Drax

Question

Asked by

To ask His Majesty’s Government what assessment they have made of the environmental credentials of Drax in view of the new investigation by Stand.earth which reported that Drax had purchased logged trees from old growth forests in British Columbia in 2024.

I have read the report to which the noble Baroness refers with interest, and there are questions both for Drax and for the authors of the report. Compliance with biomass sustainability requirements under Drax’s existing subsidy arrangement is a matter for Ofgem, but we work closely with it to ensure that these arrangements remain fit for purpose. Ofgem’s detailed investigation into Drax in 2024 did not find evidence that unsustainable biomass had been used by Drax, but shortcomings in data governance were identified and Ofgem has required Drax to commission a global supply chain audit, which is currently ongoing.

I thank the Minister for his reply, which goes a bit further than I expected. Drax specifically claims to stop sourcing from old-growth deferral areas and old-growth management areas in British Columbia, but the majority of old-growth forests fall outside those designations. Will the Minister and the Government suggest to Ofgem that it should not accept Drax’s definition of old growth and perhaps exclude the majority of British Columbia old-growth forests from subsidies?

There are two points to make in response to the noble Baroness. The report to which she refers talks only circumstantially about old-growth forests and not old-growth forests that are in any way directly sourced by Drax. As regards the new contract for difference for the next four years that the Government have entered into with Drax, the criterion is now 100% sustainability, which obviously excludes old-growth forests.

My Lords, why is Drax sourcing sustainable wood from abroad when we now have a very intensive tree-planting growth policy in this country? Also, Yorkshire farmers would benefit if we were to go back to sourcing fast-growing willow coppice trees and miscanthus and sending them to Drax to use. Why did we stop doing that?

The noble Baroness will know that Drax is the largest single power producer in the UK and is responsible for about 5% of UK power. That means that it uses an enormous amount of biomass in its process, having converted from coal some while ago. The question, then, is where Drax gets its biomass from, bearing in mind that the amount of biomass that is being grown in this country falls far short of the desideratum in terms of sourcing—particularly in view of the length of time that it has taken to grow that biomass. Therefore, sourcing from abroad appears to make some sense, though not necessarily for the long-term future.

My Lords, the Minister’s own department is consulting on sustainability criteria for biomass as we speak, which will inform future subsidy eligibility and reporting requirements for the rest of the market. In addition, the Financial Conduct Authority is still investigating Drax’s biomass sourcing statements. What safeguards have been built into the new Drax contract that covers 2027-31? Will the results of these two inquiries produce changes to the terms of the recently signed Drax contract?

I cannot assure the noble Baroness that terms will be changed during the new contract. However, the LCCC will be responsible for making sure that the 100% sustainability criteria that have been entered into in the new contract will be strictly observed. That is a substantial step forward from the previous oversight arrangements.

My Lords, the Minister appears to be completely unaware that “Panorama” proved conclusively two or three years ago that Drax does indeed burn old-growth forests. However, the new agreement that the Government have negotiated with Drax for 2027-31 will require Drax not to burn wood from primary or old-growth forests and to enhance the system for an independent audit to monitor compliance with that obligation. What will the sanctions be if Drax is non-compliant?

If Drax is non-compliant, the subsidy goes. There is no subsidy in the case of a non-compliant organisation of any kind. If that happens, it will be the end of Drax.

My Lords, Drax is under investigation by the FCA regarding its past sustainability claims, which is no small matter. Despite that, the Government decided to put pen to paper to extend Drax’s contract. Why did the Government not choose to wait until the FCA investigation had concluded? What legal advice was taken and what risk assessment was made before the Government chose to extend that contract?

We did that because the conclusion of a contract for 2027-31 ensures that Drax continues to produce a very large amount of energy, which is very important for the country; that it does so under enhanced sustainability requirements; and that it moves from being a baseline producer to a dispatchable producer, with a top level of 27% of output within that contract. There is also the implied understanding that the contract will pave the way towards moving to CCS on the back of the contract, making Drax a net-negative producer in the long term.

My Lords, in 2021, Drax was axed from the S&P green bond index over doubts that its practices were carbon neutral. That decision seemed to be endorsed by that famous “Panorama” programme. I bow to the noble Baroness, Lady Jones of Moulsecoomb, for her detailed knowledge of forestry, but it appears that Drax has been importing wood pellets from old-growth forests, even before accounting for the emissions caused by transporting the biomass here from abroad. Given that this is patently not a green company, does the Minister agree that the subsidies for 27% of Drax’s generation capacity are unwarranted and should be withdrawn? Further, if Drax is found to be non-compliant and closes down, does he also agree that the land and extensive grid connections could be better used in the Government’s SMR programme?

No, I do not agree that the various connections relating to Drax could be better used for an SMR programme, because of the particular location of Drax within the cluster in the north-east of the country, which is particularly important for carbon capture and storage, and, indeed, hydrogen. Drax plays a part in that process in that area. The noble Baroness perhaps ought to read the report that is before us very carefully, because it does not actually say that Drax has sourced old-forest timber. Timber is sourced from third parties, goes into the Drax pellet facility, and may or may not to Drax’s knowledge include old-forest material—which, by the way, is outlawed by the Government of British Columbia. There are a number of questions to answer, but not necessarily for Drax. There are a number of people who perhaps have questions to answer as well.

My Lords, on the subject of questions to be answered, does my noble friend not think it surprising that the noble Baroness, Lady Bloomfield, intervened, given that it was the party opposite—the Conservatives—that, in government, signed contracts with Drax? The scale of the subsidies as a result was very large indeed.

My noble friend makes a very sound point, in that the new contract that has been signed costs taxpayers half as much as the old contract did. It is on more sustainable terms and, as I have said, makes Drax move towards being a dispatchable plant, which is much more in line with the power grid generally, than any of the things that were done under the previous Administration.