Expert View: With the EU at the wheel, biofuel plant will cost us dear

The largest single investment in UK biofuels was announ-ced last week. A consortium of BP, the food producer ABF and chemicals company DuPont agreed to plough £200m into a new refinery in Hull that will use wheat to produce more than 400m litres of ethanol a year. This will be blended into petrol to run in cars. The EU's drive to get more biofuels into petrol stations is working: large companies are beginning the process of investing in large-scale ethanol production.

All this sounds good. But take a look at the detailed numbers and the consequences are far from attractive. This huge plant is likely to increase grain prices and may have little effect on carbon emissions. And in a final unintended consequence, it will also boost petrol costs.

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The refinery will need a million tonnes of wheat a year. The UK will probably grow just under 15m tonnes of the grain this year. So the consortium will be buying about 7 per cent of the country's total output. Press reports of the investment included an ABF statement that the impact on food prices would be "negligible". But in a later conversation with me, a senior ABF executive denied that the company had ever used this word. He pointed out that no one can know the effect of this change. US bioethanol made from corn is on a substantially larger scale but has certainly increased world maize prices.

In the past few years, the UK has exported about 1.1 million tonnes of wheat more than it has imported. This one bioethanol plant will wipe out this trade surplus, tightening the market. Wheat is a global commodity and the price is set internationally, but the conversion of European grain lands to growing wheat for petrol is going to raise its cost. Since wheat is the source of about 20 per cent of the calories needed to feed the world, the impact may be severe.

The refinery will produce only about half of 1 per cent of the UK's needs for motor fuel. The EU law says petrol must have 5 per cent bio-content. To get to this level, we will need 10 refineries of the size of the Hull plant. If fuelled by wheat, they will use 70 per cent of the UK crop. At this point, even enthusiasts will agree that food prices will rise substantially.

The investors in the proposed Hull refinery claim it will reduce carbon emissions by 40 per cent below the level of fossil fuel. This figure is highly controversial. Wheat needs carbon-intensive fertilisers to grow, high fossil-fuel inputs to operate farm machinery, and a lot of energy to turn it into ethanol. Two weeks ago, the Government published its own much more conservative figures for the carbon savings when using wheat for ethanol. Its numbers suggested that the greenhouse-gas outputs from using wheat were almost as high as using oil to make petrol. Wheat is a poor crop to grow for UK biofuels. Many industry sources agree. One executive told me the probable carbon saving was 10 per cent or so. Other commentators, such as biocarbon expert Dr Richard Tipper, say the consortium's targets are potentially achievable, but only if proposed design advances are implemented.

The final impact of the refinery will be to increase petrol costs. Even at today's high oil prices, wheat ethanol is far more expensive to produce than petrol. The consortium wouldn't tell me what price it expected to get for its ethanol, but to make the profit it expects it needs a much higher figure than it gets for petrol. Inevitably this will feed through into the price on the forecourts.

So the £200m refinery will increase food and petrol prices and may have little impact on greenhouse gases. In the insane world of the EU biofuels directive, the plant is likely to be very profitable for BP and its partners. The rest of us will have to pay the price.

Chris Goodall's 'How to Live a Low-carbon Life' is published by Earthscan at £14.99

C.goodall@which.net