Draft Green Gas Support Scheme Regulations 2021
(2 years, 5 months ago)
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The Chair
Before we begin, I encourage Members to wear a mask when they are not speaking, in line with the current Government guidance and that of the House of Commons Commission. Please give one another and members of staff space when seated and when entering and leaving the room. Members should send their speaking notes by email to hansardnotes@parliament.uk. Officials should communicate electronically with Ministers.
The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)
I beg to move,
That the Committee has considered the draft Green Gas Support Scheme Regulations 2021.
It is a pleasure to serve under your chairmanship, Mr Robertson. Since the draft statutory instrument was laid before Parliament on 9 September 2021, a minor correction has been made to the explanatory note, to highlight the fact that the scheme ends in March 2041, not as previously stated in March 2040.
The UK, as we know, is the first major economy in the world to set a legally binding target to achieve net zero greenhouse gas emissions by 2050. Between 1990 and 2019, our emissions decreased by 44%, the fastest reduction in the G7, and we continue to advance sustainability through the Prime Minister’s 10-point plan for a green industrial revolution, the net zero strategy and, most relevant to this policy, the heat and buildings strategy, which was released last month.
The heating of our homes, businesses and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets, requiring virtually all heat and buildings to be decarbonised. Increasing the proportion of green gas in the grid is a practical, established and cost-effective way of reducing carbon emissions and contributing to the UK’s net zero target, lowering carbon emissions from both domestic and industrial gas boiler use.
The green gas support scheme is a Great Britain-wide tariff-based scheme supporting new biomethane plants that inject biomethane produced by anaerobic digestion into the gas grid. It is expected to contribute 3.7 million tonnes of carbon dioxide equivalent of carbon savings over the fourth and fifth carbon budgets, and 8.2 million tonnes of CO2 equivalent of carbon savings over the lifetime of the scheme. That is equivalent to taking approximately 3.6 million cars off the road for a year.
The green gas support scheme is expected to help to support high-quality jobs in the renewable energy sector at a time when economic recovery is important to us all. It is anticipated that when taking into account both direct and indirect jobs, the green gas support scheme could support up to 1,600 jobs per annum during the construction phase of the plants and up to 1,000 jobs once plants are operational.
Our analysis suggests that more than two thirds of existing biomethane plants are located in rural areas, with 80% of all British plants located in areas with a lower-than-average gross value added—in other words, in more economically deprived parts of the country. We expect plants supported by the scheme to follow a similar trend, therefore contributing to the Government’s levelling-up agenda.
The Government believe it is appropriate for gas consumers to pay towards decarbonising the gas grid and have taken the decision to fund the green gas support scheme through a levy. The levy will be the sole funding source for the GGSS, and will be applied to all licenced fossil-fuel gas suppliers. The Government acknowledge the impact of rising gas prices on consumer energy bills at present. We are implementing stringent budget control measures to ensure that costs of the levy are as low as possible and cannot rise unexpectedly. The cost to an annual gas bill will be relatively low, starting at about £2.50 per annum and peaking at about £4.70 in 2028 on an average gas bill, assuming a transition to a volumetric levy.
During peak years of production, biomethane plants incentivised by the green gas support scheme will produce enough green gas to heat about 200,000 homes, which would otherwise have been heated by natural gas. While launching with a per meter point levy that provides a high certainty of costs to suppliers and consumers, the Government recognise the benefits of a volumetric levy that aligns costs more closely to gas consumption. We have committed to transition to a volumetric levy as soon as possible, subject to overcoming feasibility issues, including the impact on energy intensive industries and other important UK industries.
In conclusion, the scheme established by this draft statutory instrument will support ongoing investment in the biomethane industry and enable the development of new production plants for the injection of biomethane into the gas grid. In supporting this investment in new anaerobic digestion capacity, we expect to support more jobs, growth and innovation in the biomethane industry, while delivering important carbon savings, which are a vital part of meeting our net zero targets.
Dr Alan Whitehead (Southampton, Test) (Lab)
The subject that we are
talking about this morning is, as the Minister mentioned, green gas and how we can best incentivise the processes by which it is produced, which is primarily anaerobic digestion. He mentioned that biogas plants and biomethane plants are predominantly situated in rural areas. Indeed, a fair amount of the biogas produced in this country essentially comes from farm AD plants. Those who follow “The Archers” will remember the considerable controversy about a biogas plant around the village. Essentially, it is an arrangement whereby waste—farm waste, food waste and a number of other processes—can contribute through a biodigestion process, which does not involve burning or emissions in the sense that incineration has previously, and can be converted into biogas, which can, under many circumstances, be injected into the system.
As part of my exciting life as shadow energy Minister, I visited a large anaerobic digestion plant near Poundbury that has for a number of years very successfully processed food waste particularly and crop waste, which I will come on to in a moment, into biogas, which is then injected into the system, initially around Poundbury but covering quite a lot of the grid on a good day. The system works really well and, as the Minister said, produces substantial carbon savings by the process of injecting biogas into the system, thereby replacing the gas that is going into it at the moment. I therefore thoroughly endorse the intention behind the green gas support scheme, designed to bring on further those anaerobic digestion plants, which can substantially replace elements of our gas distribution system by the process that I described.
I do not have many criticisms of how the scheme has been set up, save for two potentially important ones. The scheme is set to last, as the Minister said, until March 2041, and the individual support that it will produce will be for 15 years, so the producers will have a good line of support in green gas plants as they build them and production gets under way. However, as he also mentioned, that is being underpinned by what we might say is yet another levy. The Minister mentions that the cost of the levy will be perhaps £2.50 a year on gas bills. This is a gas bill levy for green gas production, which sounds a fairly neat connection, but in practice the vast majority of bill payers pay a dual fuel tariff for energy, so in that instance, a levy is a levy is a levy; it will go on that dual fuel bill in exactly the same way as the substantial levies that are already on electricity bills.
I understand that the Government are considering a migration of levies from electricity bills to gas, but this is not a migratory levy; it is a new levy. Some while ago, the Government told me that that would not happen—there would be no new levies. Indeed, I have had some fairly arcane discussions in Committees and elsewhere about what is a new levy and what is not. The principle that we should not continue to put levies on customer bills as a way of funding new schemes was reasonably well established in those discussions. However, here we have a new levy. By the way, this afternoon, as I am sure the Minister is absolutely aware, we will discuss a possible further substantial levy for new nuclear build. We have a situation in which levies on customer bills are pretty substantial. I appreciate the Minister stating that this is not what he might call a serious and heavy levy, but it nevertheless represents a not insubstantial increase on customer bills over the period.
The previous support scheme—the non-domestic renewable heat incentive—which at least to some extent supported anaerobic digestion production was not a levy; it was funded from general taxation. I would be grateful if the Minister briefly expanded on the decision to make this transfer from general taxation, as was the case for the renewable heat incentive, to the levy that we are discussing. On reflection, the Minister might consider that, certainly in the long term, this scheme might be best funded through general taxation, rather than continuing with the levy.
My second question for the Minister is rather more detailed and relates to the purpose of the levy, which is to produce biomethane for injection into the grid. The explanatory notes for the draft regulations state that support payments will only be made for biomethane injected into the grid. That sounds fairly straightforward, but we need to reflect on two things. First, biomethane does not necessarily go exclusively into the grid. That is a substantial part of its purpose, but it has a number of other destinations as well. Biomethane can and is being used to fuel gas engines for district heating schemes as a replacement for the gas going into the engine, so the replacement arrangement is exactly the same as if that green gas went into the grid, but it is going into a mini-grid, as far as district heating is concerned.
There are a number of instances whereby methane is being used on-plant for purposes related to industrial commercial activity. Near my constituency, there is a biomethane plant that is associated with a water company’s sewage treatment arrangements, which produce biomethane that is used in the plant to continue the water company’s activities. As the Minister will know, the gas grid by no means covers the whole country. There are a substantial number of properties that are off grid and there is certainly the beginning of an industry where biomethane can be supplied as a replacement for tanked or bottled gas going into those properties for heating purposes.
Important as those categories are for reducing carbon emissions, driving out traditional gas and replacing it with low-carbon gas in exactly the way the scheme intends, none of them would, in my understanding, qualify for support because of the suggestion in the guidance that only direct injection to the grid would qualify for support. Can the Minister reflect on that and let me know whether he is prepared to consider—not necessarily today but for the future—a review of those arrangements so that where biogas is being produced and is not necessarily going into the gas grid, it can nevertheless remain supported or be supported? I think we can all agree that the direction of the biomethane is essentially the same. It is a scheme that undertakes reduction of emissions through biogas production in substitution of gas.
Jerome Mayhew (Broadland) (Con)
In support of that latter argument, I draw attention to British Sugar’s Cantley factory for sugar-beet processing in my constituency, which wants to put in an anaerobic digester. It is on the gas grid but it is a mile away from the main pipe. It is currently faced with the prospect of building a new pipe for a mile to connect the anaerobic digester to the grid, then take it back off the grid a hundred yards further down the pipe and bring it a mile back to the factory.
Dr Whitehead
The hon. Member emphasises the point that I was making, which is that quite a lot of biomethane production cannot easily be categorised as simply going into the grid. He has given a good example near his constituency, which substantially underlines my point.
The other matter that I want to raise briefly is the definition of feedstock for anaerobic digestion plants. According to the guidance notes, biomethane producers will be required to produce
“at least 50% of their biomethane from waste or residue feedstock.”
I assume that that means primarily food waste, but also farm waste and other residues. However, as I am sure the Minister understands, it is a little difficult accurately to determine what is and is not waste in relation to those categories. For example, I assume that forest trimmings, which can be used in certain circumstances for biomethane production, would be regarded as waste, but chopped-up wood would not be regarded as waste. Food waste, as the Minister will know, can be categorised both as proper food waste and as food waste that actually has not been used for food production but could quite well be used for food production in different circumstances. Therefore I wonder whether the Minister is satisfied that the definitions that there are in the scheme adequately determine what is and is not waste in relation to the 50% requirement.
I support the 50% requirement, because we do not want to see crops that could go into other activities being used to feed biodigestion either because the supply of waste is not good enough or just because people want to put the crops into the biodigester as an easy way of producing bioenergy, at the expense of feedstock that could be used for other purposes. It is a question of ensuring that the scheme is as well defined as it can be. I wonder whether the Minister has any comments to make on that in order to ensure that we get off to the best start possible with the scheme.
Other than having those hopefully brief and not very taxing questions, the Opposition support the green gas support scheme and we support that scheme starting as soon as possible in order to ensure that biodigestion takes its proper place in the panoply of measures that can lead us towards net zero in a coherent way.
Greg Hands
First, I thank the hon. Member for Southampton, Test, speaking on behalf of the official Opposition, for his support for the measures before us today. That is very welcome. The measures will make a real difference in greening the gas grid. He asked a number of important and pertinent questions, which I will seek to answer briefly in my response. I think he said that the digestion plant he visited was in or near Poundbury. I must say I am looking forward to making a similar visit in due course to see it in action.
The hon. Gentleman had three broad areas of questions: first, about the levy itself; secondly, about off-grid properties; and thirdly, about the definition for what would be permissible in this scheme. Let me deal with the first one—the point about another levy. He is right, of course. There are a number of other levies at present, but that is why we are launching a fairness and affordability call for evidence on levies, on options for energy levies and obligations to help rebalance prices and to support green choices, with a view to taking decisions in 2022. I will say that this particular levy has been very well telegraphed in advance. We consulted on this levy in October 2020 and we published the Government response in March 2021, so this levy and its introduction have been well telegraphed, both to consumers and to the market, in advance. I remind the hon. Gentleman that the average bill starts at an increase of about £2.50, rising, we think, to approximately £4.70 by 2028, by which time we think a volumetric approach to the levy will have taken effect in any case.
The hon. Gentleman asked some questions about off-grid properties, and I will make three points on those. The objective of the green gas support scheme is to green the gas grid—let us not get too far away from the purpose of our discussions. Of course, if payments were made for off-grid solutions, bill payers would be paying for renewable gas from which they or the gas suppliers would never directly benefit, so there would be an equity issue for those on whom the levy is being placed.
We announced last month, alongside the heat and buildings strategy, two further consultations setting out proposals to phase out the installation of high-carbon fossil fuel systems off the gas grid—those that are not current on the gas grid—during the 2020s. Both consultations close in January 2022, so I urge the hon. Gentleman to look at the consultation documents on how we might approach properties that are off the gas grid.
My hon. Friend the Member for Broadland ably made the point about the practicalities for those who are partially on or near the gas grid but do not actually benefit. There will be benefit, in those consultations, in looking at cases such as those that he mentioned from his constituency.
On the definition of feedstocks for anaerobic digestion plants, using waste feedstocks can of course contribute to carbon savings and a circular economy. In the light of the uncertainty around food waste availability, a higher threshold could have negative impacts on plant deployment and encourage unintended competition within the anaerobic digestion industry. Importantly, however, we will undertake a mid-scheme review in 2023 to review the waste feedstock threshold. All the decisions that we have today on how the levy will work, and what is applicable and what qualifies, will be subject to that mid-scheme review.
I thank the hon. Member for Southampton, Test and my hon. Friend the Member for Broadland for their contributions, and other Members for being here to debate this important issue. To meet net zero, virtually all heat in buildings will need to be decarbonised. Moving away from burning fossil fuels for heating presents enormous opportunities for jobs, growth and levelling up.
The scheme will help to meet commitments made in the 2019 spring statement and the 2020 Budget to increase the proportion of green gas in the grid. It will promote a circular economy by encouraging the use of domestic and industrial food waste to heat our homes and businesses, and it will contribute to achieving short-term carbon budgets in our broader target of net zero emissions by 2050. Additionally, the scheme will support high-quality jobs in the renewable energy sector, as well the development of the diversification of the rural economy, in line with the Government’s overall agenda.
Question put and agreed to.