UK: Agricultural Bulletin - A Briefing For Farmers And Land Agents. Good For The Environment?

Last Updated: 18 March 2008
Article by Susan Shaw

ENVIRONMENTAL INROADS - BIOFUELS NEED TO PROVE THEIR WORTH

With the start date of the RTFO just around the corner, the environmental impact of biofuels has come under the spotlight.

In April 2008, the Renewable Transport Fuel Obligation (RTFO) kicks into action. It aims to encourage mineral-oil fuel companies to incorporate biofuels into their road fuel sales.

The RTFO's target starts at 2.5% by volume, rising to 5% by volume by 2010/11. However, fuel companies are unlikely to blend this amount of biofuel into their petrol and diesel. As with the renewables obligation in the electricity sector, the closer a company gets to meeting the target, the lower the penalty per litre for missing it. On this basis, fuel companies will probably incorporate 1-2% in the first year.

Should the RTFO reach its 2010/11 target, the total reduction of greenhouse gas emissions from the UK would be less than 0.5%*. This means that for a 10 mile car journey, the impact is equivalent to parking 300 metres from the destination and walking the rest of the way.

Biofuels have provided a price bonanza for arable farmers since harvest and look likely to continue bolstering the grain and oilseed markets for a few years. But UK and European government policies are based on their reputed environmental credentials, not their impact on arable farmers' income.

Various key people and organisations have recently made announcements about the environmental impact of biofuels. None of these is entirely negative, but they all highlight how the credentials of different fuels vary wildly.

The Royal Society, the UK's leading scientific agency, agrees that biofuels can potentially contribute towards tackling the issues of greenhouse gas emissions. However, it noted that some fuels are more effective at this than others. New technologies should be accelerated and the Government should introduce policies that provide direct incentives for investing in the most efficient biofuels.

Stavros Dimas, European environment commissioner, acknowledged that it would be better for the European Union (EU) to miss its targets on the incorporation of biofuels into road transport fuel than to achieve them and harm the environment further. Mr Dimas suggested a clampdown on biodiesel produced from Indonesian palm oil and other areas where forests are being removed in favour of plantations. But the EU should continue to encourage any biofuels that could be proven to reduce environment, either directly or indirectly. This suggests that farmers supplying biofuel facilities would have to complete an audit trail and submit it with their tonnage.

The Commons Environmental Audit Committee made similar comments, stating that biofuels should be employed within an appropriate regulatory framework, using the technology with the best environmental credentials.

Since these announcements, the Renewable Fuels Agency (the Government body set up to implement the RTFO) has published its guidelines on what a biofuel supplier should do to report the sustainability of its fuels. The agency requires information on the origin of the feedstock, the greenhouse gas savings it thinks it makes and the production process of the fuels that enter the UK fuel market. More information is available at www.dft.gov.uk/rfa/index.cfm.

*Source: NFU and HGCA

RENEWABLE ENERGY - OPPORTUNITIES FOR GROWTH?

The growth of the renewable energy sector could provide forward-thinking farmers with ample opportunities.

Around the world, the renewable energy sector is growing in importance. As it develops, like all fledgling sectors, a number of growing pains invariably crop up along the way.

Government policies are becoming more refined and sophisticated to encourage the relevant sectors to meet targets or resolve national or European issues. For example, the European target for the UK to achieve 20% of energy from renewables by 2020 is much higher than the 2% currently achieved. And it is increasingly likely that the majority of this will be for electricity production; the UK will have to generate in excess of a third of its electricity from renewable sources by 2020, up from the present 5%.

In order to cope with target shortfalls, the EU plans to issue member states with credits so that they can trade in renewable energy. Thus, if the UK does not achieve its target but another country does, it can purchase credits from them. In fact, given this option, the UK will more than likely aim to achieve about 15% renewables, and purchase the balance in credits. This sounds like a cop-out, but if other countries are more suited to generate energy cheaply or easily from renewables, it makes sense that they specialise in it.

That said, the UK is blessed with natural resources that could make it a leader in renewables. It has simply lagged behind in exploiting them. Opportunities for UK farmers certainly exist and are likely to continue growing. Those with an ability to glance into the future could reap dividends by investigating the opportunities now.

New Policies For Age-Old Concept

Even though renewable energy has only recently picked up with a vengeance, it has been used on a local basis for many years. Wind has long been harnessed to power mills and wells, while anaerobic digestion tanks have been used to capture methane and sanitise sewage for several generations. Indeed, there is evidence of anaerobic digestion plants used to heat bath water in 10th century BC Assyria. Biofuel technology was even used to fuel military vehicles during the Second World War.

SQUEEZING THE BOTTOM LINE - INPUT COSTS

Recent increases in prices and demand threaten to pinch the financial returns of farmers.

Certain farm input costs continue to spiral upwards. This is taking some of the gloss off better prices in the cereals and milk sectors, and adding to the margin pressure in other sectors where there have not been significant price increases.

Animal feed prices are well documented. The uplift in cereals prices since the spring has been a prime factor, but the contribution of protein to animal diets should not be forgotten. As an example, soya prices have risen since last winter.

An oil price of around $100 per barrel directly feeds into higher tractor fuel prices. Duty rises on gas oil haven't helped. The rise in global energy costs is reflected in the price of fertiliser, as gas is a major feedstock for nitrogen production. Supply and demand imbalances are also driving up fertiliser costs. Higher grain prices have seen demand for the product surge, as a greater area is planted and producers chase extra yield. The US ethanol boom has also had an effect; American farmers have switched from growing soyabeans to growing maize, which increases the nitrogen requirement.

Unfortunately, the surge in demand has been met with static supply as there are obviously structural constraints to the speed at which the fertiliser industry can increase production. In fact, capacity has decreased over the past few years, at least in Europe. Although nitrogen prices have fluctuated in line with energy prices, the new factor this time is booming values for potassium and phospherous. Traders report phenomenal demand from China (much of which is being subsidised), as well as competition for petro-chemical feedstocks from the energy sector. Many merchants have been unable to supply fertiliser products until last month (February).

Although prices for cereals and dairy farms are looking much better than they did a year ago, these cost increases will take some of the shine off them. Indeed, many farms' financial returns may not be much better in 2007/08 than they were in 2006/07. Unfortunately, those parts of the industry that have not seen better prices (beef, sheep, pigs and vegetables) are being caught in a cost-price squeeze.

LATE STARTER - RURAL DEVELOPMENT KICKS INTO ACTION

The RDPE has finally been approved. But Defra's changes to the ESS and Energy Crops Scheme could affect growers in various ways.

In December 2007, the EU Commission approved the Rural Development Plan for England (RDPE) for 2007 to 2013. After all the delays, the launch of the programme will be almost exactly one year late. Under the RDPE, approximately £4bn will be available for rural support over the seven-year period. This is more than double the last period's amount, highlighting the Government's commitment to rural development.

However, as a condition of EU approval, the Department for Environment, Food and Rural Affairs (Defra) had to make changes to the Environmental Stewardship Scheme (ESS) and Energy Crops Scheme.

Adapted ESS

In order to secure the RDPE, Defra had to change the ESS in three ways.

  1. Points from the four Entry Level Stewardship (ELS) management plan options (soil, nutrient, manure and crop protection) will no longer count towards the 30 points per hectare target. The EU Commission concluded that land managers were effectively being paid for activities they should have been doing anyway.

    The nutrient and manure plans will soon be a formal requirement under the new Nitrate Vunerable Zone (NVZ) rules. The soil plan was deemed insufficiently different from the Soil Protection Review under cross-compliance, and the Crop Protection plan gave points for something that should be done under good spraying practice.

    It is certainly true that some applicants picked up these points without a great deal of difficulty (although it did force others to think about these issues in more detail). What is likely to anger farmers and their advisers is the retrospective nature of these changes.

    The change in arable prices, coupled with the tightened regulations to achieve the ELS points level, might make the ELS look less inspiring than before.

  2. Defra has incorporated the new NVZ rules into new ELS and Higher Level Stewardship (HLS) agreements.

    The addition of the NVZ rules to ESS agreements only applies to applicants in the current NVZs. Only the 170kg/ha manure limit, crop nitrogen limit, spreading practices and record-keeping provisions apply as, under the NVZ rules, the other parts have a grace period before they come into force. For example, the closed periods (and storage requirements) do not apply until two years after the regulations are enacted. Any new NVZ areas only have one year's grace to comply. Therefore, these parts cannot be applied immediately.

  3. Defra will now review agreements that run beyond 2015 in 2012; a clause to this effect will be included in the agreements.

These ESS rule changes only apply to schemes entered into since the start of the new rural development programme period, which was 1 January 2007. ELS, Organic Entry Level Stewardship and HLS agreements with a start date prior to 1 February 2007 won't be affected.

Energy Crops Scheme

Defra also had to amend the planting grants for Short Rotation Coppice (SRC) and Miscanthus. Unlike the previous scheme, there will not be a fixed per hectare grant rate for each crop. Instead, scheme applicants will have to submit invoices showing their actual costs. Grant aid will be paid at 40% of the actual expenditure.

As part of the application process, growers will need to provide estimates of likely costs. If these estimates are consistent with an independent verification of typical costs, the application will be accepted on a single quote. Where estimated costs are greater than the independent verification, applicants will have to provide written evidence to explain the variation, which may involve getting further quotes. More details are available at www.naturalengland.org.uk/planning/grants-funding/energy-crops/default.htm.

Furthermore, Defra also added some other traditional species, alongside the poplar and willow, to the list of trees eligible for the SRC grant. These are ash, alder, hazel, silver birch, sycamore, sweet chestnut and lime. The rules on distance to the end-user are likely to be amended for 2009 plantings. Rather than being based on a simple distance measure, applications will be judged on a carbon balance calculation.

Bio-Energy

As well as planting grants, those looking to fund bio-energy projects may be able to tap into capital grant funding from the Regional Development Agencies. Furthermore, two sector-specific national schemes will be launched sometime in early 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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