Written evidence submitted by ADBA – (DUE0014)
Introduction
The Anaerobic Digestion and Bioresources Association (ADBA) is the trade association that represents the range of interests and matters related to the anaerobic digestion of organic materials (AD) across the UK, including the collection of waste for use as feedstock. ADBA understands the complex range of skills required by developers of new AD plants, from feedstock management through technology to energy production, markets and resource to land.
The organisation has over 400 members from across the AD industry, including plant operators and developers, farmers, local authorities, waste management companies, supermarkets, food processors, energy and water companies, equipment manufacturers and suppliers, consultants, financiers and supporting service companies. Anaerobic digestion can make a significant contribution to the green economy, renewable energy, preventing climate change, and critical resource preservation targets, subject to the right policies being in place. We will use this inquiry to answer the questions which highlight how AD can contribute to decarbonisation of the UK economy.
What Can AD deliver for the Government?
There are currently 648 AD plants operating across UK with capacity to power 1.2 million homes - equivalent to powering homes in a city three times the size of Birmingham – and we’re expecting to break the 650 plant milestone very soon. AD offers an excellent return on the government’s investment, but given AD’s multiple benefits, this will require cross-Departmental coordination as detailed in our response below. This return includes:
Cost effective carbon abatement
AD is reducing greenhouse gas emissions by over 1% per annum, thereby preventing the loss of 14 square kilometres of Arctic summer sea ice every year. But all of this is just a fraction of what AD could deliver with the right support. If the UK AD industry was to reach its full potential, it could reduce UK emissions by around 5%. This is achieved by replacing carbon-intensive artificial fertilisers with organic digestate, processing slurries, food waste and manures that would otherwise break down in an open environment, along with sewage, and the production of biogas.
Energy security from domestic green electricity
Biogas is good for UK energy security. It is home made, and supplies are constant and reliable. AD is delivering home grown green electricity now and can continue to do so. AD can contribute to energy security by delivering around 30% of domestic household electricity demand, reducing imports and curbing carbon emissions.
Economic productivity and global competitiveness
The AD sector has the potential to employ over 30,000 more people, many in rural areas and manufacturing jobs, and is therefore worth protecting. A thriving UK sector can export to the world – the global AD market is growing and has the potential to reduce greenhouse gas emissions by 13% worldwide. BSI and HSE standards are sold and adopted abroad providing the opportunity to pull through the UK AD supply chain which has developed over the last 5 years.
Strengthening the Rural Economy
Recycling organics through AD also improves Britain’s soils, as the digestate is a nutrient-rich fertiliser. The poor quality of our soil is costing the UK £1.4bn a year according to recent Parliamentary Office of Science and Technology estimates. Integrated into farming, AD also helps stabilise farming businesses, improving their ability to withstand fluctuations in global commodity markets. It also provides an opportunity to support farmers post Brexit.
Meeting recycling targets
AD is currently recycling 2.5 mt of food waste, contributing over 6% of renewable heat generated in the UK, & has capacity to fuel 80% of the UK's entire bus fleet. If separate food waste collections are implemented effectively, AD could recycle 6 million tonnes of food waste, the equivalent in emissions savings of taking over a million cars off the road for a year.
Terms of Reference
The economic opportunity
Decarbonisation presents a significant opportunity for the UK economy. Since the Climate Change Act in 2008, our carbon emissions have been reduced while the economy has grown in size. Since 1990, the British economy has grown 72%, while its greenhouse gas emissions have reduced by 42%. This proves that it is possible to have sustained economic growth while improving our climate. For example, the IPPR think tank has published a report stating that as we move towards decarbonisation, 46,000 new green jobs could be created in the north of England alone by 2030.
Anaerobic digestion has made a notable contribution to this positive story. Over the past ten years the UK AD industry has built almost 650 plants, producing 11 terrawatt hours of renewable energy and saving 4.77mt million tonnes of CO2-equivalent. UK AD now has a capacity of over 1 gigawatt electrical-equivalent, enough to power more than 1.2 million homes, and is employing 3,500 people and reducing UK greenhouse gas emissions by over 1% every year.
A key consideration for encouraging emissions reduction is that carbon is not effectively valued at the present time. This means that the incentives are not in place to effectively de-carbonise, especially in hard-to-reach sectors such as agriculture. AD has huge potential for decarbonisation by preventing methane emissions from organics breaking down, tackling for example, 90MT of untreated manure, but in terms of energy production this provides a lower return on investment as manures have already been digested and thus have lower energy content than, for example, food waste. The incentives need to be restructured so that value is placed on the decarbonisation potential of the technology as well as its ability to generate green energy.
2. What benefits can a growth of the Green Finance sector deliver for the UK, and does the UK hold a competitive advantage in this space?
Increasing investment into the Green Finance sector offers huge opportunities for the UK. It will be critical to the success of achieving the government’s commitment to reach net zero by 2050, while also helping to secure jobs and economic growth.
With one of the leading financial sectors in the world and billions of available debt looking for stable, sustainable returns, the UK – and the AD industry - has the opportunity to become the driving force behind Green Finance. Worldwide, the AD sector has the opportunity to contribute to a potential £1 trillion market, boosting our domestic supply chain. The DFID budget, provided by the Treasury, can help us decarbonise around the world.
The UK has the expertise in both finance and bioenergy production and now need to work together, with the government’s support to ensure that we remain at the forefront of the sector. To remain competitive, its vital that finance providers completely understand the specialist demands of the industry.
3. How might HMT deliver a regionally balanced and just transition across the UK?
The Treasury sits at the nexus of Government, making decisions over the funding and direction of all other Government departments. As such, the Treasury can help ensure that cross-Departmental legislation is piloted in a way that delivers for the whole country – importantly for AD this includes rural areas and all the regions.
For example, on-farm AD has the highest sector-growth potential. It can significantly decarbonise UK agriculture, contributing to the NFU’s target to achieve net zero emissions in agriculture by 2040, whilst providing new income for farmers. By processing waste (notably food waste, slurries/manures and other farm wastes) turning it into clean energy and bio-fertilisers, AD can also support the development of a circular economy that both farmers and the general public can fully engage with. On the back of the recent Committee on Climate Change report and as one of the most immediate measures it could assist with, we would encourage the Treasury to encourage progress on the Agriculture Bill as soon as possible, with recognition of AD included in its system of “payments for public goods”, and to continue to support local authorities with the implementation of separate food waste collections by 2023 at the latest.
The Treasury has an important role to play here by pledging to provide the funding necessary to fully implement these policy proposals and using its ‘clout’ to act as facilitator between the different Departments necessary for these policies to work to their fullest effect (DEFRA, DCHLG, DEFRA, BEIS). This would ensure that separate food waste collections are efficiently rolled out across the UK, helping to reduce our carbon emissions in towns, cities and the countryside. This would help ensure a ‘just’ transition by creating more jobs in the recycling sector, ensuring that all people have access to high quality waste services, and improving air quality and cutting methane emissions by removing food waste from landfill and incinerators, instead producing green gas and organic fertiliser via AD.
HMT’s strategy
4. What is HMT’s current strategy, and approach to, UK decarbonisation, and is it fit for purpose?
ADBA believes that the whole Government, including the Treasury, needs to go further and faster to implement decarbonisation in the UK, as the most recent report from the Committee on Climate Change highlights– AD is also specifically mentioned as a ‘low regret option’. This potential is also recognised by the National Grid Energy Scenarios and the Energy Networks Association’s ‘Pathway to Net Zero’ report. As such, all financial levers at the disposal of the Department should be pivoted to focus on decarbonisation and green growth, as mandated by the recent Net Zero legislation passed by Parliament.
We are concerned that there is no overriding strategy to obtain Net Zero in the time frame demanded by the amended Climate Change Act. While many current Government documents – including the Clean Growth Strategy, 25 Year Plan for Nature and draft Agriculture Bill – contain measures to reduce our emissions, in some cases significantly, these are now technically out of date, due to the new Net Zero target and are focussed primarily on reducing, not omitting, harmful emissions.
As mentioned above, the Treasury needs to formulate better ways to recognise the value of carbon abatement that AD can provide, with less of a focus on energy production. For example, recycling slurries and manures and replacing commercial fertilisers both have a significant methane abatement potential which the current systems of support do not recognise. This would be an ideal example of a ‘public good’ outlined in the draft Agriculture Bill. Transport policy, including the RTFO, is also unhelpful as it lacks a floor price.
As such, given its power to convene, we would recommend the Treasury leads on production of a strategy to achieve Net Zero emissions, and acts as its facilitator and driver across Government. In our day to day engagement with other Government departments, we often see that resistance from Treasury, or lack of sign-off, stymies action from officials. As such, the Treasury should give a clear lead in the decarbonisation drive, as well as give other Departments more power to innovate and take actions that don’t require a significant financial commitment. For example, simply requiring companies to make products which they can demonstrate are recyclable, or from secondary not virgin materials, and include the cost of recycling in their price, would drive significant change fast. With a clear goal, humans can make giant leaps, such as putting a man on the moon.
5. How does HMT work with the Clean Growth Strategy and government departments to support decarbonisation? Is this working well?
At present, as highlighted above, in our experience of working with officials across Whitehall, the Treasury does not appear to be acting as a facilitator and more of a hindrance on other Departments, perceived if not real, with regards to innovation and implementation of practical policies to meet Government aims. We recognise that as the guardian of the public purse, it has a vital and necessary role to play in ensuring programmes are costed and value for money – but the impression that every proposal needs to be processed via the Treasury does exist, and this is holding up innovative work across Government, even if there are no spending commitments in the first instance.
Given that the proposals outlined in the Clean Growth Strategy cover multiple departments, and contain potential spending responsibilities, the Treasury should convene a multi-department panel to lead implementation of its key recommendations. This could serve as a model for panels to implement other Government plans that require funding and actions from across Whitehall to implement, such as those highlighted above in our answer to question 4.
6. How should HMT’s approach evolve to ensure the Government meets the legally binding carbon budgets (and the net-zero targets, if applicable)
As a global financial hub and international investor, the UK and Treasury role in facilitating energy transition and meeting carbon targets is very significant and goes beyond its domestic borders.
The House of Commons Environmental Audit Committee presented the UK Export Finance (UKEF) 19th Report covering the period 2017-2019 to the House of Commons Environmental Audit Committee in June 2019. The report criticises the high level of support for fossil fuel energy projects given by the Government - £2.5 billion out of £2.6 billion dedicated to the energy sector in the period 2013-2018, 96% of the allocated budget. This came at the time that the largest global equity fund, Norway’s Government Pension Fund Global, announced a divestment $13bn in fossil fuels, the largest one of its nature.
As such, the Treasury’s approach should be to direct investment and policy facilitation towards development of clean growth. While recognising the political difficulties in ending investment support for fossil fuels, especially in Scotland, clean alternatives are viable investment options both here and abroad. AD’s benefits can be particularly felt in developing countries, who may not have access to proper sewerage, organic waste collections, or access to power grids. AD and its products can help create local employment, absorb wastes and create local power networks, leading to a cleaner environment and local economic development – the Treasury should direct international aid funding to meet the UN Sustainability Goals, and AD can play a significant role in meeting nine of them. Worldwide, AD can reduce 13% of global greenhouse gas emissions using technology available today, as highlighted in a new report from the World Biogas Association.
Policy needs to transcend individual government office terms and straddle the 20-50-year horizon. This will ensure that developers, technology providers and investors can plan on a long-term rather basis than the ‘on/off’ approach historically experienced, which has hugely restricted growth of the UK supply chain to date.
7. What role should the 2019 Comprehensive Spending Review play in UK decarbonisation? What projects or measures should receive additional funds through this process?
The Comprehensive Spending Review is an opportunity to re-balance the Government’s overall spending priorities towards promoting decarbonisation across all Departments, with a coherent strategy to drive progress towards Net Zero. This will mean putting spending power behind the Clean Growth Strategy and 25 Year Plan for Nature while funding additional recommendations from the Committee on Climate Change’s most recent report on decarbonising hard to reach sectors including transport and agriculture.
The Review will also be the best opportunity to implement the Chancellor’s pledge in the Spring Budget to encourage more ‘green gas’ in the national grid. This means providing the funding support that will encourage the growth of the UK’s anaerobic digestion sector to produce the biogas needed to meet this pledge.
Anaerobic digestion is currently supported by the Renewable Heat Incentive scheme, which is ending shortly in 2021; indeed, the industry’s growth has already effectively stalled. The Feed-In Tariff has already closed, and the Renewable Transport Fuels Obligation (RTFO) is currently unsuitable to support biomethane production due to the lack of a floor price. Contracts For Difference are aimed at large-scale schemes, and AD plants tend to be too small to quality. Without an ongoing method of support, the AD sector will be unable to expand to provide the biogas and biomethane needed to decarbonise the gas grid. Also, there will not be the capacity needed to efficiently recycle the millions of tons of additional food waste that are coming down the line from local authorities, with a risk that this will instead go to incineration or landfill, and the 90m tonnes of manures and slurries will not get recycled. Other renewable products, such as wind and solar, have enjoyed consistent support and are now extremely cost-effective and established as part of our renewable energy mix. AD should be given the same fair treatment, to put us on the ‘glide path’ to no subsidy, as costs come down and innovation drives cost savings across the industry.
To speed up and achieve this glide path to no subsidy, it is proposed that a research hub is developed as a centre of global excellence. The objective of this will be to transform AD, which is currently often perceived solely as a waste treatment technology, into a low cost multi-functional biotechnology. It would make AD a key ingredient in developing integrated processes to deliver future energy and resource provision. It will achieve this by bringing together and coordinating the research input of often disparate groups, to ensure the inter-disciplinarity needed to achieve rapidly the full potential of anaerobic biotechnology.
A total budget of £50m over 5-7 years is sought, and it is believed this will provide better value and outcomes compared to the piecemeal, competitive grant environment that is currently in place which does not lend itself well to the interdisciplinary research requirements illustrated above.
As highlighted above, the Treasury should continue to commit to funding the rollout of mandatory separate food waste collections in England, along with public information tools to ensure the highest possible collection rates, and support for the development of on-farm AD.
8. What role do UK financial services firms currently play in the decarbonisation of the economy, (for example, through stewardship, capital allocation to green projects, green financial products)? What more can they do?
The success of the decarbonisation of the economy is dependent upon a significant level of investment into low carbon infrastructure. It has been estimated that up to £693bn investment will be needed between 2011 and 2031 in areas such as power generation, electric vehicle infrastructure and upgrades to existing buildings.
However, more needs to be done to accelerate the rate at which the economy can decarbonise, by attracting long term investment into the development and project finance side of the infrastructure, not just the debt finance model.
The bioenergy industry can play a huge part in decarbonising the economy, however the technology, particularly AD, has historically been seen as riskier for investors, and therefore often lacked the financial support need to accelerate to full capacity. The lack of long-term governmental policy and concerns over the performance history of the industry has resulted in a consoliding industry of key players, along with a number of farmer-operators. These finance businesses have continued to provide construction finance, ensuring that the industry has continued to grow, although at a much slower rate than previously seen, despite the huge potential that the industry has to help decarbonise the economy through the national grid and agriculture.
A more sustained approach to both focused subsidy support, support for the supply chain (such as the Wind Fund which supports the technology provision and optimisation with both Government and private investment) and joined-up thinking on industry standards (best practice, regulation such as Planning/EA/HSE) will be required to facilitate the speed and scale of growth required to significantly impact the decarbonisation of both heat and agriculture.
At that point, the debt that is available and looking for sustained and stable returns both within and outside of the U.K., is likely to heavily invest into the sector.
9. What steps have UK banks, asset managers, and pension funds taken to ‘green’ their business models, investments strategies and balance sheets, taking into account climate and transition risks?
NA
10. Are there any barriers (regulatory or otherwise) preventing financial services firms from delivering green products?
As outlined elsewhere in our response, the lack of government clarity over renewable heat incentives has been a barrier to significant levels of investment into the AD industry. Investors can see the potential in the industry to help decarbonise the national grid, especially in line with the government’s net-zero target. However, investors make investment decisions based on their acceptable risk-return, and therefore need clarity and stability of long-term governmental policy and stability and certainty of project delivery and performance, mitigating risk. This is the same for road fuel support.
12. What is the Financial Conduct Authority and the Prudential Regulation Authority doing to support decarbonisation and a ‘greening’ of the financial system?
Little evidence that we’ve seen from FCA and PRA thus far that they are addressing decarbonisation in their approach and communications to FCA regulated businesses.
(b) What expectations do (and should) they place on regulated firms about their role in the transition through their policy and supervisory activities?
As above, little evidence so far, as it appears that their resources are already committed to tighter regulation across the financial services sector. A more integrated future approach to ensure that regulated entities have included decarbonisation of both their own businesses and the support of this for their borrowers/partners/vendors within their plans and processes would start to make inroads.
13. What is the consumer demand for ‘green’ financial products?
In the sector we work closely with, renewable energy project finance, the demand has been driven predominantly by developers supported by government subsidies. There does appear to be an increasing consumer demand for ‘green’ products and energy tariffs, albeit this has been slow to take off, especially where it is at a premium to fossil fuel supplied energy and little education/communication has been available.
14. Are there a range of accessible options available to consumers seeking to source ‘green’ financial products across the product suite (for example, mortgages, bonds, investment products, savings accounts, loans)? Do certain instruments dominate the green finance landscape, and if so, why?
NA
15. Do accompanying documents for ‘green’ instruments (bonds, funds, etc) articulate why and how the composite holdings within that instrument are ‘green’?
Often, the answer is “yes” with the green instruments.
Are obligations placed upon listed companies, to report their carbon emissions, to inform fund composition?
However, again, there are limited obligations upon listed companies to report carbon emissions. There is also quite a lot of scepticism amongst consumers about the composition and accuracy of carbon emissions information (e.g. companies only reporting the direct emissions they have incurred within their own country jurisdiction, whilst ignoring the carbon footprint of the supply chain outside of their home jurisdiction).
16. Does the current advice and KYC process effectively facilitate a consideration of sustainability preferences?
In the round, not really.
Current regulatory advice and KYC is still largely risk and consumer-protection focused, rather than linked intrinsically to sustainability. As we have seen elsewhere (e.g. plastics/carrier bags tax etc.) it is likely to need central intervention in an already confused consumer and business marketplace before significant changes to behaviour take place.
23 July 2019
Page 1 of 1