Is it time to reconsider biomass subsidies?

It is time to consider re-routing UK biomass subsidies to new technologies? By Victoria Judd, Counsel at Pillsbury Winthrop Shaw Pittman LLP

The UK generates over 20% of global bioenergy electricity, a large proportion of which is from burning plant biomass.

Electricity generated from biomass was initially considered a good alternative to burning fossil fuels and receives UK Government subsidies as a renewable technology in the form of renewable obligation certificates (‘ROCs’), contracts for difference (‘CfD’) and tax breaks by way of a carbon tax exemption.

Indeed, the think tank Ember calculates that there is £1 billion a year paid in subsidies and £333 million a year given in tax breaks.

However, the use of biomass as a fuel for electricity generation is receiving ever more criticism, as the burning of biomass has been associated with deforestation, the release of trapped CO2 into the atmosphere and various other forms of pollution.

While burning wood for electricity is certainly better than burning fossil fuels, given that trees can be replanted, if the goal of renewable energy is to reduce the amount of CO2 released into the earth’s atmosphere, it remains questionable whether burning biomass will help us achieve our climate goals.

CO2 is released into the atmosphere during the power generation process, but also pursuant to the processing of wood into pellets and the transport of such pellets across the world to supply large generation stations.

As the UK’s climate goals become more ambitious, chasing the target of net zero by 2050, the UK Government needs to be looking at how to be greener.

Cut Carbon Not Forests is one group that is trying to convince the UK Government to stop subsidies for biomass electricity generation, as this journal reported on 11 September.

The UK Government has already made some efforts towards reducing the subsidies given to biomass electricity: in relation to CfDs, greenhouse gas (‘GHG’) emission criteria have been changed further to a 2018 Government consultation with the effect of preventing new CfDs being granted to biomass generators commissioned from 2021/2022 (unless they are deployed with combined heat and power).

However, subsidies could still be reduced in relation to ROCs and tax breaks, as eligibility rules for ROCs are not enshrined in statute and therefore can be amended by secondary legislation and legislation pertaining to tax breaks could be amended such that carbon emissions are measured on a full life cycle basis.

Currently, carbon emissions at biomass plants are disregarded as they are considered to be part of a closed carbon-neutral loop, as trees can be replanted, but if these emissions were accounted for, biomass plants would likely no longer be eligible for tax breaks.

But what about CfDs which have already been awarded to biomass facilities?

These generators are not subject to the new GHG thresholds and can therefore continue to receive subsidies and output GHGs in larger quantities. Such facilities will continue to receive subsidies until 2027.

Given CfDs are set up as commercial contracts, amending the terms applicable to existing projects would either need to be agreeable to the relevant generators, which is unlikely, or forced by a legislative change.

A change in law for such contracts may be found to be discriminatory towards a specific generator or technology type, in which case a compensatory payment could fall due to the generator.

The UK Government would need to weigh up the cost/benefit of any such legislative amendment prior to attempting to satisfy lobbying groups, however much the goals of greener electricity may be worthwhile.

For the short time the UK remains subject to EU law, one could even ask whether a change to the subsidy regime would fall foul of the EU regime.

This is however unlikely, as the UK continues to work towards its climate change targets and sets out its plans in the national energy plan it is required to publish pursuant to EU law. The UK’s national environmental targets remain more stringent than those required by the EU.

To further climate change goals, if any subsidies were liberated from biomass generation, they should be put towards subsidising nascent technologies that may need further government support.

The UK Government needs to support embryonic and innovative technologies so that more established and sustainable forms of electricity generation may develop and have a greater impact on our climate goals.

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