JOINT COMMITTEE ON AGRICULTURE AND FOOD debate -
Wednesday, 3 May 2006

Biofuels Sector Development: Presentations.

Chairman

On behalf of the joint committee, I welcome Ms Katherine Licken, assistant principal officer in the Department of Communications, Marine and Natural Resources, Ms Bridie O'Neill and Mr. Dale Crammond, assistant principal officer and assistant agricultural inspector, respectively, in the Department of Agriculture and Food, and Mr. Bernard Rice, a researcher with Teagasc. The witnesses are present to discuss the development of the biofuels sector and the possibilities for Irish farmers in becoming involved in the production of biofuels. I understand that Ms Licken will make a presentation, which will be followed by presentations from Ms O'Neill and Mr. Rice, in that order.

Before I ask the witnesses to make their presentations, I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to them. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I invite Ms Licken to begin her presentation.

Ms Katherine Licken

I thank the Chairman. I work in the renewable energy unit of the Department of Communications, Marine and Natural Resources. I work specifically on renewable heat and renewable transport. A different section of the office is responsible for renewable electricity. My presentation will cover the Department's pursuit of its biofuels policy. I will speak about liquid biofuels, which are biofuels for transport, the Department's work on biomass for other energy uses such as heating and the types of biofuels.

The biofuels directive lists up to ten different categories of biofuels. The three principal forms of biofuels, certainly in Ireland, are biodiesel, bioethanol and pure plant oil. Most interest seems to lie in those categories. They seem to be the most popular forms of biofuels in Europe, which is leading the way in respect of biodiesel. The United States and Brazil are the leaders in respect of bioethanol in terms of the worldwide production of biofuels. Biodiesel is made from pure plant oil. In Ireland, it is generally made from oilseed rape but it can be made from other plant oils. It can also be made from recovered vegetable oil, tallow or a mixture of the two substances. Bioethanol is made from sugar, wheat or other crops. I think it can even be made from potatoes, although Mr. Rice is better placed to advise on that. The pure plant oil that is on the market in Ireland is usually oilseed rape but other plant oils can be used.

I would like to examine the uses of the three categories of biofuels. Biodiesel is generally mixed into diesel in a 5% blend in accordance with EU fuel standards. If it is mixed in a 5% blend it can be sold as regular diesel. If the blend is higher than 5% it must be marketed as a biofuel. Warranties may not cover an engine if a higher blend than that is used. Similarly with bioethanol, if it is mixed in a 5% blend in petrol the pump does not need to be marked. It is regarded as complying with the petrol standard. There is another form of bioethanol, however, called E85, which is an 85% blend. That can be used in flexible fuel vehicles such as the Ford Focus Flexifuel, which is capable of running either on 100% petrol or anything up to 85% ethanol and only 15% petrol. We launched a project under our pilot scheme last year which has involved the opening of fuel pumps selling E85 and the introduction of the first flexible fuel vehicles in Ireland. If a vehicle is being run on pure plant oil, the engine needs to be modified.

Last year we introduced a pilot scheme of mineral oil tax relief on biofuels. The context is the Finance Act 2004, which provided the framework. Some €6 million in excise relief was available under the programme. It was a relatively small programme by comparison with some of the objectives we have for the future. It produced some very interesting results and applications, however. We delivered it around this time last year through a competitive call for proposals. There were 34 applications in total, the majority of them in the biodiesel category, the remainder pure plant oil except for two in the bioethanol category. We picked eight successful projects out of the 34 and they are largely up and running. The result is that some 16 million litres of biofuel will be produced over the programme's two-year period.

While that programme was being rolled out, we were working in the background to introduce another measure in the 2006 budget because we were aware of the great interest and potential that existed. A new excise relief programme was announced in the budget, €205 million over a five-year period commencing in 2006. A capital grants programme was announced also which has many aspects to it, one of them being capital grant aid in line with the excise relief programme. That is grant aid in line with the excise relief programme, to underpin the building of biodiesel or bioethanol plant in Ireland. The remainder of the package comprised a grants provision of €65 million, which includes capital grant aid. Also included in this figure is a grant aid package for domestic heating technologies, the greener homes scheme which was launched at the end of March. There is also a capital grants programme for bioheat, which we hope to launch shortly. This will involve capital grant aid for commercial organisations such as hotels and larger enterprises, if they want to install biomass heating systems. There is a capital grants programme for combined heat and power which is also to be launched in the next month or so.

We set about designing scheme 2, which is the follow-on from the one we rolled out last year. The Finance Act 2006 provides the framework this time, with €205 million available in excise relief over the five-year period 2006-10. The emphasis in the new scheme will be on large-scale biodiesel and bioethanol development. The last scheme was relatively small. It could not have supported the development of a plant, for example. Pure plant oil will still be included in the new programme. The aim is to get 2% market penetration by 2008. We figure we need those three years to ramp up the programme to get it to the 2% stage and we hope to launch that shortly. However, it will be subject to state aid approval in Brussels.

Security of energy supply has been driving policy. We are all too aware of rising oil prices and the whole question of supply generally. Under the environmental changes objective the transport sector has been one of the most difficult to effect. Biofuel is recognised as one of few ways in which to bring about change and meet the environmental objective.

It is recognised both in Brussels and Ireland that biofuels and biomass generally not only offer potential in terms of energy, security of supply and environmental objectives, they also can help to support and develop the rural economy. The biofuels directive sets targets which are indicative, not mandatory, of 2% by 2005 and 5.75% by 2010. That is also an incentive.

In the European context, there is increasing emphasis on biomass and biofuels. Obviously the biofuels directive has been in place since 2003. The Commission is reviewing the directive at present and is to produce a report at the end of the year. It will look at how member states have performed, whether changes need to be made to the directive and if it will be on track to meet the 5.75% target by 2010.

The biomass action plan was published in February, which sets out a wide range of actions to promote biomass including the potential for a bioheat directive which would impact on Ireland's bioenergy resource. A biofuels communication, which arose from the biomass action plan, was issued proposing a whole series of actions to strengthen what we are all doing on the biofuels side. Various programmes are running generally on bioenergy, not just biofuels. There is a biofuels programme to support biofuels in transport. That is excise relief underpinned by grant aid. Then there is the renewable energy feed-in tariff, which was announced two days ago. This provides a feed-in tariff rate for biomass electricity.

There is the bioheat domestic grants programme for people who want to install, say, wood chip boilers or stoves. Then there is the commercial grants programme which is to be launched shortly. The overall aim is to stimulate the market for transport, heating and also biomass electricity. We are trying to address matters from three different levels. There are growing opportunities for the farming and forestry sector and we are working closely with the Department of Agriculture and Food and various other bodies such as the Department of Transport and the Department of the Environment, Heritage and Local Government, Enterprise Ireland, Sustainable Energy Ireland, COFORD and all the different agencies involved in the whole bioenergy complex. There is quite a complex chain of actors involved. We have a bioenergy group comprising representatives of all the relevant Departments plus some industry representatives. A report will, I hope, be launched in May, along with the bioheat programme that recommends a series of actions. Many of those we were already undertaking to promote bioenergy in Ireland.

Ms Bridie O’Neill

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.

Mr. Bernard Rice

I wish to refer to the progress we might hope to achieve in the next five to ten years, the targets that might be set and what will need to be done to achieve them.

We are constrained regarding liquid biofuels. First, the current technologies can only use tillage crops. Biofuels cannot be produced from grass or wood, which eliminates 90% of our land resource. Until we master the technology to produce ethanol from a wide range of feedstocks, that is where we will be stuck. The technology will be available to produce ethanol from wood or straw within five to ten years. It is on the way but it is still down the road. Until we get there, we are stuck with production from tillage crops and since Ireland is mainly a grassland country, its potential in this regard is limited.

The only two materials that can be used to produce ethanol are cereals or beet. I agree with Ms O'Neill that using beet is complicated because of the issues of compensation and the decommissioning of sugar beet plants. In an ideal world, it would be nice to stick with beet because that has many advantages. There is no potential for the import of the raw material. If we started a plant for cereals, which would be desirable, it would run the risk that it would be fed from imports rather than native production, which could not happen with a beet plant. The beet crop also has agronomic advantages in that it is a good break crop and generates significant turnover and employment in rural areas. However, it may not be possible. If it were possible, it would be nice to stick with it.

Profitability remains a problem. The excise relief in the recent budget removed one of the major hurdles but it is still difficult for a farmer to produce the rapeseed crop, in particular, and for a processor to produce the oil while remaining competitive with mineral oil producers. However, every time mineral oil prices increase, that problem diminishes and that will probably take care of the problem in the long term. As we develop liquid biofuels, we need to work harder at doing a better job of selling them. Those who are in the business are doing a great job of producing the fuels but are not doing such a great job of marketing them. They must be sold not as cheap fuels but as quality fuels that should command a premium rather than being sold at a discount. I am not sure how that can be achieved, but we must work on quality, promotion and the enhancement of the image of biofuels.

Excise relief is the mechanism used most widely throughout Europe to support liquid biofuel development. It has its limitations and the UK and Germany announced their intention to change from excise relief, without abandoning it, to mandatory obligations on fuel suppliers to include a proportion of liquid biofuels in their portfolios. It is an alternative way of doing it and we will have to wait to see how it works out in those countries. If it is more effective than the excise relief mechanism, we may have to move in that direction.

Until we have the technology for converting cellulose to ethanol, solid biofuels offer more opportunity as heating fuel than liquid biofuels. These fuels could be developed more in the area of residential heating. The product that has the best chance is the pellet. Pellets are currently being made almost exclusively from sawdust, which is a lovely material but in limited supply. It is already becoming scarce, so alternative materials for pelleting will be required. Materials like rape straw, cereal straw and miscanthus are among the possible alternatives. Around 300,000 tonnes of pellets are required to produce 10% of oil or gas use in the residential market. If such an amount was produced by energy crops, it would take about 30,000 hectares of crops to produce. I have no doubt that the pellet market will grow.

The commercial heating market is for hotels, hospitals and public buildings. When the heat demand is high, the exercise becomes more financially attractive for the heat user. If we could achieve 50% penetration of that market, it would take 150,000 hectares of energy crops to meet such a demand. That does not seem to be an impossible target. There might be a problem supplying a city hotel, but it is quite attractive for the heat user in rural areas to look at these biomass materials as fuels. It is a market that is ripe for development at this stage.

Until now, the sums would not add up for any form of electricity production from biomass. The price available for renewable electricity was not adequate and I am not sure if it is adequate yet. However, there are a few possibilities beginning to emerge that are worth examining. Oak Park has an on-site demand for 100 KW of electricity and 300-400 KW of heat and we are hoping to put in a small-scale CHP plant. New technologies are emerging and some of them are looking pretty attractive at this stage. Where we are supplying our own demand and steering clear of the grid, the exercise begins to look reasonably attractive. We hope to pursue it in the next year or two.

Power stations are beginning to show an interest in this for the first time. They are making inquiries about the possibilities to burn some other form of biomass rather than peat. Once one starts dealing with power stations, one moves into a different league. It would take 100,000 hectares of energy crops to meet 5% of our electricity demand. The biomass crops tend to be bulky to transport, so if we decided to supply a power station, we would have to produce the crops in a concentrated fashion and as close as possible to the station, which would bring its own problems. There could be traffic problems on the roads and the visual impact of energy crops would change the local scenery. As these crops consume a great deal of water, they could present local area hydrology problems. Therefore, one could not dash into it without thinking and one would have to seriously examine the impact of its implementation. I do not say that it should not be done, but it would require some serious homework.

There are grant schemes to promote the use of energy crop sites for the disposal of sewage sludge. We will pursue this idea and it cannot just involve Teagasc, it must also involve local authorities and people who have effluent that they wish to dispose of. Waste disposal is becoming a bigger and bigger problem, especially organic waste that is being forced out of land fills. This idea offers an attractive way of getting good use out of those waste materials. As any reasonably-sized town must have its own treatment plant, it will have a small amount of sludge to dispose of. Such towns cannot afford to get into elaborate schemes like those in place in Dublin for sanitising, pelleting and drying. An alternative would be to create a small area of willows, miscanthus or some other energy crop next to the town which can be used as a disposal site for the sludge. That energy crop can then be used to heat local public buildings or a local hospital. The idea of a small, integrated project in every town in Ireland is a very attractive idea. We just got some support from the stimulus fund of the Department of Agriculture and Food to start working on this idea and we will use it immediately.

There are still profitability problems out there. It is not that easy for anybody to make an income from any of these energy crops. However, as oil and other mineral fuel prices increase, that problem will probably abate. The opportunity will arise to devote more biomass to energy production. This will have desirable effects on rural economies, on the global environment and on the security of national supply. If we get to the stage where there is concentrated energy crop production near power stations, then we must look seriously at the implications of such a move. The problems involved could be surmounted, but it would require careful planning to make sure that it was done in an environmentally sensitive way.

The last table in the presentation sets out the possible targets. If we were to meet the total national energy demand, it would take up all the land in the country. If we gave up growing food crops and put the whole country under energy crops, then we could just about supply our total energy requirements. The figure of 2% of transport fuel from arable crops is about as much as we can achieve in the immediate future, until technology develops further. If we targeted the commercial heat market and achieved a high penetration rate, then a 50% rate would require 100,000 hectares, 10% of the residential heat market for pelleted material would require 30,000 hectares and 5% of the electricity demand would require 100,000 hectares. These are big figures, but a relatively small proportion of our total agricultural land area is not outside the bounds of possibility if we decided that this was the way to go. There are interesting choices to be made.

I do not claim to be an expert when it comes to making major decisions on what we should do. However, I hope I have given members some idea of the options available at the outset of the process.

Deputy Crawford

I apologise on behalf on my colleague, Deputy Naughten, whose wife, Mary, gave birth to a baby boy last Thursday. The Deputy has been very busy in recent days.

Chairman

We should send the congratulations of the committee to Deputy Naughten and his wife.

Deputy Crawford

The baby is being named Liam Naughten after his grandfather. Deputy Naughten would have been interested in attending this meeting because he is deeply committed to the development of alternative energy resources. While I am not as technically minded or scientifically advised as he, I have concerns about this country's exposure to world energy markets. I thank Ms Licken, Ms O'Neill and Mr. Rice for clearly outlining their opinions on current circumstances.

Mr. Rice's conclusion that profitability is the most important issue is worrying because, despite the improvements made by the Government in the budget, the potential for biodiesel is still limited. Deputy Sargent is better briefed than I on energy issues and some of his party colleagues drive cars powered by biofuels. However, I remind others that my colleague from Laoighis-Offaly has been to the forefront on this issue from the outset in terms of trying to utilise alternative energy sources for vehicles. While it is important that every possibility be explored, the information supplied today indicates that improvements will be needed if alternative mechanisms are to be supported.

The sugar beet industry is currently a major concern and the 30,000 hectares on which the crop was formerly grown are no longer in production. Greencore is not prepared to promote a plant in Mallow or Carlow that would make use of sugar beet. Are others prepared to move in that direction and, if so, will they be supported? The support coming from Europe must be directed to companies other than Greencore if that land is to be used in the future. While the task will be great, it has been known about for some time and the Government must have some idea of what to do.

Of the 34 applications received in respect of the new scheme, eight were successful. As someone who attempted to apply for energy schemes in the past, I wonder whether there is any hope for the remaining 26 applicants. Many excellent schemes were shelved in the area of wind energy.

Ms Licken referred to combined heat and power. Is there potential for a major plant that would produce alternative energy from farm produce? In terms of energy crops, I ask Ms O'Neill to comment on potential uses for the 30,000 hectares left idle since the closure of the Greencore plants. Many sugar beet growers possess modern machinery that will go to waste if alternative energy crops are not developed. Can Ms O'Neill indicate whether progress has been made in negotiations on achieving a more realistic rate than the €45 currently offered per hectare of biomass crop? That rate will not encourage anyone to grow these crops.

The other two speakers represent the Department of Agriculture and Food and Teagasc, respectively. The nitrates directive is one of the most controversial issues we face. The speakers discussed in great detail the issue of waste from domestic sceptic tanks but the single biggest problem in my constituency of Cavan-Monaghan and in some others is pig and poultry waste. I maintain that this is a valuable product and should not be called waste. However, it suits some people to refer to it as farm waste.

We are discussing ways to develop alternative products, an issue I have tried to address since 1993. We went through three different tenders and a European directive was introduced but have experienced problems in working within the structures to develop heat and power producing biomass plants. I appreciate Mr. Rice's comments about the difficulties experienced in trying to establish projects. Forfás gave a written commitment to me and two other Deputies representing Cavan-Monaghan that its lands were available but, when a grant was subsequently received from Europe, it claimed the land was sold, even though it is still for sale. The Department of Agriculture and Food and Teagasc can no longer ignore this issue. When I spoke to officials from Teagasc at a meeting in Cork, I was assured that the matter was under consideration but the comments made today do not reflect that. There is this potential and I urge that it be examined seriously. If not, many poultry and pig farmers will go out of business because no other structures have been put in place to help them to survive. I thank the personnel for what they have given us today. It is a start, although there is a problem with profitability. At least two speakers have made it clear that with present structures in place profitability for alternative energies is not a prospect.

While not covered in today's presentations, wind energy has an effect on farming, especially in hilly areas. That is an alternative income for farming where they own the base and the site and can get a guaranteed rent for eternity. That is running into difficulties and I urge the Department to examine this issue. Many farmers were led to believe that by now they would be get long-term rental from their lands and that has not materialised. If we are to meet our commitment to provide alternative energy, all these issues must be resolved.

Deputy Upton

I thank the Chairman and those who made the presentations. Ideally we would have liked to have progressed further given a variety of circumstances. However we must deal with what is in front of us. On the eight successful pilot projects chosen, could Ms Licken indicate what substrates were used in those, what development potential arises from each one and how successfully they might be scaled up? We cannot escape the sugar beet situation in Mallow and Carlow. I refer again to the golden share about which we have heard so much. Although it has been discussed at length and perhaps nobody here is able to provide the answer, I will read it again: "Greencore cannot dispose of the controlling interest without the prior written consent of the Minister". In the absence of that consent, where does that leave Greencore, what is the situation and how can it be moved forward? All the information has made it clear that Greencore does not wish to retain the plant in Mallow for bioethanol production. Although this may be a question for another forum, are there any other interested parties and what role does the Government have in ensuring that plant is sustained, made viable and available to the people who have provided sugar beet up to now? It is a fundamental question in terms of what has happened to the Irish sugar beet industry.

I am interested in Mr. Rice's presentation and I thank him for the research he has done. I have examined some of his previous publications to get up to speed for today. Could he comment on our level of research progress and how we compare with other countries? Is there a need for significant investment in greater research activity at every level from technology to marketing? He has indicated the need for marketing and I subscribe to this. We need to have a greater input in the promotion of biofuels. I am curious about the technology and how we compare with other countries. I appreciate that because every country has different climate conditions, hydrology and crops the research must be country-specific. Can we call down much research from other countries where the developments have taken place and have been progressed and how effective are we at doing that? Mr. Rice mentioned that the liquid biofuels can be produced only from tillage crops and I presume that research is applicable internationally.

Is there a possibility that we would have one or two large plants rather than a larger number of smaller plants spread around the country? What are the economics of that? I recognise what is said about transport costs. While it makes sense to have the production unit close to the source of the raw material because of transport costs, economies of scale will also be significant. Could Mr. Rice comment on that? According to the FAO: "one hazard is that large scale promotion of bioenergy relying on intensive cash-crop monocultures could see the sector dominated by a few agri-energy giants". Is there that risk? I am looking at this from the perspective of small farmers and how they are likely to benefit from this. My colleagues Senator Coonan and Deputy Crawford are better placed to answer who the small farmer is, but I ask what scale we are talking about and what level of production is needed to make this a viable industry. Again, I thank everybody for their contributions, which I found useful.

Chairman

I thank Deputy Blaney for requesting this meeting. We are glad to be able to accede to his request.

Deputy Blaney

I thank the Chairman and the clerk of the committee for agreeing to my request and inviting the officials here today. I thank the three witnesses for their presentations. While some committee members know much about this, many of us are learning. I experienced a forced insight into bioenergy approximately two years ago when we were in Slovenia. The chairman of the agriculture committee there took some members of this committee on trips to farms where I was amazed at the ability of the rural farmers who provided their own energy, houses and most of their food. The average size of a farm in Slovenia is approximately 15 hectares. Half of that would be woodland which is used to provide wood to generate enough heat for their needs.

We have heard much talk recently on biofuels. I welcome the presentations and this committee should take as much lead as possible. I ask the Chairman to take the lead. Mr. Rice spoke of the possibilities that biofuel would provide 2% of transport energy needs, 50% of commercial heat, 10% of residential heat and 5% of electricity. This committee should set those projections as goals and do everything in its power to achieve them. Farming is not what it used to be. Perhaps today's generation are not the farmers of old. Many of them are part-time and the possibilities in biofuels would very much suit present Irish farming because it could be part-time. We need to take the lead on this.

Mr. Rice referred to the UK and Germany, where the Governments placed obligations on the fuel suppliers. We should consider similar measures. Ms O'Neill referred to the €45 per hectare which is available at present for the production of oilseed rape and biofuels. As a committee, we need to lobby the Ministers for Agriculture and Food and Communications, Marine and Natural Resources with regard to increasing the subsidy. From talking to officials in Donegal, they think a reasonable figure would be approximately €200 per hectare.

In my constituency of Donegal North-East, the Donegal farm relief service has applied for and hopes to receive INTERREG funding. It hopes to produce roughly 820,000 litres of biofuel by July 2007 but the profit margins will be very small. I am told that profit margins could be much greater if more emphasis was given to and research done into the energy side of oilseed rape production and the like. Given the information provided by the three officials, I ask the Chairman, with the clerk, to make plans to meet the two Ministers. Anything further we can do to progress this way of farming would be very welcome.

Chairman

I will ask the clerk to write to the two Ministers to request them to attend a meeting with the committee as soon as possible. Is that agreed? Agreed. I call Senator Callanan.

Senator Callanan

I welcome the officials from the various Departments and Teagasc. Unfortunately, I had to attend a vote and so missed some of the presentations. Be that as it may, I hope that something I say will be of benefit, to myself at least in getting it off my chest.

Some years back, I spoke about an alternative use for land when we could see the single farm payment coming down the road. That has come and, at the end of the day, the phrase I used in the committee several times, "land for food, land for energy", is what we are talking about in this regard. Whether it can be done successfully remains to be seen. There is a huge pool of so-called experts in the background, but the fact remains that if what we produce will not pay for itself, we will not continue to produce.

If we are discussing a land use for energy, the cost of production must be known and must be realistic. The growing of oilseed rape today for a maximum of €20 per tonne is not realistic, although farmers are engaging in it. Those who have seen it grown in the past are aware that a crop could be lost if there is a wind when it is ripe. There would be no profit in that and nobody except the farmer would pick up the tab. There must be a measure of reality in this regard, and the same applies with regard to sugar beet.

Coming from Cork, I am conscious that the sugar beet growers in the south, particularly in Cork, are looking at the plant at Mallow, but it is owned by Greencore, which is a private enterprise. Is there a way around this? We know that Greencore is hawking parts of the Mallow beet plant around Europe, central Europe in particular, to try to dispose of them.

Senator Coonan

It is-——

Senator Callanan

We are aware of it. The Senator would need to be aware of it also because he is near enough to the south and the beet growing area.

Chairman

Please allow Senator Callanan to make his point without comment.

Senator Callanan

I thank the Chairman for minding me. That is the reality. There are beet growers who are willing and able to grow sugar beet for ethanol production. There is a realisation of this in the Teagasc-Department of Agriculture and Food document which refers to improving the sugar content and bringing in different strains.

Europe is late. It has lost the plot but, unfortunately, we are part of it. We are stifled by regulation after regulation. Let there be no doubt about it: Europe is in a bad state with regard to food production and energy production. It is becoming totally dependent on outside sources of provision. Russian gas is moving west and Russia is offering to buy British gas pipelines. Europe is dependent on imported gas but it has stifling regulations. Is there any possibility — I direct my question to the representatives of the two Departments present — that changes can be made to those regulations? Unless there is an enlightened approach in Europe, there will be difficult days ahead for energy production. Is there a possibility that the hamstring will be taken off this little State to allow us to produce our own energy? We can produce a fair amount of energy.

With regard to the acreage available, I ask for the observations of the Teagasc representative. Changes are likely to occur on the land, which comprises approximately 18 million acres, including water, bog and other land and including approximately 12 million acres of arable land. If there is some exodus from the dairy industry — I believe a concentration of effort will take place — more land will be available for energy production than is currently under consideration. I realise Teagasc has suggested an acreage of available land but the changing pattern of farming will be such that more land, if it is profitable for use for energy production, will become available. Any adjudication on the problem will be seen against that background.

There is a reference to approximately 30,000 hectares in sugar beet and wheat growing. What is the energy value that can be extracted from a tonne of wheat? If one is considering winter grain, that value could be multiplied by three, four or five on a good production base. The use of sugar beet is an issue on which the experts have different opinions. Some will suggest, for example, that it is unrealistic to attempt to extract and that extraction would never become viable. However, another school of thought exists that it can become viable. I have already referred to new breed strains and so on in the context of sugar content and ethanol content. How does Teagasc view this? What would be the costs? In Brazil, for example, it is produced for approximately 16 cent. The speculated cost here is approximately 60 to 65 cent. Whatever the cost, the country needs energy. I accept the points made in respect of rotation.

Animal waste and meat and bonemeal were mentioned, which we export at present. Why do we export them? If one takes the national value of what we export by way of meat and bonemeal, the offal content, etc., what would be the tonnage gained in terms of energy if we were to process them in this country? We are losing out badly in that regard.

Anaerobic digestion systems were not mentioned or perhaps I missed the reference to them on foot of the language used. Dr. John Curtis of the EPA at Johnstown Castle submitted papers to the Departments of Agriculture and Food and Communications, Marine and Natural Resources for consideration. What is the considered opinion in respect of Dr. Curtis's papers? Is there an alternative opinion? Have studies been carried out? If so, I would be grateful if the officials would inform us about them. I come from west Cork and one of my neighbours in the parish of Inishannon has used anaerobic digestion for the past 30 years for the extraction of methane gas to provide power for his farm. He has not used one unit of electricity.

I wish to direct a question to Teagasc. Dr. Jimmy Burke is head of the tillage research at Oak Park. Has he spoken publicly about the value of growing sugar beet? He attended a public meeting in Cork in the past two weeks and spoke about it in strong terms.

Deputy Wilkinson

It is very difficult to follow Senator Callanan.

I welcome the officials from the Departments and thank them for their presentations. It is an eye-opener when one realises what has already been done in regard to biofuels and the way the Departments are dealing with this matter. There are two issues at stake. The first is the national situation and the fact the cost of fuels is rising. There is also the agricultural side, which is very important. There is nothing like a serious issue of this nature to focus the mind on what must be done. The officials provided much information, which I welcome. I had no idea that so much was being done.

The loss of the sugar beet crop to agriculture cannot be overstated and it will have far-reaching repercussions. There is a system in place in terms of the growing of the crop, which, if possible, should not be lost. What has emerged from Greencore is not very patriotic but I suppose that is private enterprise and the company must ultimately show a profit. I accept that alterations would need to be made to the factories and equipment to produce biofuel. However, there is a larger question that must be explored in the interests of the country and farmers. In County Waterford, which I represent, a large group of beet growers met last night to see what they could do to move this forward.

There are two questions here, namely, those involving scale and profit. It will take much work, research and money to obtain the finished product but we are in a situation where resources must be expended on this serious matter. I speak from the agricultural side and there is no doubt that farming will seriously miss the beet group. With the drop in milk prices, farmers will move away from farming. However, the land remains and we must put it to a use that will be to the good of the country and that will yield profits.

Most of what I wanted to say has already been said. Does one get the same miles to the gallon from biofuel as one does from petrol or diesel?

Deputy Ó Fearghaíl

I welcome the officials and thank them for their presentations. I have learned much because I am far from expert in this area. We would all be obliged to admit that this is a topic of discussion among farmers and people in rural areas. I thank Deputy Blaney for bringing it to our attention and the Chairman for facilitating this debate. I hope this issue will be prominent on the work schedule of the committee during the next 12 months and that we will return to it on occasion.

EU Regulation 1782/03 was mentioned. Does it prohibit national governments from providing any type of subvention to those producing energy crops? Is there any wriggle room for the Government in terms of the type of subvention that might be made available? Having regard to the research carried out by Teagasc and the Department of Agriculture and Food, is there an estimate of the level of subvention necessary in the short to medium term to make energy crop production viable? If it is to continue in the long term, will it require ongoing subvention and at what level? Ms O'Neill indicated that the Minister raised this at the Council meeting in February. If the Commission is prepared to consider this matter, what sort of timescale is envisaged? There is a demand for speedy and effective movement in this area.

I refer to the sugar beet issue and what might be done in Mallow, Carlow, Thurles and elsewhere, although the focus, perhaps rightly so, seems to be on Mallow. I suspect that farmers who dealt with Greencore for many years will not exactly be broken-hearted by the prospect that they will not be obliged to deal with it in the future in regard to any potential use of Mallow. Is there a realistic opportunity for an alternative enterprise to be established in Mallow? Is there a producer that would take up the opportunity and challenge of producing ethanol there?

Senator Coonan

I welcome the delegation but I am not so sure I welcome the report, which I found very disappointing. In saying that, I realise the delegates are constrained by Government policy. The report is a mixed grill trying to cover up for the closure of the factory in Mallow and the killing of the beef industry. My colleagues opposite are at pains to come to terms with this and to determine some way of clouding it over.

I listened to Senator Callanan when he began — I do not intend breaking his speech record — and noted that he acknowledged he has been campaigning in this area for several years. Why would he not do so? He knew better than most what the former Minister, Deputy Walsh, was doing to the farmers in the period in question. It makes sense but is disappointing that the report should state it is a matter for Greencore, in the first instance, to make a commercial decision. What about partnership and the farming community? Where does the Government stand on this? There should at least be a three-way partnership rather than a system under which Greencore has the sole right to make a decision. It decimated the beef industry and did the same to the tillage industry before it got out of it. The malting barley industry has also disappeared in north Tipperary and Senator Callanan will note that there is nothing left.

Let us be honest that this issue is about production and the farmers' right to earn money. One can no longer throw something at a farmer to give him something to do — he needs to be paid to survive on the land. The lack of income is why farmers are drifting from the land at such a steady rate. We have not heard what biofuels will be worth to the farming community, nor have we heard how much 30,000 hectares would produce. We have not heard how biofuel production will affect the Exchequer and the importation of oil. We have not heard how it is proposed to deal with the biofuel product.

I remember a former Senator, CharlieMcDonald, using biofuel while canvassing to be elected to the Seanad in the 1970s. We have not moved on since then and we are very much playing catch-up. This is very evident in the report before us today. How is it proposed to deal with the vested interests? If we cannot deal with Greencore, how will we deal with Shell, BP and some of the other companies? How is it proposed to use the biofuel product when it is finally produced? It is noted that there is a 5% blend at present. What are the proposals for blending biofuels with petrol and diesel? What is the reaction of the multinational oil companies?

In my area, Centenary Co-Operative Creamery Society Limited has been crying out for the past three years for the right to produce a biofuel product, but it cannot do so because of stealth taxes and excise duty. It is certainly not profitable for it to proceed as a consequence. Why should it provide a service when it will put the rest of its efficient service out of commission? The necessary incentives are certainly not in place.

The only reference to money in the report is to a derisory €45 per hectare, which is less that €20 per acre to the farmer. That is the carrot being dangled in front of the farmer. Is this what the delegates call a positive approach to what will definitely become a topical subject? There is a great future in biofuels and we should have been taking an interest in them a long time ago. As I stated, we are very much playing catch-up in this regard.

I would like to hear some facts and figures from the delegation on the worth of biofuel production and its effect on our overall finances. How will it affect carbon emissions and our targets under the Kyoto Protocol? Surely we have scope in this regard but it is not mentioned in the report. I understand that the report is so limited because it is strangled by Government policy. However, the Government does not have a proper policy — it is a rushed job to try to appease the farmers in the lead-up to a general election.

Senator Callanan

Hear, hear.

Deputy F. O’Malley

I thank the Chairman for allowing me to attend. I apologise for not being present for any of the presentations. We were putting the final touches to our energy policy at a meeting of the Committee on Communications, Marine and Natural Resources, during which the question of biofuels was raised.

Ms Licken seems to imply that there will be market penetration of 2% by 2008. This is way outside our requirement under the biofuels directive, which requires us to achieve penetration of 2% by 2005. What penalty will we incur by not meeting our target? Has the Government any incentive to achieve it?

I echo what Senator Coonan said. Since I represent an urban constituency, I do not represent farmers and therefore do not have to fly the flag for anybody except the public in general. I do so in the interest of national energy security. We seem to be slow to adopt biofuels. I accept that much has been done in the most recent budget and that we are well on the way but we have another little bit to go. I hope the Government will achieve this.

Senator Coonan mentioned the yield and lamented that only €45 is available per hectare. When I examine CAP reform, I worry whether we are simply reinforcing an existing attitude to farming. We want farmers to stand on their own two feet in an independent way. The EU has decided Ireland should achieve biofuel market penetration of 2% by 2005 and I therefore do not understand why the delegates have referred to 2008. A market opportunity clearly exists for farmers. How much will they yield per acre if they engage in production? To what extent do they believe biofuels represent a considerable market for them?

I believe Germany has imposed a 5% biofuel requirement in its energy policy. How could we guarantee that the 5% will be generated in Ireland? If, say, Texaco, decides to send its petrol to Ireland, how can we ensure that our farmers and indigenous industry will benefit from the requirement that 5% of the mix should contain biofuel? To what extent is this possible?

Chairman

I apologise on behalf of Deputy Sargent for his absence. He must attend Leaders' Questions but he said he will contact the delegates in the weeks ahead.

Ms Licken

I will try to cover all the issues raised. On Deputy Fiona O'Malley's question, the 2% requirement set out in the directive is not mandatory but is what is called a reference target. Ireland is starting from almost zero production and many other European countries have a similar difficulty. The quantities member states predicted they would produce in 2005 amounted to only 1.4% overall and therefore many countries were in the same predicament as Ireland.

We stated we would reach the 2% reference target by 2008, which allows industry to ramp up production this year and next year. The Commission has accepted this figure. It accepts we were starting from a production base of virtually zero, that, as Mr. Rice says, there are some limitations on the agricultural land that is available. It is satisfied with 2% by 2008. Regarding the 5% biofuel obligation that Germany is introducing, there is no guarantee that the biofuels can be made by Irish farmers for the Irish market. These are the EU trading rules. One cannot discriminate, nor could we discriminate in our excise relief programme. However, we anticipate that a lot of the interest will come from within Ireland. These are the Community rules within which we must operate.

Senator Coonan raised the question of how much oil the biofuels will replace. Our objective is 163 million litres of oil per year by 2008. That will directly replace imports. In terms of the Kyoto Protocol, the national climate change strategy set various targets under various categories. In the category of transport emissions reduction it recommended a particular amount to be achieved through tax relief. This represents 52% of that figure. I do not have the figure for carbon emissions to hand, but we calculated that it would be the equivalent of taking 76,000 cars off the road.

In the next programme, similar to the last, we will look for people with projects to come forward with proposals that involve blending. A high level of interest was shown in the last scheme and we anticipate higher levels again in the next scheme. Mr. Rice raised the issue of profitability, however there is growing interest in biofuels and we have received strong proposals. People are beginning to see that while margins may be tight at the moment, there is scope for profit, especially with rising oil prices.

Deputy Wilkinson asked about miles per gallon. He is right, one does not receive the same milage per gallon from ethanol, biodiesel or pure plant oil as one does from their fossil fuel equivalents. However, we have factored that into the excise relief programme. We refer to excise relief versus excise forgone. We tell the Department of Finance that what you are losing is less than what you are giving. The Commission has given us these efficiency reference values to make these calculations. There is not a large difference, but Deputy Wilkinson is right, there is a difference. However, this is factored into the cost of excise relief.

On EU regulations, there are a lot of very useful things coming out of Europe, such as the biofuels directive. Some very interesting issues are being raised in the general biomass debate in Europe, including sustainability and the sustainable production of biofuels — ensuring the biofuel production process does not produce more CO2 than is saved by using biofuels. The question of whether we should introduce an obligation in the future at European level is being examined. Car manufacturers are being encouraged to increase the blend levels that will apply for warranty in cars in order that one can put more than 5% in the car and still be sure that the engine warranty is covered.

We seek to achieve economies of scale through this programme. We hope to facilitate larger production plants that will be able to compete in the European market. Biofuels appears to be a growing market in Europe and we have an eye to the future. There may be a market beyond Ireland for these products. We hope to get large-scale plants through this new programme which the last programme could not deliver because it was not big enough.

Deputy Crawford

What about the eight successful projects?

Ms Licken

: There were many interesting proposals the last time. The eight successful projects were under the last scheme. Anybody who was unsuccessful will be able to apply again under the new scheme. We met many unsuccessful applicants, went through their applications and pointed out areas they might strengthen next time. We did this as recently as last week.

Starting with the bioethanol category, we had one project with Maxol and Ford working together. As a result of this they have opened two E85 stations, one in Sandymount and one on the Tivoli Road in Cork. These stations sell blends comprising 85% ethanol and 15% petrol which can be used in the Ford flexifuel vehicle. The Department of Finance provided in the budget for vehicle registration tax relief on flexi-fuel vehicles. The first 30 flexifuel vehicles have been introduced, I think, in the past month and a number of other car companies may be interested in following suit.

Maxol seem to be taking a strong interest in ethanol. Its ethanol is coming from the Carberry plant in west Cork where it is made, I think, from a whey by-product. Mr. Rice would be more of an expert on the production process. It is also testing the E5, which is the 5% blend, and hope to put it on the market. There is good potential for this project, with an Irish distributor of transport fuels, Maxol, in partnership with Ford.

There are three projects relating to biodiesel, the first of which was a pilot project by ConocoPhillips at the Whitegate refinery. It produced a million litres of biofuel. This was an innovative process, not quite the same as the regular biodiesel process. It complied with the diesel standard and could be put into every tanker that would come to the Whitegate refinery as a matter of course. It was distributed through diesel filling stations all over Munster throughout September, the period of the trial. ConocoPhillips Ireland won an award from ConocoPhillips International for this innovative project. If it continues with this project it shows great potential because biofuel is going directly into the distribution chain.

Eco Ola in Galway is starting a biodiesel project, in conjunction with the Galway-Mayo Institute of Technology, using recovered vegetable oil. This project is focusing on ensuring standards are set. It is important at this stage that not a single car engine is destroyed as this would be a set-back for the market. We are happy to see that there is good research backing up this project.

Greyhound Recycling and Recovery is also conducting a biodiesel project using recovered vegetable oil. Indeed, it is a waste recycling facility. Interestingly, it has used biodiesel in its fleet of trucks at higher blends than we have been able to allow in this scheme. It is seeking to form a partnership with some public sector institutions to begin a project involving vehicles in the public sector.

There were two projects, one in Wicklow and one in Wexford, relating to pure plant oil. Both were already up and running and we gave them excise relief. The one in Wicklow, Eilish Oils, is supplying Cork City Council — it has a fleet of, I think, 17 vehicles operating on pure plant oil.

Senator Callanan

And the corporation.

Ms Licken

The parks and wildlife service of the Department of the Environment, Heritage and Local Government has decided to switch to pure plant oil, as far as I know. We gave it the contacts for those pure plant oil producers. Regarding pure plant oil, we saw on the last programme that oilseed rape is a key ingredient for biodiesel and there was a pure plant oil industry there already. We decided that, by putting an emphasis on pure plant oil for that programme, we would build up an expertise in the crop and in pressing the oil which could facilitate a large-scale biodiesel industry. Donegal Farm Relief Services was also successful in getting excise relief on oilseed rape and we hope it will soon begin production.

Deputy Blaney

It is also looking for funding.

Ms Licken

The excise relief will be available when production commences. A pure plant oil project in County Kilkenny seems to be doing well. These eight projects have a lot of potential and we expect the next scheme will attract far more than 34 applications.

Ms O’Neill

As I will not answer questions in any particular order and will take some together, I will return to those I forget. The Department agrees that €45 per hectare is not an adequate payment. However, it should be noted that it is paid in addition to the single farm payment to farmers who join the energy crops scheme. We recognise that the payment is inadequate to encourage energy crop production and have made representations to the Council and the Commission. The latter will assess the scheme and revert to us with proposals later this year.

The issue was raised of national aid for energy crops to top up the €45 per hectare payment but, as a state aid, it would require specific approval from the EU. It is unlikely such approval would be granted because it could be seen to foster unfair competition by giving more to Irish farmers who grow energy crops than to those in other member states.

As regards other aid to sugar beet growers, farmers are entitled to compensation of up to 60% of the decrease in the price of sugar beet, as well as at least 10% of the restructuring fund. They are also entitled to diversification funds of at least €44 million, for which the Department must submit a restructuring plan to the Commission by the end of this year. As we have not yet received details from the Commission of what should be included in the restructuring plan, work has not yet started on the matter.

In respect of alternative uses for the 30,000 hectares formerly used to grow sugar beet, this is some of the best arable land in the country and could grow a variety of crops. The latest Teagasc projections are that, in addition to producing barley, there will be an increase of about 4,000 hectares in fodder beet, maize silage will increase to about 8,000 hectares and oilseed rape and peas and beans will each increase by 3,000 hectares. Grass, arable silage and whole crop cereals will also increase by about 8,000 hectares.

Some parties have expressed interest in producing bioethanol at Greencore's Mallow plant but we do not know how serious they are. If Greencore or others wish to become involved in the production of bioethanol in Mallow, Carlow or Thurles, that is a commercial decision. We cannot direct another body to produce ethanol in Mallow because, as Senator Callanan correctly noted, Greencore owns the plant. Mr. Rice discussed the issue of profitability and Brazil was mentioned. However, Brazil produces ethanol from sugar cane, which is grown more cheaply than sugar beet. A framework exists to provide excise relief to ethanol growers.

Sugar processors can receive up to 100% of aid under the restructuring scheme, less 10% for growers and contractors, if they completely dismantle the factory. However, if they instead go into bioethanol production, they can receive up to 75% of the available aid, less 10%. That gives an incentive to enter bioethanol production because it would cost more than 25% of the available aid to completely dismantle a factory and return it to a good environmental condition.

The position with regard to special shares is that the Minister's consent is needed for the disposal of more than 20%, accumulative, of sugar assets in Carlow and Mallow. These assets comprise buildings, lands, machinery and plant. We have not yet reached the stage where the Minister's consent might be refused because it has not yet been sought. When and if her consent is sought, she will consider the matter with her legal advisers.

My colleague, Mr. Dale Crammond, will respond to questions put by a number of members on waste.

Mr. Dale Crammond

Deputy Crawford and Senator Callanan alluded to anaerobic digestion and Deputy Crawford also referred to organic waste. The Department and the EPA acknowledge that organic waste is a valuable fertiliser. In the next EPA database report, the percentage figure contributed by agriculture to the waste pie chart will be substantially smaller due to a European ruling from last year.

As regards anaerobic digestion, members may be aware that last November, the Minister, Deputy Coughlan, announced her plans to introduce a scheme of ten treatment plant projects to manage farm waste. Plants that include a renewable energy option will also be considered more favourably. Similar plants have worked in other countries with varying degrees of success and these projects will allow the Government to assess their suitability in an Irish context. The scheme is quite generous in that the ten projects will each receive up to €1 million capital investment funding, with a 40% grant aid.

Mr. Rice

Deputy Crawford was disappointed not to hear more about the nitrates directive, but I did not mention it because I do not see a strong connection between the directive and biofuel production. When these energy crops were being developed, emphasis was placed on crops which could grow with a minimum amount of fertiliser, yet a crop is now wanted which will absorb vast quantities of nutrients. Unfortunately we must begin again. Willows were chosen because they have low fertiliser requirements. Although that was seen as one of their benefits, it is now looked on as a disadvantage. While they are good crops for the disposal of effluent material that we want to keep out of the food chain because it has a high BOD, or some such problem, but is low in nutrients, wastes that are high in nutrients do not fit into the picture well.

Senator Callanan talked about CHP and I have said all I want to say about that. The trouble with CHP is that it produces 80% heat and 20% power and if there is not much difference between the prices of the two, there is no point bothering to produce power because it complicates the plant greatly. That is the current situation. As heat is nearly as valuable as power, why bother with the 20% power? Why not just produce 100% heat? Until there is a significant increase in the price available for renewable electricity that will remain the situation.

Deputy Upton asked how our technology compares internationally and whether we are losing out because we have not developed our own. While we can buy in technology packages, for example for bioethanol or biodiesel, we wasted at least five years when we should have been bringing in those technologies and learning about the projects Ms Licken mentioned. We should have been learning from a range of projects, getting local experience, getting farmers used to growing crops and getting people used to their management, for example controlling their quality. We have lost five years and cannot make it up. It will be a struggle for us to catch up.

On the scale of plants, the different technologies vary. The four pure plant oil units that are up an running are small, each with an investment of between €250,000 and €500,000. They are reasonably efficient at that scale. Biodiesel production is more complex and one must operate on a larger scale to justify it. For bioethanol one needs an investment of €50 million or more. The scale depends on the technology. While we have started with pure plant oil, we will have to move to bigger plants with more advanced technologies and larger scale if we are to achieve the 2% target.

Deputy Blaney was concerned about the profitability of the Raphoe plant and the possibilities of using rape straw and cake and getting more value from them. I hope that before the end of the year we will be pelleting rape straw ourselves. We need to test whether the pellet produced from rape straw will be as acceptable to the market as a sawdust pellet. With rape straw pellets there will be more ash for the person to remove. While a sawdust pellet produces a fraction of 1% ash, rape straw pellets will produce 1%, 2% or more. I do not know whether that will be regarded as a serious problem by the user and we must find out.

I am not sure about the use of rapeseed cake as a fuel. It is a valuable animal feed. It has a value of approximately €150 per tonne as a feed and probably has a similar value as a fuel. The fact that it is a high protein animal feed which can be guaranteed to be free of GMOs should add to its attraction and I hope the feed market will absorb it. If not we will have to look at burning it. Despite its high heat value, it is not an ideal material to burn because its high protein content results in a high ash content, perhaps 5%.

Senator Callanan asked about the extraction rate from wheat. One can get approximately 350 litres of ethanol from a tonne of wheat so if one produced a good crop of winter wheat and got nine tonnes per hectare, one would get approximately 3,000 litres per hectare of ethanol. The yield is lower than for sugar beet, from which one would get approximately 5,000 litres per hectare. On Dr. Jimmy Burke's comments in Cork, I reflected his views on the second paragraph of my handout. While I may have expressed them more succinctly and quietly than he did, his sentiments are there. I hope I have addressed most of the questions.

Irish ethanol will never be able to compete with Brazil on price because of its climate and ability to produce enormous yields of sugar cane and the fact that its workers are paid so little. It is difficult to compete with a country like that. However since the world price of ethanol is approximately 60 cent per litre, it is reaching a level at which we could seriously explore producing ethanol. I would not give up hope because we cannot compete with Brazil.

Deputy Crawford

I welcome Ms Licken's explanation of the number of projects that are grant supported. In the past a number of projects that were sanctioned for alternative energy were not realised and others lost out because only single projects were allowed in. When does she expect other projects will get an opportunity? Is it a one-off or an annual grant and is any new grant aid available?

On the issue of poultry farm litter, I visited a number of plants in the UK and I am interested that the presentation mentions the UK and Germany. Has there been a study on the cost effectiveness of those systems and how they would assist the Irish poultry industry? We sell the waste product we cannot cope with, for example, meat and bonemeal and the waste from oil laundering, to Germany and it uses it to a valuable extent in its energy projects. How much research have we done in that area? It has nothing to do with the nitrates issue but the product has to be dealt with and causes problems and great anxiety.

Deputy Stanton

I thank the Chairman for letting me speak and apologise for being late. I am interested in this area, particularly the future of the sugar plant in Mallow. Many farmers in the constituency are anxious and would like to see some progress. They particularly do not want the plant to be dismantled. Mr. Rice mentioned that a €50 million investment would be required to begin bioethanol production. What does he mean by that? Does that imply starting from scratch from a plant similar to that in Mallow and an additional distillation or fermentation unit? What is required? As it stands, or with slight modification, could the Mallow plant play an important part in the production of bioethanol without having to build another facility? I understand it could.

Ms O'Neill referred to alternative crops. Does she agree none of these crops comes near providing the economic return for farmers that sugar beet provides? Even with rotation, issues will arise and many farmers will find themselves seriously out of pocket as a result of the cessation of sugar beet production in the Munster area.

Ms O'Neill stated a number of groups were interested in taking over or getting involved in some kind of co-operative venture with Greencore and the Mallow plant. Has the Department been involved in any shape or form? In response to a parliamentary question last week the Minister told me she had not entered into discussions with Greencore on the possible use of the Mallow plant for ethanol production and neither had the Minister for Communications, Marine and Natural Resources. How important could the Mallow plant be in the chain of production of bioethanol? Would both Departments and Ministers be anxious to have the plant in Mallow retained for that purpose, if possible, rather than having to construct a new facility reproducing what already is in place? Is the Government able in any way to sweeten matters further for Greencore — if members will pardon the pun — to allow it to maintain and retain the plant in Mallow, if it is viable and an important factor in the production of the sugar juice that can be further refined to produce ethanol?

What is Mr. Rice's view of the economics of producing ethanol from sugar beet or other crops and using the plant in Mallow as a facility to refine the product? I think I am correct in stating the oil refinery in Whitegate will be involved in this process. As Ms Licken stated, it has been proactive in this area.

Chairman

If there is a massive take-up of land for the production of energy crops, can MsO'Neill or Mr. Rice envisage a future scarcity of food, as well as very expensive food, a matter we must consider?

Senator Browne

I apologise for being late but I was attending another committee meeting.

I urge the Department of Agriculture and Food, in a political rather than a Civil Service sense, to be more proactive. When one considers that in 1925 or 1926, when the country was on its knees, a previous Government had the foresight to develop the sugar industry, it is remarkable that in the Ireland of 2006, with all its affluence, wealth and expertise, we cannot create an industry around the alternative energy issue. We need to be more proactive. If it could be done in 1925 in the harsh economic reality which followed the Civil War, surely we can be more proactive. Rising fuel costs have brought this matter home to us.

I am not sure about the development of the Carlow and Mallow sites for future alternative industry because I would not have confidence in Greencore's record. The company has indicated publicly that it has no interest in taking that road. I wonder if it is a cul-de-sac. I am puzzled as to why the Minister asked Greencore why it would move into this area when it is on record as stating it has no interest in doing so. Perhaps there is a time delay factor.

I was amazed to learn about the position on wind energy. I had always assumed it was independent but it is not. In the Irish case, if a person sets up a wind energy facility on his or her property, he or she will have to supply the energy produced to the ESB which will in turn resupply it. That seems daft, although it may have to do with safety issues. Does Ms Licken know whether there are plans to open up this area in order that in certain cases those who produce wind energy can be self-reliant without the need to deal with the ESB? The ESB seems to have a complete monopoly.

It was explained to me recently that it was not even a question of the ESB trading like for like. If I produce X amount of wind energy and supply it to the ESB, I will not get the full amount in return. Is it possible to break the link with the ESB and allow for the possibility of total autonomy if that is suitable?

Ms Licken

Wind energy is not my area of expertise. Is the Senator referring to large-scale production?

Senator Browne

I was thinking more of small-scale production.

Ms Licken

On small-scale production, Sustainable Energy Ireland has undertaken and is undertaking studies in this regard. An issue has arisen with regard to grid connection. As I understand it, one could set up a small wind turbine to service one's own needs without using the grid.

Senator Browne

I thought the same but apparently it is not the case.

Ms Licken

The issue may be that if one generates more than one needs, one must get the extra energy onto the grid. Also, if one generates more than one needs at times and at others needs to buy from the grid, how can the two be balanced? Is the effort worth it, given the level of investment in metering that would be required? The micro area is a significant one. As larger scale production is not my area of expertise, I cannot comment on it.

On the question of the next call for proposals under the biofuels scheme, it seems likely that there will be one call for proposals because we want to give investors certainty over the five year period. If one wants to invest in a large plant, one will get excise for this period. Anything less would reduce the chance of attracting serious players into the market. However, we will obviously leave an opportunity in order that if projects are faltering, we can return to the market.

On the Brazilian ethanol question, one of the issues which emerged in the European debate was that everybody was afraid of Brazil. At the same time, if Europe keeps going in the way it has, Brazil could not possibly supply the entire European market — in other words, it could not supply all those who are afraid of it. I agree with Mr. Rice that it is not as big a threat as we think.

Mr. Rice

Deputy Crawford raised the issue of burning chicken litter or meat and bonemeal. If I was generating electricity from renewable material in Germany, I would hope to get 12 to 14 cents per kilowatt hour whereas if I produced it in Ireland, I would get 7 cents. At one level it is very profitable but at the other it is hopeless. It has not been a priority with Teagasc because, given the figures, we would have no prospect of any uptake on the work we might do. It is not a viable proposition.

On the Chairman's question, we would never dream of going so far into energy crop production that we would produce so little food that prices would be pushed up. Farmers might think it was a good idea if prices rose but in reality we export 80% of our agricultural produce. It will be a long time, therefore, before we have to worry about food production.

If the Mallow plant was to be used for ethanol production, then all the intake facilities — the washing of the beet, the disposal of the dirty water, the slicing, the diffusion and the extraction of the raw sugar — would be in use. After that, instead of the raw juice being refined into sugar, it would go to be fermented into alcohol. I do not know what percentage of the plant that would comprise but I imagine it would be substantial because the effluent disposal facilities, which would still be in play, would be considerable. As to what it would cost to convert one of those beet factories to ethanol production, I can only guess and I would be doing so on the basis of the study Irish Sugar carried out in 2000. To my recollection, it estimated that it would cost £16 million to £20 million to convert Mallow to ethanol production. Bringing those figures up to date, I suppose the cost would be in the region of €30 million.

I am quite certain that we could produce ethanol from beet in such a plant and be competitive with current world prices for ethanol. If I was an investor examining the situation, I would also look at cereals and it is possible I might decide that, even though it is profitable to produce ethanol from beet, it is more profitable to produce it from cereals. I might be tempted to go down the latter route. While I would hope that an investor would go down the beet road, I suspect it would be difficult to persuade him not to take the cereals route. If one was erecting a plant on a greenfield site and if I was obliged to provide all those effluent disposal facilities for sugar beet, as an investor, I would run a mile because I could see myself spending two or three years trying to obtain planning permission and running into all sorts of difficulties apart from those relating to the cost involved. I suspect that if it was not done in one of the existing factories, it would be difficult to get a beet processing plant going on a greenfield site. I am aware of the debate taking place throughout the country and I would like to be able to do more to help those trying to make a case but that is about as far as I can go.

Ms O’Neill

On the possibility of other parties being interested in producing bioethanol in Mallow, we believe there may be some but we do not know how serious are their intentions. The Minister raised with Greencore the possibility of using Mallow for ethanol production but the company informed her that it did not intend to produce bioethanol there. If Greencore or any other interested party wanted to produce bioethanol in Mallow, Carlow or elsewhere, it would be obliged to make a commercial decision as to whether it would produce it by using beet or, as Mr. Rice stated, wheat, which seems to be more profitable.

On the sweeteners available, there is the excise duty relief that provides the framework for anybody to consider producing bioethanol in Mallow or to discuss its production with Greencore. In addition, Greencore is entitled to the restructuring fund money. It can obtain 100%, less at least 10%, if it fully dismantles the factory. It will obtain 75%, again less at least 10%, if it partially dismantles the factory and uses it for bioethanol production. That, in fact, is an incentive for the production of bioethanol because it costs more than the 25%. The framework is in place for Greencore, or another party, if it wants to produce bioethanol but it is a commercial decision for it.

Deputy Stanton

Will there be any implications in respect of the compensation farmers could receive if a decision is made to continue to grow sugar beet to produce bioethanol?

Ms O’Neill

That is a complex question. We await the Commission guidelines on the implementing rules for the restructuring scheme. Those rules are due towards the end of this month. As of now, however, I do not have an answer for the Deputy.

Chairman

Will Ms O'Neill contact the Deputy if she receives any information?

Ms O’Neill

Yes.

Senator Browne

Would it be possible for the State to buy the plant in Mallow and relieve Greencore of it? It would then be in a position to facilitate development of the plant because Greencore is not going to do so. If that was possible, we could then eliminate an obstacle. Mr. Rice said it is possible to use the facilities in Mallow to produce ethanol, although obviously extra work would be required. I believe Greencore is a red herring. If we could take it off the pitch and if the Government was to buy the Mallow plant, it would be in a position to lease it to interested companies.

Ms O’Neill

That would be a huge issue in terms of State aid. The State could not just buy a factory and produce bioethanol.

Senator Browne

The State could buy the factory and lease it to interested companies. At present, there is a stalemate. The State does not own the factory and it is trying to encourage the private sector to become involved. However, Greencore will not become involved and is unlikely to do so in the future.

Chairman

I presume the State would still have to obtain permission from the EU to do that.

Ms O’Neill

The Government would have to obtain permission from the EU. It would be a major issue for the State to become involved in the production of bioethanol and to buy a plant for the production of same.

Senator Browne

It would be facilitating production rather than becoming involved.

Ms O’Neill

It would be a state aid issue and we would be obliged to prove to the EU that it would not be anti-competitive and that we would not be competing unfairly with those producing bioethanol in other member states.

Ms Licken

A third party other than the State and Greencore might be interested. The excise relief programme is designed to provide a framework within which people could invest, whether in Mallow or at another facility.

Chairman

The meeting was very informative and I thank Ms Licken, Ms O'Neill, Mr.Crammond and Mr. Rice for attending and for the way in which they responded to questions from members.

The joint committee went into private session at 5.30 p.m. and adjourned at 5.35 p.m. until 12.10 p.m. on Wednesday, 10 May 2006.