Energy and Environment

Biomass subsidies: how an environmental accounting trick benefits vested interests and the government

The electricity generator Drax is not an easy company to love. It doesn’t help that it shares a name with a James Bond villain. People who are terrified of climate change hate it and people who don’t care about climate change hate it. It used to burn a lot of coal and now it burns a lot of wood. Critics say it might as well have kept burning coal. At least that would be cheaper.

Burning imported wood pellets creates a similar amount of greenhouse gas emissions as coal and much more than natural gas. It creates infinitely more carbon dioxide than nuclear, wind and solar while also pumping sulphur dioxide into the atmosphere. It is nevertheless heavily subsidised in the UK – to the tune of £617 million in 2022 – and this week saw the government launch a public consultation on whether the subsidies should continue.

On the face of it, this seems mad and yet the government is responding rationally to the incentives created by both its international and self-imposed obligations. Without question, trees are a renewable resource. There is a bigger question mark over whether chopping them down, turning them into pellets and shipping them across the Atlantic to be burnt is environmentally sound, but from the UK’s perspective it is. Most of the trees burnt by Drax in the UK are grown in North America and that is where the carbon emissions are counted. Drax is the biggest emitter of carbon dioxide in the UK energy sector, producing 13.3 megatons in 2020, but on paper it emits nothing.

This has an obvious appeal to politicians who have committed themselves to decarbonising the entire British economy within 26 years and have no idea how to do it. Still more appealing is the prospect of the woody biomass industry becoming a net absorber of carbon dioxide which, in theory, it would become if it uses bioenergy with carbon capture and storage (BECCS). This is the next step for Drax if it secures more subsidies. By capturing some of the carbon dioxide it produces and burying it under the North Sea, it will go from being theoretically carbon neutral to theoretically carbon negative.

The government openly admits that it needs a workaround of this sort to make up for the emissions from the likes of aviation and agricultural that will never be zero carbon. A spokesman for the Department for Energy Security and Net Zero said yesterday that “bioenergy with carbon capture and storage will be required to offset residual emissions in sectors that are difficult to decarbonise completely.” But, as critics have often noted, the whole thing relies on an accounting trick. It is hard to imagine the government permitting, let alone subsidising, wood-burning on this scale if the smokestack emissions were counted on the UK’s balance sheet. In the same way as we have outsourced heavy industry to China, we are outsourcing the emissions from electricity production to North America.

Moreover, there are serious doubts about whether BECCS will actually work. The government’s own Biomass Strategy admits that ‘BECCS is, as yet, unproven at scale’. It will certainly be expensive. Since capturing and storing carbon requires a lot of energy, a good deal of the power generated by burning wood will be diverted to getting rid of the carbon. Dr Daniel Quiggin of Chatham House estimates that this ‘energy penalty’ will reduce Drax’s power efficiency from 36 per cent to 21 per cent. The strike price of biomass energy, which is already higher than offshore wind, solar and nuclear, will rise further.

To be fair to the industry, burning a tree does no more than release the carbon dioxide that it has absorbed in the course of its life. If the tree is replanted, it becomes part of a virtuous zero-carbon circle. If the wood in Drax’s pellets comes from the residue and waste of commercial forestry which would release carbon dioxide if it was left to rot, its green credentials would be stronger. However, it is far from clear that all the trees in the supply chain are replanted and there is persuasive evidence that whole trees from pristine forests are being used to make wood chips. In any case, environmentalists argue that forests should not be merely carbon neutral, they should be carbon sinks.

And yet if you look at it from the government’s perspective, you can see why this highly controversial practice continues. Biomass is not only technically carbon neutral but it is also dispatchable: it can be turned on and off easily. This is handy when the wind isn’t blowing and the sun doesn’t shine. But energy from natural gas is also dispatchable – and it is cheaper. Nuclear power is carbon neutral and while it is relatively expensive it is still cheaper than biomass.

There are plenty of options and the government shouldn’t be in the business of picking winners. Instead, they should set what Milton Friedman called ‘the rules of the game’  and allow the best solutions to emerge from free competition, albeit with a mechanism to internalise the externalities of greenhouse gas emissions. Instead, the system allows the British government to completely ignore the externalities and to boast about reductions in carbon dioxide emissions that only exist on paper.


This article was first published on Reaction.

Chris Snowdon’s paper “Trees for burning: the biomass controversy” is available here

Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".

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