Therefore, it is impossible to make a direct comparison with every other member country. For example, land values vary considerably. The Government's climate change programme emphasises the need to consider cost-effective measures and to ensure that the cost is not disproportionate. That must be done if we are to develop a truly competitive industry. In fact, the environmental statement published by the Treasury in 1997—I think that was part of our first Budget—sets out those principles, which are exactly the principles expanded on by my hon. Friend this morning.

It is tempting to try to compare things that are not similar, and to claim that they are similar and would have a similar outcome, but, unfortunately, that is not possible in this case. However, the hon. Gentleman's point is well taken by the Committee and the Government. We must make progress with

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the work that we are doing to ensure the cost-effective development of those fuels and their speedy introduction. That is being done in the pilot projects that are being conducted as part of the green fuels challenge.

We must consider other demands. I was up early enough this morning to hear "Farming Today", although I do not usually listen to that programme. There was an interesting discussion about energy production and willow power stations. The programme said that the latest station had been confirmed and is to be built. That raised the question of the ability to grow enough willow near to the power station to ensure that it does not have to be transported across the country, defeating the aim of such power stations. We should not view the capacities that the hon. Gentleman rightly focuses on simply in narrow terms of fuel—although that is very important—but in terms of the whole Government strategy on energy use. We should consider how we can balance them. That is what we are seeking to do, and I am sure that the hon. Gentleman will continue to push us on it.

Lawrie Quinn: I am pleased to hear such a well-argued exposeš of sustainability made from the Treasury Bench. In my previous life, before entering the House, I worked as a civil engineer in the railway industry. One blight on my job was working in and around railway marshalling yards, where there was much contamination caused by diesel used by smelly, leaky locomotives. The communication, to use the Under-Secretary's term, under paragraph 5.42 contains an interesting section concerning groundwater contamination through the use of biofuel technology. Will he confirm whether any further work has been done on the necessary risk assessment, particularly in relation to the storage facilities for such fuels, and say how that would apply to current regulations for transport undertakers such as the railway industry?

Mr. Jamieson: My hon. Friend, as always, makes a significant point. Some work has been done on the potential leakage of such fuels into watercourses and the potential extra risk that they might pose. I am happy to drop him a line, setting out some of the information that I do not have at my fingertips. He raises an important subsidiary aspect.

Also, in terms of railway engines, biodiesel would probably not give much advantage at the point of use. That is often the complaint in railway stations and marshalling yards, where there is considerable pollution at the point of use. Unfortunately, biofuels do not bring much comfort on that score, but engine technology does. Such technology has moved on hugely in recent years and, as new rolling stock is introduced, some of the problems that my hon. Friend refers to will be substantially reduced. I shall jot him a line about our knowledge of and information on the potential leakage of biofuels into the water table.

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Matthew Green: I may be a little slow this morning, but I am baffled by the Paymaster General's two attempts to answer the questions of my hon. Friend the Member for North Norfolk. I would like to tease out two areas. The Paymaster General said that the possible reduction in fuel duty for biofuels could be regarded as breaking the state aid rules. I am completely confused by that. In what other areas would a reduction in tax be seen as breaking those rules?

Secondly, the Paymaster General seems to be implying that because the cost of production in the UK might differ from that in Germany, perhaps due to land values in this country, we should have a different fuel duty rate. I did not know that fuel duty rates were related to the cost of production; I thought that that was a matter of competitiveness between companies.

Dawn Primarolo: Oh, deary me. I do not think that now is the time for a lesson in economics and competition. The state aid rules cover circumstances in which a country is seen to provide a company with an unfair subsidy on the production of anything, to give it an advantageous market position. That may be direct grant or forgoing tax. The rules have been in place since the EU was formed, when it was called the Common Market, and they involve competition across member states. We required state aid clearance before we could introduce the climate change levy and some exceptions to it, and there are many other examples.

The reason for that is that if competition is to operate it must do so fairly, and the Commission takes a strict line on what it considers to be overcompensation. The hon. Members for North Norfolk and for Ludlow (Matthew Green) argue that the Government should pay direct subsidy to the production of certain fuels, by grant or tax relief, and that, to establish that such support is proportionate, they should demonstrate that the costs are not greater than the benefits of the development. Such straight cost-benefit analysis is simple, and that is how member states should operate.

However, the hon. Member for Ludlow could have gone on to say that the 15 economies all work in slightly different ways, which is true. The UK financial industry does much better than that of any other member state, for many and varied reasons, and huge rule changes and a great deal of movement would be required to enable another member state to develop a financial industry on a par with ours. There are other examples, such as member states choosing to raise their taxes in different ways, given what their populations are prepared to pay tax on.

So, the hon. Gentleman suggests that there is a level playing field across Europe, but there is not. Although he argues for something that he claims is environmentally friendly, by focusing on the one issue he seeks to side step, adding to the equation the question whether our investment in developing environmentally friendly options is

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disproportionately great. That would mean that the costs to the environment were greater elsewhere.

The Government have to consider how fuels for vehicles, energy production and our approach to biodiversity, air quality and water quality fit together at every point. We must ensure that we produce cost-effective and sustainable alternatives, because sustainability is supposed to be the foundation of any benefit to the environment.

Mr. Mark Francois (Rayleigh): I listened carefully to the Paymaster General's remarks about the European Commission's power to affect our taxation on competition grounds. So that there is complete clarity, will she reiterate that it could have power over levels of taxation in our country under existing statutes? The Government frequently argue that Europe will not be able to interfere in our taxation, so the question has implications for other matters, not least the single currency.

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