Lord Hendy of Richmond Hill
That the Bill be now read a second time.
Scottish and Welsh legislative consent sought, Northern Ireland legislative consent granted.
The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)
My Lords, I am pleased to present the Sustainable Aviation Fuel Bill for Second Reading today. I welcome the right reverend Prelate the Bishop of Chester and congratulate him on his forthcoming maiden speech in your Lordships’ House today. I look forward to hearing his contribution to this important debate, and to his many contributions in the months and years ahead.
If we are to be an outward, confident trading nation that is connected to the world and leading the way on innovation, we must move as fast as we can towards a greener, cleaner future for flying. Domestic transport accounted for 29% of the UK’s greenhouse gas emissions in 2023. Aviation is currently the second largest contributor, and it faces unique barriers to decarbonisation. By 2040 it is set to overtake road vehicle use as transport’s largest emitter. SAF will be key to decarbonisation, a drop-in solution that can be used today in today’s aircraft with today’s infrastructure. SAF also has huge economic benefits for the wider low-carbon fuels industry, potentially supporting up to 15,000 jobs and contributing up to £5 billion to the economy by 2050.
SAF is not the only measure that we are supporting to address emissions in the aviation sector. The Government are supporting the development of more efficient and zero-emission aircraft technologies, and we have announced a further £1 billion of funding for the Aerospace Technology Institute to help to spur green aerospace innovation. The Civil Aviation Authority, supported by my department’s funding, is shaping regulations for zero-emission aircraft through its hydrogen challenge. Alongside that, we are advancing airspace modernisation to enable cleaner, quicker and quieter journeys. The Government are also establishing a UK airspace design service with the Civil Aviation Authority and the National Air Traffic Service, which are working together to launch this by the end of the year.
Turning to aviation fuel, the Government, alongside industry, are working collaboratively to ramp up the UK’s SAF industry. The UK stands at the forefront of global efforts to decarbonise aviation. When this Government came into power, we acted immediately by laying the statutory instrument for the SAF mandate, which came into force on 1 January this year. We have invested £63 million in 17 projects through the Advanced Fuels Fund, which will drive growth, support good jobs and deliver emissions reduction.
The revenue certainty mechanism introduced in the Bill is a scheme designed to support UK SAF production to drive growth and opportunity across the country. It addresses the lack of a clear and predictable market price for SAF, one of the biggest constraints on investment in UK SAF production. The RCM builds on the established precedent of contracts for difference in the renewables sector. Under the RCM, an SAF producer will enter into a private law contract with a government-owned counterparty that sets a guaranteed strike price for SAF. If SAF is sold for under that price, the counterparty will pay the difference to the producer. If SAF is sold above the price, the producer will pay the difference to the counterparty.
It is important to emphasise that no final decisions have been taken on how the strike price will be determined. The RCM contracts must set a strike price that finds a balance between securing the appropriate protection for the producer and its investors and providing value for money for the scheme and the wider sector. This is a new and emerging market. This will be the world’s first SAF RCM, and it will derisk SAF projects by addressing barriers to investment in a nascent market that is using innovative technologies. Like similar schemes in the low-carbon electricity sector, this will help to provide greater certainty of future revenue, help to attract investment in first-of-a-kind SAF plants, and support growth and opportunity across the country.
Turning to the SAF Bill, it has four key areas. First, it will enable the Secretary of State to designate a counterparty that is wholly owned by government. Secondly, the Secretary of State can direct the counterparty to enter into private law contracts with SAF producers, guaranteeing a price for the sale of eligible SAF over a period of time. The mechanism is there to support the development of a first-of-a-kind plant by increasing investor confidence. While first-of-a-kind plants are likely to be more expensive than future plants, supporting them allows future, cheaper plants to get constructed and start producing SAF. The contract allocation process will be designed to maximise competition, with all contracts to be underpinned by robust technical and commercial due diligence to ensure that successful projects represent value for money.
Thirdly, the Bill will enable the Secretary of State to make regulations imposing a levy on suppliers of aviation fuel in the UK, in order to fund the RCM. That will allow the counterparty to collect the levy to cover the costs of issuing payments under contracts that are administering the scheme. It is right that the costs of decarbonising air travel should at least be partially borne by the aviation sector rather than the taxpayer. We are levying aviation fuel suppliers because placing the levy higher up the supply chain spreads costs across the sector, and because aviation fuel suppliers will benefit from the greater volumes and lower prices for SAF that the RCM will create. The RCM will provide support only if SAF is actually being produced. If a project fails, there is no obligation on the Government to provide support. While novel technologies can have high failure rates, we can support multiple technology pathways to minimise risk and strengthen the UK’s project pipeline.
Fourthly, the Bill will enable the Secretary of State to enforce certain provisions imposing financial penalties. The Secretary of State may impose a financial penalty on a person who fails to comply with levy regulations, or with requirements under regulations made to ensure that any paid-out surplus is used to benefit fuel suppliers’ customers.
This is a comprehensive and focused Bill that lays the foundations for a thriving UK SAF industry by delivering investment certainty, cutting emissions and securing the long-term sustainability of the aviation industry. More SAF supply and lower prices are good for the aviation sector and, ultimately, for those who wish to fly. The Bill is an essential part of securing our world-class aviation sector’s future, and we want it to do that sustainably. I look forward to engaging with noble Lords on this legislation. I beg to move.
Lord Hendy of Richmond Hill (Lab)
My Lords, I thank all noble Lords who have engaged in today’s lively debate on the Bill. I have listened with much interest to the excellent points raised across your Lordships’ House, and I will now attempt to answer some of the questions. Of course, we can explore many of the issues in greater detail in Committee. In the meantime, I will follow up as soon as I can on some of the issues that I cannot answer now, but I am grateful for such wide, general cross-party support for this important measure.
First, I should compliment the right reverend Prelate the Bishop of Chester on his maiden speech. He said that sustainability matters; I am so glad that he did, and that he said it in English, because he might have been able to say it in Welsh and I would not have been able to respond. The Government and I are grateful for his support of a vital sustainability measure for air transport, which is essential for the nation’s wealth and defence. The only other thing I should say to the right reverend Prelate at this point is that I am sorry about his train service. I will speak to him separately about the trains to Chester.
As I said, I am grateful for the support of many noble Lords who have spoken. The noble Lord, Lord Davies of Gower, was supportive. The points that he and many others made and the questions he asked were all about making early progress. The Government are pursuing the Bill now, as we did with the SAF mandate, in order to get on and do this, because getting on and doing this is absolutely what we seek achieve. The noble Lord referred to the net effect of this on the price of airfares, as a number of other noble Lords have done. Our best estimate is plus or minus £1.50—we are confident on that—but I am happy to explore that further in Committee. We do not believe it is plus or minus £10. We believe that we have, at least for the moment, explored the cost that would fall on air passengers.
A number of points made by the noble Earl, Lord Russell, were about progress, and this Bill is evidence of the Government making progress. Like other noble Lords, he referred to the point of the first tranche and subsequent tranches. We of course need to move beyond HEFA feedstuffs, which is the point of the further tranches of the revenue support mechanism. The noble Earl also referred to the sustainability of UK plant, which is why the Government have put £63 million into the advanced fuel fund: for the very purpose of ensuring that there are plants in this country which can produce sustainable aviation fuel and that the plants themselves are sustainable.
The noble Lord, Lord Ravensdale, referred to competition in due course. The Bill includes the opportunity for the Secretary of State in due course to run tenders or auctions as a means of developing this market.
The noble Lord, Lord Raval, talked about waste and foodstuffs. We will, as we go through this Bill, have regard to its overall effect on the provision of sustainable aviation fuel.
I am grateful to the noble Lord, Lord Grayling, for his detailed and compelling speech on this subject and for his great interest. He talked about not allowing crops to be made into SAF. We have committed to publishing a call for evidence by the end of this year on the use of crops in the SAF mandate. The aim is to improve the evidence base on crop-based SAF production, following suggestions from some stakeholders that certain types of crops could be used to increase SAF supply without compromising our approach to sustainability. But we will get information provided through that call for evidence, and we will consider what we find out.
The noble Lord, Lord Grayling, referred particularly to the use of data and how the market price is determined. The counterparty will be responsible for determining the market and should do so by using data that suppliers submit to the SAF mandate reporting system. Our live consultation seeks views on whether the assessment period should use volume data from an earlier period, or—since he suggested that is not sensible—uses forecast volume data. We will have more discussion about that in due course, I am sure. He also made a very strong point about the support being used only for production in the United Kingdom. We intend to support only eligible SAF plants in the UK; I am sure we will discuss that further. It is a strong point and I will consider it as we get to Committee.
The noble Lord, Lord Berkeley, talked about cleaner skies and warmer homes. I am aware of the consultation on alternative heating solutions, and we are working with our colleagues in DESNZ to move those forward.
The noble Baroness, Lady Jones, does not agree with this at all. We have discussed the points she was making about aviation before. This is a move towards net zero. We are trying to make aviation more sustainable, as it is not going to stop overnight and is important for the economy of the country. The mandate will save some net additional 54 million tonnes of CO2. On the noble Baroness’s other point about frequent flyers, last year the Government altered air passenger duty which does have an effect on more frequent flyers.
I am grateful to the noble Lord, Lord Harper. He made some substantial points. The noble Lord referred to a flight that used 100% sustainable aviation fuel; I believe he was a passenger on it. If I may, I will try to respond in detail to the points that the noble Lord made before Committee stage.
The noble Viscount, Lord Trenchard, is perhaps not so supportive, though in the end I think he said he was. But what we are doing is important. We should be trying to move into a market that self-evidently can be a success for British industry, if we approach it properly. Government intervention, as justified by a number of noble Lords this afternoon, is the only way to do it. The noble Viscount is very sceptical of the effect on pricing for passengers; again, I have no doubt that we will discuss this in Committee and afterwards. Of course, he wants safety not to be compromised; none of us does. It is only right to point out that another noble Lord on his Benches was on a flight wholly powered by sustainable aviation fuel and I doubt whether the noble Lord would put himself at risk: I hope he would not. We are absolutely committed to safety. We are also committed to the fuel economy, which he mentioned.
The noble Lord, Lord Ravensdale, referred to nuclear and hydrogen power. The Government have clearly not set their mind against any solution. The significant funding put towards investing in technical solutions and the way in which the SAF process is being developed encourages other solutions and will encourage British industry to look particularly towards these solutions in the longer term. We will, of course, prioritise UK technology. This is the point and it is a good thing to do.
My noble friend Lord Hanworth is also probably not supportive—not because he does not agree with the general principle but because he somehow thinks, despite all we are doing to be at the forefront of global action, including the £63 million we are putting into the advanced fuels fund, that somehow this is not enough and that there should be some red-blooded approach. I contend that this is a pretty red-blooded approach from the Government. Significant sums of public money have been put into it, and we believe that it is the right thing to do.
The noble Baroness, Lady Bloomfield, referred to the nuclear option. SAF produced using nuclear energy is and will be eligible for the SAF mandate. We have provided funding to support the development of this technology through the grant funding programme of the advanced fuels fund. We are clearly on a journey and I note the noble Baroness’s proposition that it will need longer-term support. Although the Bill is limited to a term of 10 years, the support term is not so limited. I hope the noble Baroness will note that this is one of the reasons why.
The noble Baroness, Lady Pidgeon, made some strong points. As I have said, we are on a journey. In Committee, we can discuss the consistency of the trajectory of that journey with the EU and other countries that have set themselves different targets. Of course, it is not the only measure: zero-emission flying is and could not be just about SAF. To that end, we have talked about airspace modernisation, which is something the noble Baroness knows about. We have looked at funding of up to £2.3 billion over 10 years to extend the Aerospace Technology Institute which was announced in the modern industrial strategy in June to look at low-emission and zero-emission aircraft. We are looking at reducing aviation emissions through schemes such as the UK Emissions Trading Scheme on carbon pricing. We are also seeking to address the non-CO2 impacts of aviation. The noble Baroness is correct, of course, in looking at everything to do with carbon reduction in flying, not just aircraft fuel and technology but the operations surrounding aircraft. She mentioned the activities in that respect of DHL, which is a major user of aircraft.
Lastly, the noble Lord, Lord Moylan, for whom I have huge respect, appears to see a conspiracy between all the parties here to do something which he does not seem to support, which is to have an industrial policy that gives British industry the chance to develop something new in the world and to develop jobs and processes which will lead to a bigger economy. He is not in the same place as some of his colleagues on his own Benches on that and I think that he is wrong, because this is not only an industrial policy but a step towards net zero. He mentioned power-to-liquid, and we have invested in that in the advanced fuels fund. He asked a couple of very detailed questions about the World Trade Organization, and I would be delighted to write to him with the answers, supposing that I was unable to provide answers from the Dispatch Box just now.
Once again, I thank all noble Lords who participated in the debate today and I welcome the support of the many who spoke in favour of the Bill’s measures. The Bill will kick-start the UK SAF industry, attracting investment and creating jobs. By addressing the market and investment uncertainty in SAF production, it will enable the UK to lead the way to greener aviation. I beg to move.