The joint committee has invited Ethanol Ireland to discuss issues for the indigenous bio-fuels industry in light of the Energy (Biofuel Obligation and Miscellaneous Provisions) Bill 2010, which will be referred to the select committee in the next few days for debate on Committee Stage. I welcome Mr. Richard Walshe, Mr. Paul Martin, Mr. Thomas Cooke and Mr. Bernard Rice. I draw attention to the fact that while members of the committee have absolute privilege, this privilege does not apply to witnesses appearing before the committee. Members are also reminded of 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.
Bioethanol Industry: Discussion with Ethanol Ireland.
Mr. Richard Walshe
I thank the Chairman and committee members for inviting us and we wish to make a presentation on our proposal to build a 100,000 tonne ethanol plant in the south east. Mr. Thomas Cooke will make a presentation.
Mr. Thomas Cooke
We will take questions afterwards but members can interrupt if any issue arises during the presentation. Our company is Alternative Biofuels Ireland and our registered business name is Ethanol Ireland. A bioethanol production facility is a major plant and a huge undertaking. I have provided a picture of one example in Spain, a series of tanks and intake areas processing wheat and other materials to produce ethanol. Bio-fuel use is policy driven due to the environment, especially greenhouse gas emissions, energy security and the economy. We will refer mainly to the Irish economy. The Government sets the parameters, the goals, the instruments, the conditions and legal requirements. The Energy (Biofuel Obligation and Miscellaneous Provisions) Bill is such a parameter in that it sets down instruments and legal requirements. It is necessary to have policy involvement at a high level to create market certainty that allows us to make a business of it. The other aspect of policy involvement is that it sets market limitations through stringent legislation. Legislation allows this sector to develop but also sets limitations.
I have provided a graphic of a proposed plant in Belview Port, County Kilkenny. This port is often referred to as Waterford port but is actually located in south County Kilkenny on the River Suir. The proposed plant is an integrated bioethanol plant with direct access to the port and jetty facilities. This is the proposal before An Bord Pleanála at the moment under the procedures of the Planning and Development (Strategic Infrastructure) Act. The proposed plant will be located in the estuary area and is very well serviced by the recently opened motorway to Waterford through Kilkenny.
It provides for 100,000 tonnes per year of bioethanol but we also plan to produce 110,000 tonnes of distillers dried grain, which is valuable animal feed. We will also produce 60,000 tonnes of CO2 for industrial use. CO2 can be captured and we are at an advanced stage of discussions with an international company on the capture of CO2. The plant will use approximately 360,000 tonnes of wheat, which will be the main feedstock. It will use 40,000 hectares of land, which is roughly the amount of land used in production of sugar beet when we had a sugar industry. It is a significant plant in terms of its production of ethanol, distillers’ grains and industrial CO2. At the moment the latter is imported. We will utilise wheat and give good value to farmers producing wheat.
The economic importance of the ethanol plant is significant. It will displace the need for 4% of current petrol imports. We imported 2.349 million tonnes of petrol in 2007. The plant will give us some sense of security of domestic fuel supplies and will create a sustainable market for Irish grain and utilise up to 40,000 hectares of land. In the current environment, it will be a significant tax contributor through PAYE and company taxes.
Import substitution is an important factor. It would not produce ethanol for transport use only, it would displace the importation of high protein animal feeds through the utilisation of distillers' dried grains and 60,000 tonnes of CO2 will be captured for industrial use. Its social importance would be significant as it would be a net contributor to the local community through its feedstock supply and construction and operating jobs. As part of our plan, it would be a major contributor to the development of harbour and port infrastructure in a rural area and employ 36 people directly on a long-term ongoing basis and approximately 1,000 people indirectly. This would involve people throughout the supply chain. It is estimated that approximately 70% of income generated by an indigenous bioethanol or bio-fuel plant is spent in the local area so it would have a major impact on the local rural economy. We emphasise that it would be a major economic development, in the south-east region and nationally, and would create a sustainable market for Irish grain, which is badly needed at this time. Grain markets are severely depressed at present and the plant would create a demand for it.
Ethanol is a highly sustainable product in terms of its environmental performance and greenhouse gas emissions. I will elaborate on this later, with regard to its performance in comparison to standard gasoline or petrol. International studies show that every 100 million litres of domestically produced ethanol generates 1,500 long-term jobs. It also creates highly-skilled labour in the field of scientific research, technology development and engineering. There would be a full range of skills on board for the running and development of the plant but, importantly for the smart economy, it is a relatively new area of activity in Ireland and we would look to hire extremely highly-skilled labour in the areas of scientific research, technology and development. It would also involve labour and employment for people at the other end of the scale.
Sustainability is a key part of bio-fuels. Many NGOs campaign internationally against bio-fuels and some of those campaigns are quite justified. We must examine what we are doing in Ireland and what our proposal means to sustainability. Sustainability involves four main issues, and the greenhouse gas balance is key. There is no point in developing bio-fuels if they will not reduce CO2 emissions. The EU has set targets which require a 35% reduction now and a 50% reduction by 2015. Our plant would make a significant contribution to meeting those targets.
The displacement of natural vegetation is not an issue in Ireland as it is in other parts of the world, such as in palm oil production in south-east Asia. In Ireland, land already in use for a different end product is utilised. Displacement of food production is not a problem in Ireland. We see the fact that distillers' dried grain can be used for animal feed as a plus in this area. With regard to biodiversity, wheat has been grown in Ireland for thousands of years so there will not be any significant change in biodiversity. With regard to sustainability, this plant ticks all of the boxes.
The slide on page 10 elaborates on greenhouse gas emissions with regard to bio-fuels versus fossil fuels. The slide was produced by the Sustainable Energy Authority of Ireland. On the left of the slide one can see that gasoline or petrol CO2 emissions range from more than 250 grammes per kilometre to 230 grammes per kilometre on a wheel to wheel basis. Ethanol from wheat is at the very low end. The black bar on top of the main bar is the range of differences that can exist and modern ethanol plants are down at 65 grammes per kilometre or 75 grammes per kilometre. People criticising bio-fuels often use as examples old bio-fuels production plants which use very inefficient processes to create bio-fuels. Modern ethanol plants tick this box in a big way and meet the requirements to reduce greenhouse gas emissions in the future.
The next slide shows the bioethanol carbon cycle in which crops such as wheat are finely ground and sugars are separated and distilled into ethanol, which is an old tradition in Ireland. This is then used as fuel which releases CO2 which is absorbed by plants such as wheat, and the cycle continues.
We have been working on this project for several years and have done quite an amount of work. Site selection was a key part of it and after many years the original site selection report stands the test of time. As time has passed we consider it as by far and away the most suitable site in the country for an ethanol plant. The site is located in the south east with good port and road infrastructure, and rail infrastructure also crosses the point. Recently, it was industrially zoned by Kilkenny County Council. The planning is being examined by An Bord Pleanála under the Planning and Development (Strategic Infrastructure) Act. It qualifies to be considered under the Act as it is connected to port development in the area.
We have come before the committee because we have issues with regard to the Energy (Biofuel Obligation and Miscellaneous Provisions) Bill which we want to discuss. Much good work has been done by members of the committee and others in this area. The Bill was a major step forward in our plans to develop our project. However, at the initial publication of the Bill the Minister admitted it did not provide the necessary framework for indigenous production of bio-fuel but that it was enabling legislation that set a target for inclusion. It did not include the framework and detail that would allow for the development of indigenous bio-fuel production. The main point we wish to make is that the Bill requires amendments. A right of way issue also arises with regard to the port; this has been ongoing for some time and we are in discussions with the port on the matter. It is quite complicated and we are trying to push it on.
I will not labour the points I wish to make on the status of bio-fuels in Ireland as committee members will have heard them before. We import 99% of our transport fuel requirements and we require 2.349 million tonnes of petrol. Since 2006, a limited amount of bio-fuel has been supplied through the MOTR 1, motor oil tax relief, scheme. This was a success, more so in the area of plant oil. It did not do much for the ethanol industry except for some of the existing players who were able to take advantage of it. At present, 70% of bio-fuels are imported. The existing scheme led to approximately 2% of the road fuel market being serviced by bio-fuel. Irish bio-fuel producers are generally small scale and they have a positive impact locally and nationally. They will easily meet the 35% greenhouse gas reduction specified in the new scheme. No large scale bioethanol facility exists in Ireland. The bioethanol that is produced here is a by-product of the dairy industry. Our proposal is for a purpose-built bioethanol facility.
The structure of the Irish industry is set out in the Energy (Biofuel Obligation and Miscellaneous Provisions) Bill 2010. The players in the marketplace are the National Oil Reserves Agency, oil suppliers, point of duty offices, end user revenue, bio-fuel imports and bio-fuel producers. At the moment oil suppliers have an obligation to include bio-fuels as 4% of their total supply. They acquire certificates for that purpose based on their relationship with the National Oil Reserves Agency. They can opt out of the scheme and not sell any bio-fuel, in which case they must buy out their certificates at 40 cent per litre. As a result, end users do not get bio-fuel in their tank but that is not really an option at the moment. Import and supply is a possible option, whereby bio-fuels are imported for the point of duty and the oil suppliers supply it to an end user. In this way, they can obtain a certificate on the basis that they are importing bio-fuel and supplying it to customers. One can also buy from a bio-fuel producer in Ireland and supply it to oil suppliers or end users and get certificates on that basis.
This may be a simplistic solution because indigenous producers of plant oils have questions about a system in which one can trade profitably in that way. This is not an area we want to get into today as our product is quite different, being mainly a petrol substitute. However, there are issues with the current legislation and about its ability to facilitate the development of indigenous bio-fuel in Ireland.
It is also possible to go direct from bio-fuel to end user, in which a bio-fuel producer trades certificates with oil suppliers. It is unclear how that would work out. The old motor scheme was very simple from the point of view of the bio-fuel producer. A producer received excise relief when it was sold directly to a customer but under a system of certificates it is not quite so transparent. That is the situation in Ireland. It is not a tried and tested formula but it does oblige oil companies to include 4% bio-fuel in their fuel mix. On that basis, and provided the legislation is changed, there is an opportunity.
The next slide shows the oil market in Ireland. Diesel is the most commonly used fuel, followed by petrol, jet fuel at 10%, marked gasoil for agriculture, marine and other manufacturing processes and kerosene, which is mostly heating oil, at 12%.
The background to the Energy (Biofuel Obligation and Miscellaneous Provisions) Bill 2010 is set out in the energy policy framework, the energy action plan and the programme for Government. The Government intends to introduce bio-fuel legislation to ensure a certain percentage of transport fuel used in the State contains bio-fuels in 2010. The obligation scheme is a key component in achieving 10% penetration of renewable energy in transport by 2020, to which the Government has committed under a proposed EU renewable directive. Our plant can produce 4% of the petrol requirement for this country so is a significant part of the Government target.
The next slide shows ethanol costs in various countries. There is a convergence as we move on in time and this is the effect of globalisation on local and world markets. Countries which currently have plants are shown on the right hand side, where members will see a tariff of 19.2 cent to Brazilian ethanol. Ethanol plants in Europe are usually built in countries with a system which prevents cheaper Brazilian ethanol coming in and competing unfairly with European ethanol plants. The map of Europe shows that, of the countries with low import duties such as Ireland, the UK, Holland, Denmark, Italy, Finland and some central European countries, very few have their own indigenous ethanol plants, the UK being an exception in that regard. The countries with high import duties are those which developed the industry, such as Sweden. Sweden has an interesting system, being a combination of different types, while the French and Belgians have their own systems which directly favour local producers.
How do they do that?
Mr. Paul Martin
They have a tender system with pre-qualification criteria such as the distance a product can move. They manage the situation in that way.
Mr. Thomas Cooke
We have taken the line that amendments should be inserted into the primary legislation. That is a key part of the bankability of the project. As members will know, banks are taking a long hard look at every proposal that comes before them. Where previously we would have presented our understanding of national legislation, the bank now wants to see things such as this in black and white. Our wish is for the tariff code to ensure ethanol used for transport fuel in Ireland suffers the higher tariff of 19 cent, to prevent Brazilian ethanol coming in at the lower rate, which is approximately 10 cent. That would allow us to be competitive. The EU standard, EN 15376/2007, requires higher purity and less water in ethanol. An amendment requiring its adoption would allow European ethanol to be favoured in the Irish market and would create bankability, which is preferable to the situation in France where there is a close relationship between the producer and consumer.
In addition to the amendments, a standard should insist that an ethanol blend with petrol is acceptable. The TARIC code 2207 1000 should have the meaning prescribed in Commission Regulation (EC) No. 948/2009 of 30 September 2009 amending annexe I to Council Regulation (EEC) No. 2658/87 on the tariff and statistical nomenclature and on the common customs tariff. The amendment goes on to state that the duty is to be applied in accordance with TARIC code 2207 1000 on undenatured alcohol with a strength by volume of 80% or higher. These details are extremely important in the functioning of the legislation.
Can we ask some questions? We are getting into the detail of the amendments, which some of us have not seen before.
Mr. Thomas Cooke
We do not have many more slides to go. We will then discuss the alternative to our proposal. In discussing the issue with the Department and the Minister, we have perceived that there is a reluctance to include in legislation the detail of what is being considered.
I ask Mr Cooke to continue with his presentation, and then we will get into that issue.
Mr. Thomas Cooke
With regard to the commencement date, we do not necessarily want our proposal to come into effect straightaway. We do not want to create any shocks in the system on 1 January 2013. That will allow the biofuels Bill to test the system as it is without our proposal affecting it in any way.
The draft legislation is currently at the Dáil Committee Stage. The Minister for Communications, Energy and Natural Resources, Deputy Ryan, has agreed to introduce our proposed amendments by way of a statutory instrument rather than primary legislation. That is due to the EU three-month notification requirements, and the requirement that member states adopt the legislation by July. We would like to discuss that issue with the committee.
There is pressure on the Department to include all the details of how it will deliver on the national renewable energy action plan. The Minister is modifying primary legislation to enable those changes to be made under a new ministerial power clause. It is proposed that instead of including the detail in the Bill, the power to make changes will be included. The Department will prepare notifications to the European Commission, and prepare the statutory instrument.
If the compromise amendments are not included in the primary legislation, they could be included under a statutory instrument provided the Minister is given the powers to do that.
The points that we would like those amendments to include are outlined in red in our presentation. Section 44X(1) contains the words "Subject to subsections (2) and (3), the Minister, having regard to the need" to which we wish to add the words "to increase the security of supply of transport fuels". We also wish to insert the words "and specifying certain EU Taric codes" before the words "in relation to biofuels consumed or disposed of by sale or otherwise in the State".
Section 44X(2) states that "Regulations under this section may prescribe different minimum standards", to which we seek to add the three words "and Taric codes" before the section continues with the words "in respect of different classes of biofuels". That circles around the point, which we mentioned before, that if European ethanol is to be produced and sold in Europe, Brazilian ethanol in particular must come in under the higher tariff codes.
Finally, we seek to amend section 44G(5)(b). It states that “the Agency shall, on application to it by a biofuel application account holder, subject to compliance with this section and any regulations made under it, in respect of each litre of biofuel disposed of by sale or otherwise in the State by the biofuel obligation account holder during the obligation period concerned, issue” what is described as “An application for a biofuel obligation certificate”, which will “include a declaration in the prescribed form by the biofuel obligation account holder that the information, particulars and documentation included in the application are to the best of his or her knowledge and belief accurate and true” and “that the biofuel the subject of the application meets such minimum standards in relation to the biofuel concerned”. We want to add the words “and is classified under certain Taric codes”, before the section continues with the words “as the Minister may prescribe under Section 44X”.
There is a lot of detail in what we are discussing with regard to our proposed amendments. If that detail is not to be included in primary legislation, we would like to talk to the committee today about the powers that would be included in primary legislation to enable statutory instruments to be given effect.
I welcome the delegates, some of whom I have met before. They have been active in trying to improve understanding among policymakers of what is possible in the ethanol field, which has been useful.
We all want an ethanol industry in Ireland that will provide new opportunities for Irish agriculture, and it is preferable that the biofuel used in the transport sector in Ireland is produced in this country if possible.
I have a number of questions. The key issue that we need to resolve is shown in the graph on page 17 of the presentation. We can clearly see the difference between the cost of producing ethanol from sugar cane in Brazil, and the cost of producing it in Europe, or in the US from corn. It is more expensive to do it in Europe.
In a nutshell, we propose to create through legislation an artificial price in the market that will allow us to produce ethanol. It makes sense to produce it in Ireland from an environmental, social and energy security perspective. However, we recognise that it will cost the consumer — the person who is filling his or her petrol tank — more, although we are talking about a relatively small amount of money. It will still be more expensive to produce ethanol here than in Brazil. We have had a similar argument about sugar.
I agree with the principle. However, I am concerned that if we create an artificial market and an artificial price by introducing export or import tariffs — along the lines of those shown on the map on page 19, which highlights the different approaches to customs tariffs throughout the European Union — we run the risk of creating a market that can come tumbling down in future. That could happen if it is agreed at European level, under world trade talks or something similar, to increase access and reduce import tariffs for biofuels coming into the European Union from places such as South America and elsewhere.
The end of the sugar beet industry in Ireland was a pretty painful experience. I was in the middle of it politically. Ironically, sugar prices are now higher than they have ever been in the world market. If we were still producing sugar in Ireland, under the structures that we had ten years ago, the industry would be very profitable.
Nevertheless, a political decision was taken. It had a crushing impact on a very profitable industry in Ireland, and on thousands of farm families. I seek assurance from the delegates that that is not likely to happen in an industry that we propose to create by imposing customs tariffs and quality obligations in relation to purity, content and ethanol to try to keep cheaper produce out of the European Union and Ireland.
We are not only trying to keep such produce out of the European Union, but attempting to join the club of EU countries that have decided to go with higher tariffs. I would like to hear the delegates' views on that. They are presumably more aware of that than anyone else, given that they are planning to make investments such as the one that they have mentioned in Waterford Port.
I have asked the delegates my second question before, privately. How can the European Commission allow different countries to take entirely different approaches to customs tariffs and TARIC codes? I do not understand that, although I have tried to investigate it.
We live in a common market that has clear and strong rules. We are talking about applying entirely different import duties to different parts of the European Union. Is it likely that will be allowed to continue indefinitely, or will there be a compromise whereby the British and the German approaches are merged in the future? I am trying to avoid putting in place a favourable market pricing structure that allows Ethanol Ireland make the capital investment it wants on the back of margins and profits based on a price we create through import tariffs that all comes tumbling down in five or ten years' time. We need to be absolutely sure that does not happen. There is some reassurance in the number of ethanol plants being built in other European countries who are in the same position. It is important to get the representatives on the record on that issue.
To be fair to the Minister, he has come some way to recognising that we should consider applying the higher quality standard to give Ireland a competitive advantage. The representatives are not happy that he has gone far enough. He has provided in the legislation, through Seanad amendments, namely section 44X, that he can, by ministerial order, introduce certain TARIC codes for bioethanol that is being used in Ireland and therefore make it more expensive and more difficult to supply that market from places such as Brazil. Basically, Ethanol Ireland wants to take a belt and braces approach to ensure that TARIC codes are specifically mentioned, at least that is what it is trying to achieve. Perhaps the delegates will confirm that.
More important than the quality issue is the actual customs tariffs. The problem is that Britain has gone down a different road. Why is it that Britain is building a very large ethanol plant as we speak? How can Britain make it work for the domestic market with lower import duties than Ethanol Ireland proposes for Ireland? Presumably, it has the same growing conditions, the same growing costs and presumably it is planning to do it from wheat also. Does it have economies of scale that we do not have? I need to understand the reason. The Minister specifically said, when he spoke on Second Stage in the Dáil, that a production facility is being built and developed in the UK at present. The suggestion was that we should take a similar approach to the UK in terms of import duties. Can one realistically differentiate between the Irish and British markets given the non-Border between North and South in terms of trade of fuel and so on if we apply a much higher import duty than is applied by the UK? Will we encourage fuel smuggling? Many of the oil suppliers who supply the UK market supply Ireland, almost as part of the same market. I will have more specific questions later.
I will take questions first and then allow the delegates to respond.
I have a particular interest in this area and have spoken on the Bill. Unfortunately another committee is sitting at present. I do not intend to repeat anything Deputy Coveney said because his questions have been comprehensive. The idea of import substitution is good and really that is what we are talking about. I raise concerns for two reasons. Obviously if we can develop an indigenous industry it is to our benefit economically but also it gets over a concern that has been expressed, and still has not been fully resolved at EU level, about sourcing bio-fuels from the developing world and ensuring full traceability. In terms of what we can do at a time of recession to build up this industry, we should be very open to it. It is clear that the work Ethanol Ireland has done within the legislative process has borne some fruit because initially the Minister was very hands-off in respect of any kind of intervention. The impression we got was that he was incapable of making a difference in terms of the legislation because of world trade rules and so on. Obviously, we can only go so far. The cost to the consumer at the end of the day is the issue in terms of testing how far we can go. What is the practical impact of ensuring higher standards which are not being put in place to ensure higher standards but to ensure the indigenous development can take place? I would like some clarity on the costs issue when it comes down to the individual consumer.
I understand Ethanol Ireland is seeking a delay on the date of commencement. My understanding is that is not a runner because of its impact. The delegates are in a good position in that they have not yet begun but others are in the bio-fuel market. I do not see delaying commencement to 2013 as being a runner.
I am curious about the way of processing. In the presentation there was mention of "wheat or other materials". Perhaps the delegates will elaborate on that. Is Ethanol Ireland solely dependent on the production of wheat? Other materials were mentioned, so presumably one is not solely dependent on the production of wheat. What exactly are the alternatives should wheat not be in sufficient supply to meet the need?
I thank the delegates for their presentation which was very interesting.
I welcome the delegates and thank them for the briefing which was very interesting apart from the technical aspects where I got lost. I am delighted that Mr. Thomas Cooke who comes from the Sliabh Ardagh area which has a history of uprising, is initiating another uprising in the form of developing ethanol in Ireland. I wish him and his colleagues well with the project. The two issues are the quality of the material allowed to be imported and the tariffs, that is, costs. To some degree it is all about money.
I was disappointed when the delegates spoke about the lands that are available to produce wheat that they just mentioned Carlow and Mallow sugar factories. I understand there was an excellent sugar factory in Thurles which contributed substantially to the beet industry in the past and, of course, Tuam, in the west.
While most of the items have been covered, I will be the devil's advocate. The primary producer, the farmer has hardly been mentioned. I am concerned about whatever arrangements, contracts or deals may be entered into with him. I am looking at a picture which shows the plant based in a port in Waterford. It appears that once the plant is up and running we could enter into a scenario in which the farmer has suffered in the past where cheap wheat and grain was imported and in effect, killed the price for the farmer producing those grains. What assurance can the delegates give me on behalf of the farming community in regard to contracts, that they will be adequately rewarded for producing the goods? Down the road, in order to compete — I appreciate the delegates come from a farming background — poacher can become gamekeeper, and when he does, the position changes. Ethanol Ireland may well be tempted to import alternative by-products to turn them into ethanol. I am interested in the project from that point of view. It is fair to say that at the end of the day it will be all about money and this will be a significant part of that equation. Other than that, we certainly go along with the principle that we want ethanol produced in Ireland and we want jobs created in Ireland and the country to be the beneficiary of that project. I wish the delegates well. The amendments are quite clear. We will pursue those to see how far we can accommodate Ethanol Ireland.
I welcome our guests and compliment them on their pioneering work to date and their commitment to this very important plant, which will be an important part of our future. Like other speakers, I tell them that anything we can do to help, we will do. That the Minister will come in shortly to talk with us, although in private, and his commitment in regard to the enactment date of the Bill are a help.
I have known Mr. Cooke and some of the delegates for a long time and I have been involved in different issues with them. A commitment to the Irish producers is not in question although, obviously, it is necessary to tie down contracts. We had a very bad experience with regard to the sugar factory in my area, where many hectares of sugar beet used to be planted. It was a disastrous blow to the region when we lost the factory. This is an excellent take-up for that land and it makes sense that we support our guests and explore whatever avenues we can to try to get this plant up and running.
It is a huge investment. The matter is with An Bord Pleanála but there are other small issues to be sorted out in the port. However, the port is very accessible from all parts of that region given the road network, so I do not see those issues as a problem. I compliment the Ethanol Ireland representatives on the presentation. If I can do anything to support them, I will do it.
I invite the delegates to respond.
Mr. Thomas Cooke
I will deal with some of the agriculture issues. I will begin by touching on the question of why the UK can do it without the support systems and I will deal with the points Deputy Coonan raised in regard to why we would not import grain. What the UK is doing is very interesting. The question is often raised that if the UK is doing it, why should we do it. This comes down to a point raised by Deputy Coveney regarding why different countries have different policies. If one thinks about it, Ireland has an all-island policy on electricity and an all-island grid yet we have different policies North and South. It is not just within the EU that different countries have different policies. There can be different policies within one island.
The UK does its own thing. However, the plants in the UK are totally dependent on the European countries that have high tariff policies because the British ethanol will be exported to those countries. It is almost a parasitical arrangement, although that might be too strong a word. However, the fact is that the plant is built in the UK to have a catchment area for UK grain, which is what is used. The UK takes advantage of the fact that other EU countries have a market for——
Is Mr. Cooke suggesting that British consumers will essentially use cheap ethanol coming from Brazil but that the factories that are being built in the UK are to supply Germany, Spain, Portugal, Ireland and so on?
Mr. Thomas Cooke
Up to a point.
Could the same principle not apply to a plant here and could it not be produced here for the same market the English factories are targeting?
Mr. Thomas Cooke
The English factories were begun at a time when credit was fairly easily accessed and there was more certainty about getting money. From the point of view of this country, bankers are now looking at bankability in a big way and they want to see the most efficient use of the product, which here as well as in the UK would not be to truck it across to Rotterdam or wherever else.
There is a convergence in world markets. Globalisation is part of it and Ireland is in a very globalised market. Global and European prices for ethanol are converging over time. However, that will not happen in the short term, which is why we need this legalisation now for us to get the plant built. What the UK is doing is clever but I do not believe the same can be done in Ireland.
Mr. Paul Martin
Rather, it can be done in the short term but it is not sustainable in the long term, when one begins producing and people begin to realise what is happening.
Therefore, the plant is not sustainable in the long term.
Mr. Paul Martin
I do not believe the arrangements currently envisaged will be tolerated in the long term.
The only difference between the UK proposals — in fact, they are more than proposals and the plants are actually being built — and what Ethanol Ireland is proposing is actually cost of funds, which is the only difference the delegates have given us. They said it was easier to access capital in the past than it is now.
Mr. Richard Walshe
That is not exactly correct. The issue here is that the plant to be built in the UK cannot be built at present. The plant that is being built, to which I understand the Deputy refers, is the Ensus plant in Hull. All of the ethanol from that plant is being exported to the German market. The proof of the pudding is in the eating, and they were not able to use it in England. For the exact same reasons, we want to use it in the Irish market. They were not able to make it work with the low tariff so their off-taker, which I understand is Shell, has agreed to take all the off-take from the plant and bring——
We will not be able to compete with that because, presumably, as soon as Ireland puts the higher tariff in place, they will target the Irish market just as they target Germany.
Mr. Richard Walshe
At the moment, we have to have a level playing field for all European producers. We are not saying we will not compete with Europeans. Our main issue is to compete with the Brazilians. We cannot do anything in the internal market.
Mr. Paul Martin
This is why we want the amendment. We suggest that to qualify for an Irish bio-fuels certificate, if the fuel is imported, a higher tariff has to have been applied so there is not a situation where certificates are being issued for low tariff imports because, in that case, we cannot compete and cannot operate.
To play devil's advocate, does Britain not have the ideal scenario for its own position? The British are keeping their consumers happy by providing cheap ethanol into the fuel mix and keeping their farmers happy by developing an ethanol industry and exporting ethanol to where there are higher prices.
Mr. Richard Walshe
Let us talk about the fuel mix and about the cost. The cost to the consumer is the difference between the 10.2 cent tariff and the 19.2 cent tariff, which is 9 cent. On a litre of petrol, at a 10% mix, that equates to 0.9 of a cent. When we talk about cost to consumers, we must bear in mind the costs but also the benefits.
That is on a 4% mix.
Mr. Richard Walshe
No, it is on a 10% mix.
Why then has Britain adopted this approach, given it is such a narrow margin?
Mr. Richard Walshe
Britain has no choice as it does not have the arable land to grow enough ethanol for itself. Most of Wales is covered in mountains, as is the north of England. The plants have to be located on ports and they are normally within a collection region of about 50 to 70 miles from the port. There is a logistical issue and, in addition, it has to be a wheat growing area. Britain cannot supply itself sustainably with all the ethanol it would require. That is why Britain has decided to go the way it has.
It can still import, although at the higher tariff.
Mr. Richard Walshe
It continues to import. However, it has not worked in Britain for the same reason we want it to work here and the reason it works in Germany, Spain, France, Poland and Sweden. The leaders in this are the Swedes. When we talk about costs, which were raised by Deputy McManus, we estimate it is 0.9 cent on a litre of petrol.
Mr. Thomas Cooke
In Germany which has the higher rate, that cost was absorbed by the oil companies so it had no effect on the consumer at the pump. As Mr. Walshe said, the cost to the consumer is often seen just at the point where one fills the tank with petrol, but, as we illustrated in our proposal, this has national benefits that are not seen at that cost point. If one was to add it up, the balance is very strongly in favour of it.
What Deputy Coveney is saying is true in that the British policy is for open trade but if ethanol becomes an issue, the British can just switch their policy overnight and opt for EU ethanol. They probably would not but, looking at it from our perspective——
On a practical level, what is to stop a plant setting up in Northern Ireland, importing cheap ethanol from Brazil and simply transiting that across the Border into Ireland?
Mr. Paul Martin
That is exactly the scenario we want to avoid.
Is this done by imposing higher quality standards?
Mr. Paul Martin
They can still bring it in but if they want the certificate they must meet quality standards and pay the higher tariff. They are free to bring it in but they cannot qualify for a certificate.
Mr. Richard Walshe
The corollary of this is that one wants to pay the Brazilian farmers €60 million annually for the next 25 years.
I know the Brazilian argument and the delegation does not have to convince us on this point. It is the same in many areas. How have we allowed a mishmash of policy to develop in European countries? Britain, Italy, Denmark and France are entirely different. Has the delegation spoken to the European Commission on this point? I tried but I did not receive a satisfactory answer on whether the European Commission will decide at some stage that we need a common approach to bio-fuels.
Mr. Paul Martin
That might happen. The EU set a target and allowed member states to use various incentives and instruments to achieve it. Every member state went a different way and at some stage in the future that will converge. The higher tariff is being applied almost universally.
Apart from in Britain.
Mr. Paul Martin
The EU decided to meet the targets but did not prescribe precisely how it had to be done. Member states were free to develop incentives suitable to their situation.
Mr. Richard Walshe
The progress we are seeing is a new EN 15376 specification being prepared across Europe for the 10% figure, which currently stands at 5%. Most member states have adopted the new standard. It is as much about car manufacturers and warranties with quality in the fuel specification as it is about barriers to entry. It is a warranty issue for car manufacturers, who do not want to have 4% water and hydros in the fuel. That is an issue behind the scenes. We must take that into account.
The delegation has been able to get over the resistance in the Department to its case.
Mr. Richard Walshe
We have done nothing new; we have taken lessons learned from Germany, France, Spain and Sweden. We have studied their policies and the wording in our presentation is taken from the German law.
What is Sweden doing? The delegation referred to a low and high import duty system.
Mr. Paul Martin
Sweden split, using higher cost domestic production for the lower blends so there is not such a price impact at the pump but it allows imports for E85, which is 85% ethanol. It has a special derogation from the EU for identifying either tariff. It brings it in under a different tariff, it is mixed with petrol and called a chemical compound, to which a tariff of 6% applies. The Swedes use lower blends for domestic capacity, which matches nicely. They use cheap imports for the higher blends because there is a lower price impact.
What will be the price difference for someone who drives an E85 car in Ireland?
Mr. Paul Martin
It depends on the oil price. That person could make out like a bandit, depending on the way oil prices go.
Mr. Richard Walshe
Oil is priced at $87 a barrel. In three to five years, oil may have increased in price, as may related products. This is an opportunity to mitigate against the potential risks. Sweden has taken this view and that is why security of supply, which gets lost in the argument, is by far the most important objective of the Bill. It seems to get lost in discussion about costs. This is what Sweden is aiming at and that is why Europe is moving in this direction. It is as much a matter of security of supply and rural development as the cost of ethanol.
Mr. Bernard Rice
The long-term goal of Sweden is to develop large demand for ethanol, which will eventually be filled by ethanol from wood. This will become reality in the near future and at that stage it will be able to go straight into it, with the market for it established and the outlets in place.
Mr. Thomas Cooke
Countries with a nationalistic approach, thinking how they can maximise the benefits of this new technology for their country, adopt the policies that will drive that goal. If one wants to build wind turbines in Spain, they must be manufactured in Spain and Spain is now one of the biggest players in the market. It is the same case with ethanol. The Germans are considering how they should establish the industry and how to create laws in order to do so. Sweden is similar. Ireland needs to examine new technologies and consider how it can maximise the benefits. As a company, in order to create the bankability we require, this legislation is important because we can go to the bank and explain that Ireland has a policy that supports this type of development in the same way as Germany, Sweden and Spain. It comes back to the issue of considering the credibility of what one is proposing and whether the country is standing behind what one is proposing.
I asked a question about wheat. Is the company solely reliant on wheat?
Mr. Thomas Cooke
We are mostly reliant on wheat but a certain amount of barley, which is also grown in this country, is necessary to create the right conditions in the process. There is not an issue with wheat. Ireland has one of the highest figures for wheat productivity in the world. This is not recognised.
Deputy Coonan referred to the location and the proximity of the port. One of the major questions the banks asked us is what happens if the harvest fails. That is a major issue and they will not bank on a project in Ireland unless it is near a port. We want to see contracts agreed with local farmers because it is more efficient. It is possible there will be years where market conditions or weather conditions do not allow it. We have had discussions with grain companies in the south east and they are supportive of us creating a new market.
This is a way of saying that we can support the farmers for the first year or five years but we know that we can import it cheaper further down the road.
Mr. Paul Martin
Ireland can produce wheat competitively and we do not see that changing. We will not pay a massive premium above world wheat prices but this is not a problem because Ireland traditionally produces wheat competitively.
Mr. Thomas Cooke
That was one of the key elements of the site location process. We wanted to locate it in the heart of the grain growing region. The bank will not bank it unless there is a possibility of dealing with a bad year. In the past few years we were within days or weeks of a total failure in the harvest. Banks will not bank that. It is unfortunate in the case of dairy, tillage or beef farmers because globalisation is the only show in town. The protection of markets may be a temporary arrangement, which is the point made by Deputy Coveney. We need to fill the gap in the middle. We will converge on the world market but we need to get this industry up now so that we are in a position to do this when it happens.
All of us have agricultural connections and we are in favour of trying to support local production. It is bred into us.
That is part of what makes the proposal so attractive. It encompasses local production, the farming community and employment as well as energy security.
Mr. Bernard Rice
The other side of the argument is that without something like this happening, for Irish grain growers to be almost solely dependent on the animal feed market is not a happy prospect. Animal numbers are projected to fall.
Page 18 of the presentation details eight plants that are up and running. I notice there is not one in Germany, although we discuss the German market all the time. Perhaps it is under construction. From a practical point of view, so that any farmer listening to this can understand what we are speaking about, what is paid for wheat in plants such as the two in Belgium? Perhaps comparative countries in terms of wheat prices such as Poland or Hungary are not as appropriate as Austria, Belgium and Spain. I presume the delegation has done the calculations on that. Is it the equivalent of the price for milling wheat?
Mr. Paul Martin
Feed wheat.
That is the bar.
Mr. Richard Walshe
The list was included to demonstrate projects of similar size or similar country size to Ireland where this technology worked successfully. It is a very select list. In fact, there are 18 or 19 major ethanol plants in Europe, five of which are in Germany, four in Spain and three or four in France. Every year, each country nominates one or two new ethanol plants. There are two in Belgium.
Will we have the economies of scale to match those? We are a long way behind most of them.
Mr. Richard Walshe
We spoke about this to Lurgi, the technology provider in Frankfurt, which recommends approximately 100,000 tonnes as the minimum size. It so happens that this fits with the catchment area which we would be able to feed at a push. Essentially, this is the optimal size for the Irish market that provides us with the economies of scale and the land bank to supply it.
Is Mr. Walshe excluding Thurles from that area of land? It is a former beet factory area.
Mr. Richard Walshe
We would like to source from Kilkenny, Carlow, Waterford and Tipperary. The new road being built to Danesfort will be extended and we see it as a main artery for logistics.
Does it include Cork?
Mr. Richard Walshe
Yes.
The road network is impressive.
Outside of crops, there are a number of proposals for producing ethanol from waste on the table from people who have come to me and others. Does Mr. Walshe see this as part of an overall complex?
Mr. Richard Walshe
We have taken a standard plant that has been proved in Spain, Germany and Sweden. The Agretanol plant works on Lurgi technology and every year there are improvements in enzymes and the technology. We took a standard plant that had been backed by some of the major international banks based in the Netherlands, examined the methodology by which they had been banked and superimposed and customised it for Ireland.
Much good work has been done on waste but we see that as being for a second generation. The banks would have grave concerns about financing this on a project finance basis. In many respects, the international companies promoting these projects finance them off-balance sheet so they do not go to financial institutions.
Does the delegation have any idea when a decision will be made by An Bord Pleanála?
Mr. Paul Martin
The short answer is "No". To be considered under the Planning and Development (Strategic Infrastructure) Act, we are required to develop our own jetty. We are in discussions with the port on how to integrate that into their plans. Until that is resolved, we do not know whether we will qualify to be considered under the Planning and Development (Strategic Infrastructure) Act.
With regard to long-term economic sustainability, I wish I could offer the committee guarantees that we will not go the way of the sugar industry but no more than anybody else I cannot see the future. Ireland has some of the best wheat yields in the world. We are an island nation, and we can produce the feed stock and distribute the product as well as anybody else in Europe. Our judgment is that with higher oil prices and the volume requirements for bio-fuels in Europe it is sustainable; otherwise we would not invest in it. However, no guarantees are available that something will not change that will upturn it.
Mr. Thomas Cooke
Deputy McManus raised sustainability issues. In five or ten years, as climate change affects poorer countries, issues such as bio-fuels from countries that cannot afford to produce them for the first world will come to the fore. It will become socially unacceptable to source bio-fuels from them. There will be more of an emphasis on local and indigenous production. Countries such as China and Japan do not have the facilities to produce their own ethanol. They look on Brazil as being their source for bio-fuels. Brazil has a limited production capacity. I consider Brazil a temporary convenience. At present, it is our competitor in the European market and the main impediment to us getting our project banked if its product is allowed in under the lower tariff. However, the big cities in China need ethanol to clean up their air emissions and they are looking at Brazil. The possibility of the world producing ethanol is limited and those countries that can do it in a sustainable manner should do so and other countries should not. We have an opportunity to do so competitively and at a socially acceptable level. Nobody in Ireland will state we are taking food out of poor people's mouths. It involves a substitution of land use and we have the land to do it.
It was asked how we can be sure that what we are doing is sustainable in the long term. The distillation facilities we propose to build could be used to process second or third generation bio-fuels. We would have a large part of the infrastructure if we do so. Economically, we have a difficulty with getting it banked, which the proposed changes in legislation would solve. We would have credibility with the banks. The first question asked by international banks is what is the policy in Ireland. If we explain that it is laissez-faire, they will suggest that we are not really serious about it. However, if the policy is the same as that of Germany or France, of looking after one’s own interests and ensuring that it works, banks will have more guarantees in the area.
On behalf of the committee, I thank the representatives of Ethanol Ireland. I wish them every success with what clearly is a very ambitious project. We will meet the Minister prior to the Committee Stage debate on the Bill and we hope to do so in the coming days.