I am on the crops policy side of the Department of Agriculture and Food. I am accompanied by Mr. Dale Crammond, who is on the Department's inspectorate.
I thank the Chairman and the committee for its invitation to come before it on the topic of the development of the biofuel sector and the potential it holds in terms of providing alternative farm enterprises and contributing to the rural economy. I propose to give the committee an outline of the role of the Department of Agriculture and Food as regards biofuels and an overview of issues and developments in this sector in so far as the Department is involved. My colleague, Ms Licken, has already outlined the general policy framework for the promotion and development of the biofuel sector in Ireland. Since the Department of Communications, Marine and Natural Resources is responsible for overall energy policy, it takes the lead in determining the policy parameters for biofuels in Ireland. However, since the agri-food sector is the source of many of the raw materials for the production of biofuels, the Department of Agriculture and Food obviously has a keen interest in supporting the development of a sustainable energy policy and a central role for biofuels. As Ms Licken stated, the Department has been contributing to the development of a coherent biofuels policy through its participation in a number of interdepartmental groups.
The cultivation of crops specifically for biofuels represents an opportunity to generate new income in agriculture and diversify the rural economy. In Ireland, there is renewed interest in the potential of energy crops following the reform of the Common Agricultural Policy and the introduction of the single farm payment last year. The new regime allows farmers to concentrate on producing to meet market requirements. This new freedom to farm means there has been increased interest in exploring alternative farm enterprises such as energy crops. The reform of the sugar regime and the decision by Greencore to cease producing sugar here has obliged sugar beet growers to examine alternatives.
As Ms Licken stated, crops such as oilseeds, wheat and sugar beet can be used for the manufacture of liquid biofuels. Oilseed rape can be used to produce pure plant oil for use in modified diesel engines and biodiesel for use in diesel engines without modification. Bioethanol for petrol engines can be produced from sugar beet, wheat and other cereals. Other energy crops, such as short rotation coppice and miscanthus, can be used for heat and electricity generation.
Oilseed rape is the main oilseed crop grown in Ireland. Production is relatively small. Traditionally, oilseed rape was grown here as a break crop to prevent disease caused by continuous wheat and to improve yields in the following year's cereal crops. In 2005, an area of 3,800 hectares was sown with oilseed rape and this area is expected to increase substantially in 2006 due, in part, to the demand for the crop resulting from the excise duty relief introduced in 2005.
Farmers can achieve satisfactory yields of oilseed rape and many cereal growers could produce it with their existing complement of farm machinery. The total amount of rape that can be grown is limited by the need to keep successive crops at least four years apart in a cereal rotation and to keep a two-year interval with beet. This and other factors would reduce the potential area for oilseed rape to approximately 30,000 hectares. This does not take account of the 30,000 hectares previously sown to sugar beet, some of which could be used for oilseeds.
With regard to wheat, Ireland is currently well below self-sufficiency in cereal production. Approximately 800,000 tonnes of low to medium quality wheat is produced here annually and used mainly for animal feed. In the past, any substantial demand for Irish cereals for energy crops would have been met mainly by competing with the animal feed sector for the same grain, which, in turn, would lead to an increase in imports. However, with the potential for using the 30,000 hectares used for sugar beet, enough wheat or sugar beet could be produced to support one bioethanol plant.
Support to farmers for the growing of energy crops may only be granted in accordance with EU regulations. At present, such support is provided by way of the energy crops scheme, which was introduced by Council Regulation (EC) No. 1782/2003 and which is administered by the Department of Agriculture and Food. Under this scheme, energy crops may qualify for aid of €45 per hectare provided they are intended primarily for use in the production of biofuels and electric and thermal energy produced from biomass. The aid is granted in respect of areas where production is covered by a contract between a farmer and a processor, except in the case of processing undertaken by a farmer on his or her own holding. The aid is payable in addition to the single payment. In Ireland, the only crop sown under this scheme in 2005 was oilseed rape and a small amount of willow. Energy crops may also be grown on set-aside land to activate set-aside entitlements under the single payment scheme.
Up to now sugar beet was excluded from the energy crops scheme. However, the EU has recently agreed that sugar beet will be eligible for aid under the scheme and may be grown as an energy crop on set-aside land to activate set-aside entitlements under the single farm payment scheme. The Department recognises that the €45 per hectare available under the energy crops scheme is not sufficiently attractive to stimulate the growing of crops for energy. At the February Council of Agriculture Ministers meeting, the Minister, Deputy Coughlan, called for a review of the premium. The European Commission has undertaken to review the operation of the scheme and indicated that it would probably present proposals for revision.
In general, the cultivation of energy crops for biofuel purposes will only occur if there is a sufficiently attractive return for farmers. Except in some limited circumstances, this is not the case at present. In terms of making a significant impact as far as liquid biofuels is concerned, what is required is the establishment by a commercial operator of a large-scale biodiesel or bioethanol plant using locally produced agricultural feed stock. Inhibiting this development are factors outside the Department's control such as the capital investment required, a commitment on excise duty relief and appropriate distribution channels. The excise duty reliefs in 2005, the expansion of this scheme in 2006, together with the capital grant aid to underpin the programme, and the emphasis in the 2006 measures on large-scale biodiesel and bioethanol development, as provided by the Department of Communications, Marine and Natural Resources and outlined by Ms Licken, all provide the framework in which potential developers can consider their options and will help drive additional demand for the production of energy crops.
The Department is contributing directly to the development of the biofuels sector through its research funding. The Department is not a research body. That role was assigned to Teagasc many years ago and the latter has done valuable work in this area over the years. Mr. Bernard Rice, who is an expert on biofuels and pioneered much of the research work thereon, is present and will no doubt provide an update on Teagasc's current activities in this area.
Last year, the Department began providing direct funding on a competitive basis to support priority research projects in regard to biofuels. This funding is channelled through the Department's research stimulus fund programme. Three of the projects selected under the 2005 call for proposals directly relate to biofuel and energy crops and received total grant assistance of some €900,000. The funding available under the programme has now been substantially increased and a further call for projects was recently advertised in the national press. This call also includes the non-food uses of agricultural land.
Following the decision by Greencore to cease sugar production in Ireland, there have been suggestions that bioethanol production, possibly using the Mallow facilities, might provide an alternative outlet for the sugar beet crop. The agreement on reform of the EU sugar regime provides for a restructuring scheme under which a sugar manufacturer that renounces its quota and completely dismantles a sugar factory may receive 100% of the restructuring aid available, of which at least 10% is to be reserved for growers and contractors. As an incentive to bioethanol production, the scheme allows for a closing sugar facility to be partially dismantled and used for non-sugar production such as bioethanol and still attract a rate of aid of 75%. The question of full or partial dismantling and the continued use of the Mallow plant for bioethanol is a matter, in the first instance, for commercial decision by Greencore and the initiative on this rests with the company.
The Minister for Agriculture and Food holds a single special share in Greencore, which has the same monetary value as any other share but to which conditions are attached. This means that Greencore cannot dispose of the controlling interest in Irish Sugar Limited or its sugar assets without the prior written consent of the Minister. The special share does not empower the Minister to become involved in operational matters or normal business decisions made by the company, such as a decision to use the facilities for bioethanol production. The Minister raised with Greencore the possibility of using Mallow for ethanol production but was informed that the company does not intend to produce bioethanol there. However, the major extension of the excise duty relief in respect of biofuels provides a framework in which other potential developers could consider the option.
Short rotation coppice, SRC, and miscanthus have considerable potential for heat-electricity generation. In Ireland, however, SRC production is relatively undeveloped, thus, costs of production, especially the substantial initial establishment costs, will be high due to lack of economies of scale. SRC does not produce revenue until the fourth year and that is seen as a disadvantage. Even if all the costs of establishment were eligible for grant aid at current fuel prices, the viability of willow production as a renewable energy crop is marginal where the fuel use is the only source of revenue. However, the use of willow plantations for bioremediation purposes, such as recycling nutrients from municipal sewage sludge and other dilute effluents, would make the growing of the crop more viable when the additional non-fuel income generated from charging gate fees is taken into account. In the past, the forest service provided funding for a pilot project involving a small area of willow coppice for biomass production. The Department is pursuing a proposal to reactivate establishment grants for SRC.
Miscanthus, also known as elephant grass, is not grown on a commercial basis in Ireland. Recently, however, producers have been exploring the possibility of growing it as a feedstock for bioenergy purposes. Miscanthus has three potential fuel markets, namely, for commercial boilers in baled or chopped form, for stoves and small boilers in pelleted form and for power stations in baled form. The Department received a number of proposals for the introduction of establishment grants for miscanthus and these are being considered. Teagasc is conducting research trials on miscanthus and Mr. Rice will provide any further information required in this regard.
Energy produced from wood is a major carbon neutral renewable fuel, which also represents a significant potential source of income for farmers and others. Ireland has one of the most favourable climates for tree growth in western Europe. The primary products from Irish forests are sawn wood products such as construction timber, packaging material and fencing posts and rails. Projections indicate that the volume of forest co-products such as bark, sawdust and woodchip, and including pulpwood from early thinnings in the private sector, will increase significantly. The additional volume could be utilised through capacity expansion in the panel board sector or through the development of a wood energy market.
The grant aid scheme of up to €27 million announced recently by the Minister for Communications, Marine and Natural Resources for domestic renewable heat technologies will help drive demand for wood biomass. A further grant aid package for commercial biomass heating systems is expected to be launched shortly. My Department is also encouraging the use of wood biomass for biofuels through grants to promote and develop sustainable forestry, including alternative timber use to reduce dependence on fossil fuels and promoting the use of wood biomass, for example, by the installation of a wood heating system in the Department's offices at Johnstown Castle. The Department is close to finalising a scheme of supports for the purchase of specialist wood biomass harvesting equipment.
Apart from purpose grown energy crops and wood biomass, several by-products of the farming and food processing industries can be recovered and used in various ways as biofuels. These are mainly animal by-products such as meat and bone meal, tallow, animal manures and food by-products. There are significant opportunities for the use of animal by-products as biofuels, some of which are being considered. Commercial realities drive these proposals. The disposal of by-products imposes a cost on industry and it makes economic sense to offset this by realising the potential of the by-products as an energy source. Tallow is used as a biofuel in thermal boilers in rendering plants and larger meat export plants to provide energy. The recent EU Regulation 92/2005 provides for the conversion of tallow to biodiesel. A number of rendering plants are considering building biodiesel plants, using various combinations of tallow, recovered vegetable oil and rapeseed oil, for this purpose.
The area of biofuels and bioenergy is one of major importance for the Department and this is recognised in its action plan in response to the report of the Agri Vision 2015 Committee. The Department will work towards the achievement of the actions on biofuels and bioenergy detailed in that action plan and included in the presentation. In this context, the Department will continue to work closely with the Department of Communications Marine and Natural Resources on biofuels and renewable energy.