Welcome to the Public Accounts Committee today, Monday 3 March 2025. Biomass, which includes plants and food waste, can be used to generate power or heat and made into biofuels for vehicles. Between 2002 and 2023, the Government provided £22 billion of support for businesses using biomass through consumer and taxpayer-funded schemes. Generators must submit information to prove they have met the Government’s sustainability criteria, but the NAO’s report last year found that the Government have not reviewed whether the assurance regime was adequate. Potentially, biomass can also generate negative emissions through the development of carbon capture, usage and storage technology. There are currently no biomass plants with this technology in the UK. Today, we will be examining the Department’s approach to making sure biomass is sustainable and its plans to ensure business biomass can contribute to achieving net zero. To help us with all that, we have a warm welcome for our visitors and witnesses, particularly to Jeremy Pocklington CB, the Permanent Secretary at DESNZ since 2023 and then to Ashley Ibbett, who is the director general, energy infrastructure, and Dr Sarah Redwood OBE, director of renewable energy deployment. It is Sarah’s first time in the Committee, so a warm welcome to you, Sarah. From Ofgem, we have Jonathan Brearley, who is the chief executive and has been so since 2020. With him is Kiera Schoenemann. It is also your first time and you are the director of audit and compliance. A warm welcome to all of you. We would also like to welcome Chris Hinchliff, a member of the Environmental Audit Committee. We always welcome people guesting on this Committee because they bring a wealth of additional knowledge that we do not necessarily have, so a warm welcome to you, Chris. We also have Edward Pinney, who is today representing the Treasury because his two normal colleagues are off sick. We hope that you will be robust and not follow in their footsteps. You are warmly welcome. I am going to start with a question at the top. Permanent Secretary, I hope that you have been warned. It is a question that appeared in the Yorkshire Post this Saturday about this company, C-Capture, which is an amalgam of investors, including BP, Drax and so on. It has invested in technology to help speed up the development of carbon capture and storage. If the Yorkshire Post is to be believed, it has now said that it is laying off staff and not putting in any more investment, which does not sound particularly hopeful. I am wondering what effect that will have on the whole of the Government’s CCS programme, if any.

It is obviously sad news for the employees involved in C‑Capture. It is a company we have worked with through our net zero innovation programme over the years. My understanding is that it is looking for a buyer to take the company forward. We will want that process to play out. It is one of a number of different capture technology companies that we have worked with. This particular set of circumstances is difficult for the people involved.

The Government have an investment in it too. It is a 20% investment according to the report.

We do.

Permanent Secretary, we thought that it might be helpful to you, the Committee and everybody else listening to these proceedings if we could ask you for a relatively brief statement on the terms of the Drax contract extension from 2027 to 2031. There are a number of items in that that would be helpful for the Committee.

The Department has agreed heads of terms for a new contract with Drax. In doing that, it is recognising that the previous arrangements that are currently in existence are not working for billpayers or the environment. We have new terms that we have agreed through negotiation. The reason why we are doing this is because we think that this is the right thing to do for security of supply, so we will benefit consumers and taxpayers. We have announced plans for a low-carbon dispatchable contract for difference with a generation collar. Let me explain what that is. It is a four-year contract, from 2027 to 2031, that will offer Drax a price for electricity generated. I am afraid we do all these things with 2012 prices. It is £113 per megawatt-hour in 2012 prices. Crucially, the CfD will cap the annual load factor eligible for subsidy at 27%. There will also be a minimum of 22% generation, so we can rely on the presence of Drax on the system, because we are doing it for security of supply reasons. It will be incentivised to produce when there is low output from renewables. Essentially, we will have a stack where we are incentivising renewables first, then Drax, as a low-carbon dispatchable CfD, before unabated gas and other forms of generation. The other thing I would note and that the Committee would be interested in in terms of the commercial terms is that we have introduced an excess returns mechanism on profit. If prices are particularly high, there will be a clawback mechanism to protect the consumer. A problem with the current arrangements is that they have allowed excess profits during the very high electricity prices we have seen in the last few years. This windfall mechanism will require Drax to return 30% of profits between £160 million and £210 million and 60% when its profits are above £210 million. This is a step change. We are approximately halving the subsidy available to Drax. We think that that will save consumers approximately £6 a year on their bills compared to the subsidy arrangements that exist at the moment. At the same time—if this is helpful for the Committee—we are strengthening the sustainability arrangements for the new contract. We are doing that in three ways. First, we are increasing the proportion of biomass that must be sustainably sourced from 70% in the existing arrangements to 100%. Secondly, we are reducing the supply chain emissions threshold. We have to factor in the supply chain emissions when looking at biomass. We are reducing that from 55.6 grams of CO2 equivalent per megajoule to 36.6 grams. That is aligned with international best practice. The third key thing that we are doing is introducing provisions to exclude materials sourced from primary and old-growth forests from receiving payments. That is to ensure that we are removing any risk of bioenergy demand influencing harvesting decisions for that precious type of forest.

That is very helpful, Permanent Secretary. Thank you very much. There are two questions emerging for me from that. The certification scheme, which is largely the sustainable biomass programme, is almost a self-certification by Drax. It is set up by it. It and another biomass company have seats on the board. How do we know that the auditing and certification arrangements that it produces are in fact accurate?

The first thing to say is that we have only agreed heads of terms at the moment. We are now in a process of agreeing the detailed contracting arrangements. That will include the arrangements around monitoring enforcement and verification. These are important issues. We will want to enhance those arrangements compared to the existing arrangements. We have also announced the appointment of a sustainability adviser. We have not named the individual yet, but we will be appointing a sustainability adviser to support us as we finalise these arrangements with Drax. We have not made the final decisions of what those arrangements will be. You are rightly raising questions around exactly how we can have confidence in the arrangements that exist. At the moment, Drax uses a voluntary certification scheme. It uses the sustainable biomass programme certificate, which you are alluding to. We are currently, as a Department, engaging closely with these providers before we are making final decisions and judgments of what the right approach is to take in the future. In terms of these voluntary schemes, they conduct independent assurance involving audit, onsite inspections, document reviews and interviews. We and Ofgem also undertake benchmarking to ensure that the standard of these third-party certification schemes are in line with the sustainability criteria that we have set out in statute and in contract.

One thing that worries me about these auditing arrangements is that, on 22 January, Jonathan Brearley, you appeared before the DESNZ Committee. Our colleague, Luke Murphy said, “I have a quick question on the auditor. Did you have to agree who the auditor was, or was that fully up to Drax to decide?” You said, “That is a combined decision of both scoping and the auditor, and how that audit is carried out”. I do not mind whether you or the Permanent Secretary answers, but it sounds like a slightly unsatisfactory arrangement that Drax, in any way, should have an input as to who the auditor is or how it carries out its work. Surely all of us, on behalf of the taxpayer, are after a totally independent arrangement.

I think that that is referring to a specific audit that you have asked Drax to undertake following a finding in relation to the existing regime.

I will explain that particular audit. As you know, we found that Drax was in breach of its reporting obligations. To emphasise, we take the reporting arrangements extremely seriously. We know that there is a great deal of public interest and a desire for strong scrutiny over the operations of companies such as Drax. In addition to the £25 million redress payment, we asked it for the most comprehensive audit of all of its biomass supply chain to get the confidence that you alluded to, Chair. When we conduct these audits, it is always a matter of iteration between us and the company to scope the audits and make sure that we have an auditor that is credible. To reassure the Committee, I asked Kiera about this earlier today and in some of the lead-up to this. We will be getting reports at the same time the company does. The company will not have a chance to influence the audits and will not be able to get in the way of Ofgem playing its role in scrutinising. Our job is to make sure that we are reassured that the rest of the Drax supply chain is secure.

The investigative journalist, Joe Crowley, asks why you, Ofgem, have allowed the aggregation of data such that it was effectively impossible for the data to enable the Secretary of State to understand and monitor the extent to which both primary forest and saw logs are used in woody biomass. You have the power, apparently, to request this information on I think even a per-consignment, let alone a monthly, basis, but you allow Drax to so accumulate it that it is almost impossible to disaggregate what the individual information is.

When running a scheme like this, you always have to have a sense of proportionality. You have to have a sense of what you are looking after and the resources required to give the right level of scrutiny. There are two elements to the renewables obligation scheme and two questions we ask ourselves. The first and most serious is whether they have breached the financial rules around the renewables obligation. As this Committee knows, a company such as Drax has a set of criteria around 70% of its supply chain and more flexibility over the other 30%. In that sense, we are very confident that, not only for Drax but across the supply chain, we have applied a test and are very clear what the rules are around that. We then have a second requirement, which is reporting what you do. The whole genesis of the Drax investigation was around that second question. Coming back to your point, we found through that investigation that it had misreported different parts of its supply chain. That is why we had the £25 million redress payment that I have described. With a company such as Drax, we will continue to work with them. We are going to monitor whether it has the right governance and changes in place for that particular part of its supply chain, but we intend to do the same thing for the whole of its supply chain.

I am going to bring in the C&AG here. C&AG, this whole auditing thing sounds a little bit woolly. Compared to what you do and the reputation for absolute accuracy beyond impeachment, this all sounds a little bit woolly. Would you have a view on that?

I do not know whether you want to reply to that now or think about it.

I would, if I may. This is a very timely hearing, as we are currently in the process of working out what the right monitoring, reporting and verification arrangements are for the new contract. Following the NAO report, we are working very closely with Jonathan's team in Ofgem and other experts. We have brought in external experts, including people such as Guidehouse, who have deep expertise in this area, to look carefully at our oversight arrangements. This is going to feed into a new common framework around this that the Department is preparing and we are going to consult on later this year. That is a little later than set out in the NAO report. A lot has happened in that time. We have had an election. We are still very much continuing on that path, thinking about what it is that we need to do to continuously improve and strengthen the arrangements that we have, while still maintaining that balance and proportionality that we need to keep as well, as appropriate.

Thank you, Mr Pocklington, for that update. I have a quick question from the overview you gave. If the excess profits clawback is triggered, will that lead to a review of the overall approach to subsidies? That suggests that the subsidy is not set at the right level.

This will be a contractual arrangement in private law that will exist for the four-year period. I would draw a distinction between the existing arrangements that have been made over a very long‑term period and this transitional arrangement over a four-year period. Once the contract is set, that is the contract that we will need to abide by. Something I would note, though, is that the amount of support, the subsidy, is being halved compared to the current generation. I would also note that we will be looking very carefully at the return that Drax will make under this arrangement and that the outturn return on capital employed will be lower than an asset regulated by Ofgem, such as the distribution network companies. It will be a lower return that Drax will make under this arrangement. Once we have made the contractual arrangements and they are finalised, they will be in place for four years. That is right. I know that there is a range of views around Drax and this policy, but, once you have a contractual arrangement, it is right that we stick by it for the period of the contract.

Yes, absolutely, and that is clearly understood. The point I am making is that it is an opportunity to validate whether overall the subsidy approach that we are taking is at the right level, so we can potentially take some learnings from this contract. Clearly, you have to administer the contract as set out in the contract for the next four years, but I would hope that there is an opportunity.

To add to Rebecca's excellent question, it is a more generous arrangement than wind or solar. That was the evidence. I see that Ashley Ibbett is shaking his head, but I will find the evidence in a minute. Somebody gave us that evidence. How do we know that this is the correct level of subsidy?

We worked very closely with our own financial advisers to look in detail at the contractual arrangements and arrived at the strike price of £113 per megawatt-hour in 2012 prices. The constraints we are placing through the generation collar on the load factor that Drax can achieve to a maximum of 27% and a minimum of 22% are very different from the generation output that it is producing now in the market, where it acts for most of the time as baseload generation, operating all its units at full capacity for all the hours that it can. We do not constrain wind and solar operators, for example, in the same way. We think that it is an appropriate set of arrangements. As Jeremy said, it is designed to make sure that they are there when they are needed on the system.

We received evidence from the RSPB that “the new agreed strike price is much more expensive than wind and solar energy”. Is that correct?

That is correct.

I thought that you were doubting that it was more expensive.

It is about having the appropriate price for the technology that allows us to maintain the asset on the system, or, in the case of offshore wind, get the new investment and the new construction that we need, bearing in mind the benefits that we get from the different technologies. The issue with wind is that it is obviously a valuable foundation for the future and essential to the clean power mission, but, as we have talked about at this Committee before, there are times when the wind does not blow. The issue with Drax is that, whatever one ever thinks about the technology, it is dispatchable. It has very high reliability and is able to operate when needed to do so to maintain security of supply.

Mr Brearley, can you explain why Ofgem failed to identify Drax’s misreporting in 2021-22 at the time? Can you confirm whether the shipment Ofgem identified was misreported was part of Drax’s sustainable biomass programme?

Kiera, do you want to come back on the specifics of the date? We scoped the review in a particular way and felt that we picked up the issues.

To expand on that, as you said, we identified misreporting in 2021-22. That was with respect to two particular datasets. This is part of the annual profiling data that Drax and other large generators over 50 kW are required to report on an annual basis. Ofgem's role is not to conduct a forensic analysis of that data. We provide spot checks and check more or less whether we are confident in the data that we are seeing. To step back to something that Jonathan said earlier, it is really important that the nature of the breach did not impact the subsidies received by Drax. Those datasets do not inform the funding that is received by Drax. As you will have seen, there is an enhanced assurance scheme in place specifically with respect to ensuring that generators can demonstrate that the funding that they receive is in line with them meeting the sustainability criteria. We are very confident that that has been the case here.

If the new criteria of 100% sustainable sourcing had been in place at the time of Drax’s misreporting, would Drax have been in breach of the criteria?

We are still working through with the Department the details of how those criteria will be applied. You have two levels here. You have a 70% feedstock and a threshold that is relatively high, so a different question we are really asking for where the big financial consequences might be. If that goes to 100%, we are all going to have to have a much tighter regime. Coming back to the comments of the Comptroller and Auditor General, I think we all agree that we are going to need a much more robust framework going forward. I would argue that part of that is about the role that we play. We are still in discussion with the Department about that, versus the LCCC, which would administer the contract. Part of that is making sure that we are continuing to monitor the certification bodies, which, by necessity, have to play a role within this regime.

That inevitably is going to have resource implications for staff, for you, the Department or both. Can we be assured that you will gear yourselves up with the necessary skills?

Subject to my colleagues in DESNZ and Treasury, of course.

Coming back to the issue of being assured that the biomass is from sustainable sources, the NAO report was really saying that it does not believe that you can give us that assurance. Is that correct?

The NAO report speaks for itself. The report made some recommendations that it would be appropriate for the Department, working with Ofgem and others, to review those arrangements to get greater confidence over the sustainable sources of biomass. I am trying to explain that that is what we have done since the report was published, using Guidehouse and others. We are taking that forward towards the new common framework that we will be consulting on later this year.

It comes back to these two different thresholds. Where we are confident we have picked up issues, it is around where we think there are significant implications for the renewables obligation, and that is something that we are firm about. We have found companies that have not met it and excluded them from the scheme, so we have taken action where we need to.

We have talked quite a bit about Drax so far, but all the other companies are relatively small by comparison.

Yes, except for Lynemouth.

Are you being as robust in scrutinising where they source their materials from?

Kiera, you may want to outline the action we have taken over the last year to give you an example of how we go through that and the sort of action we take when we find out about it.

The standards for our oversight are set by generator size. There are 104 generators in the bracket of generators that are over 1 MW, so similar to Drax. To give an example, last year I believe 87 of them were compliant with the sustainability criteria and the other 17 were not. They were not issued funding. To be really clear, those 17 were very small in size and the proportion of biomass that they represent as part of the overall UK biomass usage was, I believe, less than 1%, so approximately 0.3% of overall RO output. We provide the same level of oversight and assurance for those smaller generators, again over 1 MW, as we do with Drax.

As a practical detail, I have two biomass energy generators in the constituency. I know that E.ON, which I have been to visit at Blackburn Meadows, uses waste wood from various parts of the construction industry. I am not in any way casting aspersions on what E.ON is doing, but how do you actually know that that is genuinely waste wood and, if they start to run a bit low, it does not top it up from other sources?

I am not familiar with the specifics of the case, so I am not sure as to this particular generator’s size. The oversight that we provide will be dictated by the size of the generator. In this case, if E.ON was a large generator, over 1 MW, it would be required to do a number of things. It needs to submit its annual profiling data on an annual basis. We have spoken about that. It needs to also submit monthly reporting to us, providing a declaration that it has met their sustainability criteria for each of those consignments. It needs to submit also to an independent audit. This is undertaken by an independent auditor to ISAE 3000 standards to provide that additional independent assurance that the sustainability criteria have been met. Across all of that, Ofgem has a BAU assurance regime in place for generators of all sizes, where we take a statistical and targeted audit programme to do further checks.

Nevertheless, you accept that the current regime is not as robust as you would like it to be. Otherwise you would not be doing a review of how to improve it.

I come back to these two thresholds. The important thing for us is, if that threshold changes, this regime needs to be tighter.

Are you doing a review to ensure that you can actually strengthen the assurance regime or not?

The direct answer to your question is that yes, we are. I would like to describe this as a process of continuous improvement, as standards are improving in the sector and international best practice is changing. That is what is happening in this broader sector. When these original contracts were agreed with Drax and others, the energy system was in a very different place. Coal was one of the key alternatives. We no longer have any coal on the system. We have much more renewables and low‑carbon generation on the system. Also, our understanding of supply chains and the timber sector has changed in that time. There has been a lot more research into that. It is absolutely right that the Department, working with Ofgem and others, keeps striving to have the best possible system that we can. A degree of proportionality is important as well, but we want to make sure that we are aligned with best practice. I have given an indication of what we have done with Drax and the contract with Drax around changing this key threshold from 70% to 100%. We are going to have to make a decision about what that threshold is for the sector as a whole when we agree the common framework that we will consult on later this year.

The sector as a whole will be reviewed, or a new regime will come in from 2027. Is that correct? When will you make a decision on that?

We will not be changing the private contracts that are already in place, as we set out earlier on.

They all come up for renewal in 2027, do they not?

No, some of the generators under the renewables obligation will carry on receiving support beyond 2027, depending on when they joined on to the scheme. We will carry on looking at how we can improve our processes. We are already taking actions with Ofgem, such as increasing the regularity of our governance, the meetings that we are having to share the information between ourselves, and looking at simple things such as how we can improve the reporting and the templates that are used, so that we can look at greater disaggregation of some of the data, as one of your colleagues mentioned earlier.

I am going to change gear slightly. I want to take advantage of such knowledge of the witnesses and ask you about a specific issue that I have in my constituency in Redhill. There is an estate called Park 25 that has a biomass boiler heating system and it is used to support all the apartments on the estate, so a lot of residences. It was put in place in 2007 or 2008, so I think it was one of the early ones, and I am sure you can probably predict what I am about to say. Residents are finding that it has been very inefficient. They are now in a situation where I think the company that used to make the parts has gone and they are having to import them from Germany, so the repairs to the system are very expensive. They are continually having to repair the system and, to be entirely frank, it is making their lives a misery. Their service charges are excessively high as a result, in part, of these energy costs and it is making it difficult to sell the flats. What advice can you give me, my residents and the management company in terms of how we address this? It is fair to say that it was really well intended when it was made a planning condition to put in place the biomass, but it would have actually been better for all of them if they had been put on the gas system, being quite honest, because this has become a bit of a nightmare. Would you be able to give me some advice? I appreciate you may want to take some of this offline, but I would be ever so grateful for understanding how I can move this forward for my residents.

I did not know what Ms Paul was going to ask. Permanent Secretary, might it be helpful if she writes to you?

Is this Park 25?

It is Park 25. It is very famous for all the wrong reasons.

I know a little bit about this. Let me give an initial answer now, but a commitment to keep in touch on this. It is concerning to hear about this and the impact on your constituents. There are two things we are doing. I have a general and a specific. The general thing that is happening is that we are introducing regulation to protect consumers of heating networks like this. Regulations are currently before Parliament. From January 2026, Ofgem will have regulatory powers in this space, including fair pricing powers. Our intention is that there will be increased powers to support vulnerable consumers. I know that Ofgem will not yet be able to look at this. It does not have the powers at the moment. That is something that we are doing, but that will take time. The second thing I know about the specifics of this case is that the heat network has received a grant from us to fund a study into optimising the network to see whether it can be made more efficient. My understanding is that that study has not yet reported. That is the first piece of information that we need. I cannot overcommit on this, because it depends on the outcome of this study, but the Department has some capital grants that can be used in some circumstances. I do not know enough about the details to give any hint of eligibility or whether, ultimately, that will be appropriate. The thing that is important is the outcome of this study that is under way at the moment.

Thank you so much. That is really helpful. I will follow up and write to you once the study has been conducted, but thank you for that answer. I appreciate it.

Your constituents have an instant answer.

Permanent Secretary, can you set out when you will consult on the new sustainability criteria and why it has taken so long?

We are planning on consulting on the new criteria for the common framework later on this year.

Can you be a little more specific than later this year?

I do not think that we can be at this stage, but we very clearly plan to do it later this year. There is obviously a process of internal agreement we will have to go through before doing that, but we are working at pace.

Will it be the second half of this year? Can I push you? No.

I do not think that we can say anything more than later this year.

To return to monitoring and enforcement, Mr Brearley, I am not actually sure I got an answer to the question on whether the shipment Ofgem identified as misreported was part of Drax’s sustainable biomass programme. Will you continue to accept Drax’s voluntary sustainability certification as a proxy for Government sustainability criteria once we have moved to 100% sustainable sourcing?

I am happy to follow up on the specifics on that consignment. We can write to you following this to give you the clear answer on that. On going forward, that is still a matter of discussion with the Department. The way this contract will work, in my understanding, is that, ultimately, this is a contract that will be administered by the LCCC and we have to discuss with the Department our role within that. I come back to the point I made earlier, which is that, if you move the proportion of your feedstock that affects your financial incentives to 100%, you are going to have to have a tighter regime. I suspect that that will mean quite extensive changes to the way we do things now. The other thing I would add is that right now we are not just relying on SBP. We have an audit of all of Drax’s supply chain that we are commissioning, which we expect to uncover any issues not only in Canada but elsewhere.

To respond to the other question, which I appreciate I did not answer earlier, yes, all of Drax’s reporting in 2021-22 was required to go through those SBP checks.

What do you see as the main barriers for Ofgem in being able to verify that biomass is sustainable, especially if consignments continue to be self-reported under the new system?

We administer a number of different schemes, from renewables obligation for offshore wind right the way through to solar FITs and indeed the RHI. Whenever you are administering a scheme, you need to set a level of resource and a risk tolerance. One thing we are going to be working with the Department on is how we set that risk tolerance in the future. I would love the answer to be that we can reassure ourselves of everything in every scheme and every single plant on everything, but that is not practical. There is going to have to be a practical conversation, which we need to be transparent about, about how we are going to monitor against the new criteria to make sure that we have public confidence and do that in a way that is manageable. The work for us to do with Jeremy and his Department is going to be setting that out, but also making that clear publicly.

As we have heard, the NAO report says that the Government cannot demonstrate that their current arrangements are adequate to give them confidence industry is meeting sustainability standards. Do you agree with that? If Ofgem cannot verify reliably companies’ self-reported data, how will the new 100% sustainability criteria be enforced?

Perhaps I will start but, Jeremy, you might want to comment more broadly. As I say, it comes back to these two different thresholds. We are very confident around compliance with the financial criteria of the renewables obligation. Of course, if we get new evidence that view might change and we might challenge companies if we get new evidence against them. The question really is around how you manage profiling data and the data that you receive. That becomes very critical in the new regime and is all part of the design process to get there.

In terms of the new arrangements that will be in place, they will be enforced through private law contracts. We have noted that we are working on exactly what those arrangements are. The reassurance I would give you is that they will be robust and we will include disincentives and penalties if sustainability requirements are not met. That is something that is going to be an important part of this. We want to have, for example, the ability to remove the subsidy from whole consignments of biomass where parts of that consignment are shown to be non‑compliant. We will also actually have a termination right for repeated breaches, though I very much hope that that is an extreme measure that would not actually be needed during this period.

Does the Department have a position on self-certification going forward?

We are looking at the appropriate regime to put in place for the new contract. As Jonathan mentioned earlier, the issue is what the most appropriate regime is. There is a need for a degree of proportionality here and we also need to face the fact that these are very complex global supply chains that we are talking about, which I know creates the challenges and sensitivities that the Committee is rightly concerned about. Neither Jonathan nor myself can have people who really can audit what is actually happening in the forests and woods of south‑east North America. That is the challenge that we need to manage here.

I am not certain that I have had an answer yet, though, on what approach you are planning to take to achieve that. Clearly, there has been an issue. There has been the misreporting. That has been identified. There is a challenge with self-reporting. What is it that you are looking at doing differently to prevent that happening again in the future under the new system?

That is a matter for the next stage of our work with Drax, which will we agree as part of turning the heads of terms into contractual arrangements.

To, finally, take a slightly different angle, what new powers will the independent sustainability adviser have to ensure that monitoring and enforcement of sustainability are effective?

That is a very important question. We have announced plans to appoint a sustainability adviser. They are going to be advising the Secretary of State and the Department on the science underpinning sustainability and the steps that we need to take to align our sustainability criteria with international best practice and get the best monitoring regime in place. They will provide us with advice on opportunities to strengthen the regime, including on this issue of monitoring, reporting and verification. The question around the transitional arrangements that we are talking about here will be an early priority, as will the common framework that we have already discussed.

I would like to start with looking at the area of non‑compliance with regard to sustainability criteria. It would be useful for me if you could start by telling us what you think the overall level of non‑compliance is within the sector.

As discussed earlier, the sustainability criteria relate only to the largest generators. On the level of non-compliance that we saw last year for the 104 generators that fall in that bracket, 87 were compliant and 17 were non-compliant. You asked also about the percentage or the volume. I really want to stress that the overall output of those generators is very small, so 0.3% of total RO support and just over 2% of all biomass used annually.

What are you doing to reduce non-compliance with those where they fall within the right criteria?

Within the legislation, there are very strong incentives for generators to be compliant. If they are not, we withhold funding from them. That has happened in all of these instances that I have mentioned there. There are other steps we are taking to ensure compliance. We engage actively with generators to ensure that they have understood the rules. We have recently written to the boards and CEOs of all generators and asked them to confirm in writing to us that they are compliant. We have had responses to that and have followed up and challenged where necessary. We also conduct, as I mentioned earlier, our own independent audit regime to do spot checks across the population as a whole.

We have already touched on Drax in some detail. For me personally, what assurances can you give this Committee, given that there was a case of non-compliance and yet it has still received significant financial support? How can you ensure that that is not going to be something that happens again in the future?

It comes back to the two different criteria we are applying. You have the fact that 30% of this feedstock is not covered by the same criteria as the other 70%. The outcome of the investigation found that there was misreporting. That was not of a scale that made us question the financial incentives that it gets, but we are asking it to audit the whole of its supply chain. To be frank, we want that to be a detailed process. We want that to be robust and of course we will take action if we find that that indicates it breached any of the major sustainability criteria in the scheme. As Kiera says, we have done that with smaller-scale plants. If we find the same issues with Drax, of course we will take action, but we do not have any evidence for that right now.

I think that it was last year that Drax agreed to pay a £25 million fine because of inaccurate data. It would be quite helpful for me to understand in a bit more detail how we do not come back in a few years’ time as a Committee and I come with a fresh fine that is been paid by Drax. You will no doubt be aware of the reports last week that Drax announced that it was looking at potentially slowing down its investment in carbon capture technology. I worry that, as this industry shifts towards a greener, more environmentally-responsible destination, if plants like Drax do not keep pace with that, we are going to find that we see more fines like the £25 million that was already agreed just recently.

To be clear, I cannot guarantee the behaviour of Drax. Ultimately, Drax has to make the decisions for itself. My reflection, having spoken to the CEO on a number of occasions around this, is that it is conducting quite a significant lessons learned exercise within their own organisation. The reason why we set the fine at £25 million—although it is not much compared to the money that Drax makes, it is a lot bigger than we have fined historically around some of the information breaches we have seen elsewhere—is for Drax and for the industry as a whole. The submission of information to the regulator is an incredibly important part of our ability to do our job properly. If Drax were to breach again, I can say here—and I have said directly to Will Gardiner—that it will get a bigger fine next time and that fine will increase until we get confidence that it is being robust in the systems and processes it runs to submit the data that we need. The audit that we are commissioning, which is taking time because it is a big and comprehensive audit of its supply chain, is part of the process to reassure ourselves across Drax’s supply chain that it is being robust. I would hope that we are not back here. We do not expect to be back here. We are working closely with Drax to make sure it is doing everything we can think of to address this. If we are, it will be more serious for Drax than it was this time.

If I could take a slight step back, this Committee is rightly spending a lot of time discussing Government or taxpayer support for Drax. It would be quite interesting to perhaps get a bit of an understanding from you all today about why the Government have not been more proactive in providing similar support for the smaller-scale, perhaps more sustainable biomass operators across the country, which obviously produce significant renewable energy themselves. It would be perhaps a little bit helpful for the Committee to get an understanding of why there is not really this especially level playing field between the many smaller operators and Drax, which has been in receipt of a significant amount of taxpayers’ money.

We support small-scale biomass through the renewables obligation, but of course the levels of subsidy are much lower because, by their very nature, they are much smaller scale.

Collectively, is it a significant part?

Collectively, they are still a lot smaller than the total size of Drax. There is about 1 GW of smaller-scale biomass under the renewables obligation of small-scale producers, compared to Drax, which is 2.2 GW. The levels are different.

Do you think that funding is directly proportionate to how much energy is produced, considering that often these smaller-level biomass operators are actually a lot greener and more sustainable and have a much better track record than Drax does?

It depends upon the point at which they came onto the renewables obligation, in terms of the levels of receipt that they are receiving, and equally under the contracts for difference as well, so there is a range of different strike prices and support that the generators are receiving. Equally, they have different types of sustainability in terms of the feedstocks that they are using and where they are coming from.

I want to follow up one final time on the points we have been discussing. You have referred, Mr Brearley, several times to the 70/30 threshold. Drax’s self-certification scheme certifies 98% of its current sourcing as sustainable. It has taken an investigative journalist to identify that there is a problem there. We have heard already in this session that what was misreported was part of their own certification scheme. You have repeatedly referred to the audit that you are requiring it to undertake and that that is a big piece of work. Are you confident that, through that audit, we will move to a position where it no longer requires an investigative journalist to identify misreporting? It is not actually a huge step up for Drax to go from “98% of our sourcing is self-reported as sustainable” to 100%.

We are commissioning the audit to answer exactly that question. As Jeremy has said, these are big and complex supply chains. As I mentioned, you always have a situation where you may find new evidence from a different range of sources, but the aim of the audit is to make sure we have that confidence.

Having probed the regulation side with Ofgem, Permanent Secretary, I want to come back with a couple of questions on the finances, because I am not entirely convinced that we have the level of finances right. First, I have a respective question and then a prospective question. A bit of evidence we have received from the wonderfully named Stop Burning Trees Coalition says that an investigation by Bloomberg in 2022 found that, when energy prices spiked above the strike price, Drax avoided paying back excess subsidies to the public by shutting down public power generation and selling its pellets on the open market. Bloomberg said that this decision meant that Drax avoided paying back £639 million against its public subsidies. Are we sure that, in the next two years between now and 2027, a similar situation could not occur again?

Yes, because we are moving all four units of Drax to the same CfD that I outlined earlier. The challenge of the current arrangements is that the four units of Drax are on three different contractual or similar arrangements. Two are on the original renewables obligation, one is on a capped renewables obligation and one is on a time‑limited contract for difference. All those different arrangements have allowed Drax to arbitrage, if you like, depending on what is happening to the electricity price. That is not a good outcome for consumers. I am very clear about that. That is why we are changing it for the arrangements that we have in future. The one thing I would note is that a previous Government introduced something called the electricity generator levy, the EGL, which was designed to capture some of the excess profit that occurred as electricity prices peaked during the Ukraine crisis. Some of that supranormal profit has already been captured for the benefit of the taxpayer, but these are arrangements that we must change in future. That is why we are insisting on having the same arrangement for all four units.

That is the respective part of the question. The prospective part of the question is to come back again—and I am sorry to ask a similar question to one I have asked before—to whether we have the current level right from 2027 onwards. Back to the point about solar and wind, in the contracts for difference arrangements, there is an element of competition, which has been driving down very nicely the costs of wind generation, but there is no such competition element for a monopoly supplier such as Drax. Is there any flexibility in the new contract between 2027 and 2031 that will allow any of that difference in pricing to occur should the market conditions allow it to make excessive profits?

You are correct that this contractual arrangement is a bilaterally negotiated contract, rather than contractual arrangements where the strike price has been determined through competition, which is always the first best option and approach to take for the Department. The issue here is, for Drax, it was first of all a timing constraint due to the importance of agreeing these arrangements well in advance of 2027, so that we knew the position of Drax before we began purchasing the capacity market arrangements for those years. Sorry, it is always very complicated. The second issue is that it is not possible to design a competition to get the true equivalence that you would need between Drax and the offshore wind. That is because, yes, Drax costs more, but it is providing different value to the system, as I said earlier. I do not know whether you have anything you would add to that.

To reflect, as I said earlier, we worked very closely with independent financial advisers to look in detail at Drax’s cost base and operating model. As a fuelled technology, a lot of its cost base is in the fuel, but also it has to amortise its capital cost over a shorter period of time under the new contract. We think that we have reached a fair price with it. As Jeremy said, the returns it will achieve are not substantial. We have the gain share mechanism we have built in, such that, if it shows extraordinary profits, we will be able to claw that back on behalf of the consumer.

I suppose that the nearest benchmark you could get to this is gas. I know that it is not an ideal scenario. Gas has the flexibility to shut off and on. How does the price strike in this Drax extension compare with the gas arrangements?

We looked very closely at this in coming to the pricing arrangements and considered the cost of how much it would be to acquire a similar amount of gas through the capacity markets. We considered how much it would cost by lowering the target that we would need to set through the capacity market and the supply curve at which we would need to target. Overall, it comes to a saving of approximately £170 million per year for each year of a contract in place. That is the alternative that we looked at.

To be very clear, that is a saving to consumers of £170 million per year by keeping Drax on the system, compared to the alternative of using the capacity market to bring forward the unabated gas generation to fill that gap. That would be £2 more expensive on the average bill and would carry very significant delivery risk, which would not be acceptable. Sitting suspended. On resuming—

Coming back to the expense and money, because that is what we are primarily interested in, there has been an awful lot of money spent on biomass over the last two decades. What lessons have you learned that will help us ensure that we get better value for money going forward?

Let me kick off with that. The Department always thought that unabated biomass, of the likes we have seen at Drax, is a transitional technology. That was always the view and that remains our view. It provides security of supply and it can also provide optionality for peak demand generation in a renewables-heavy system but, ultimately, it is a transitional technology. As I noted earlier, when these arrangements were put in place, the electricity system was very different. There was still only a small amount of renewables on the system. We did not know where we would get to with offshore wind and there was still a lot of coal plant on the system. It was clearly a sensible arrangement to put in place at the time. It is impossible to predict exactly when the right time is in the future to change and it is important to create the right incentives for investors, but we clearly are at a time now where different arrangements are needed. That is why we are putting in place a new contract transitional arrangement for a low-carbon dispatchable contract for difference. The arrangements were a product of the time and we need to change them now, as the system is changing.

That really leads on to the next question. That is the past. We are moving into the future, looking forward. Do you have a clear understanding and view now as to how much more biomass will be needed to meet the decarbonisation goals? Do you have a plan about what percentage it should form of the total energy generation and how that will reduce over time, if that is the intention?

As part of our recent announcement, we set out that we are going to be reviewing how much of a contribution greenhouse gas removal technologies, such as power BECCS or direct air capture, we will need to meet our net zero ambition and the different roles those technologies might take. We also have the advice of the Climate Change Committee that we received very recently. We will be responding to that in due course. That sets out their modelling and anticipates the requirement for greenhouse gas removal technologies to meet that net zero ambition.

Is there a degree of certainty about this or is it an ongoing review in terms of the role that biomass is going to play?

We do know that biomass, the Climate Change Committee have told us, power BECCS and other greenhouse gas removals can play an important contribution in meeting net zero. They allow an emissions space for sectors that are very hard to abate in the economy. That is the unique role that these sorts of technologies can play. The exact scale of that requirement is something that we will be working through with the independent study. We are going to look at what those different technologies can provide for us in the future.

There is a role for biomass, in terms of the energy generation. Is that the best use of biomass? There clearly are other things, such as aviation fuel.

Biomass is a scarce resource and should be treated as such. That is the starting point. It should only be used in areas where there are limited options or limited alternatives to decarbonise. The first, as Ashley has been talking about, is primarily the issue of power BECCS, power bioenergy and carbon capture and storage, which provides the opportunity to provide the net in net zero at scale, alongside other greenhouse gas removal technologies. The second area is transport and, in particular, the role of biomass in generating sustainable aviation fuel. The Government have introduced a SAF mandate. What is interesting about the Climate Change Committee’s report last week is that it is still saying there is a significant role for biomass by 2050, but actually it has halved the amount of biomass used for power BECCS and increased the amount used for other sources, such as sustainable aviation fuel. That is something we now need to consider as a Department. Even under this new scenario, there is significant use of biomass in both those sectors. It possibly also has another, smaller role in other sectors, in some aspects of heating and maybe even some aspects of industry as well, but that gives you a sense of the order of the priorities. One of our focuses is on the long term, but there is a lot of uncertainty around the long term. The CCC’s view has shifted a lot in four years. Also, what are the steps now that we should be taking to start to build those options?

Is it likely that biomass for energy generation will remain a relatively cheap way of providing energy in the future? If these other uses are developed, particularly aviation fuel, there might be a higher price paid there than is paid by the energy sector. Is that going to drive prices up in the energy sector?

It is a very good question. What will ultimately happen to global prices for biomass is something that will ultimately determine the appropriate outcome and use of that. The Government need to be alive to this, to analyse different scenarios and create options for the use of biomass but, ultimately, as markets develop and as we learn more, that is when we will continue to take decisions over the years to come, as we head towards 2050. The Climate Change Committee has said that it expects domestic production of biomass to continue. That is in its very recent report. The Government are currently consulting on land use in advance of producing their land use framework. There are a lot of factors, both domestically and internationally, at play, which will ultimately determine the price and the role of biomass.

That is what I was going to ask. How far do you have an understanding of what is likely to happen in the international markets? Lots of the availability of the fuel can be bought up by different countries. There can be competition out there, which will drive up prices, just as other uses for biomass might drive up prices for energy.

It is partly about biomass. It is partly about what happens to the overall timber sector as well, as a whole. The CCC advised us that supply might increase in this country. Others foresee supply and demand remaining in balance globally but, ultimately, we need to analyse different scenarios and produce the right technologies so that we can continue to monitor this over the years to come.

You have all the information necessary to do that, have you? Are there challenges still and information that you need that you cannot get access to?

We have quite a lot of information, but we all know that forecasting markets is a very challenging thing to do. We are better off looking at scenarios and assumptions, and having a degree of optionality, so that you can adjust as markets evolve.

I would like to continue on Mr Betts’ line of questioning because, ultimately, the supply of biomass material is bound to reduce. There is only a limited amount of it on this planet. If other countries are going to go down the same path as we are, there is going to be greater competition for it. The US Industrial Pellet Association, for example, tells us that in 2015 the UK imported an average of 7.7 million tonnes of wood pellets from the US. I do not know what percentage that was of the whole, but I guess it was pretty high. The actual amount we produce in this country is pretty small. Inevitably, the price is going to go up and up, is it not? Why are we so mad on this biomass, when we could be using other options to achieve our climate change and carbon reduction goals?

What is the case for biomass, bearing in mind the uncertainties about the future? The case for using biomass is that in some sectors, particularly power, it can be a very valuable way of removing greenhouse gases from the atmosphere. It can help us deliver the net in net zero. That is the argument for this. Even after all the emissions used in harvesting, drying and transporting biomass, the volume captured after combustion is larger than the CO2 that is emitted in the supply chain. That is the argument for considering biomass and that, in turn, in a net zero world, creates opportunities to continue to reduce emissions in other very hard-to-abate sectors.

Let us dissect that answer for a second. CCS is going to be a limited resource. This is the first question. If we are going to use CCS, surely, we ought to be prioritising industries that are very hard to abate—as Mr Betts has said, aircraft fuel, aluminium, cement production and these sorts of industries—rather than going for the solution of BECCS, which, as I understand it, is going to involve a far greater import of the amount of pellets that we need to burn to actually abate the CO2 that is going to be made and to aid BECCS. Is burning something, producing a lot of CO2, importing even greater amounts of pellets to try to get rid of it and giving the emitters a huge amount of subsidies to try to capture it from the air really a sustainable path?

This is what the Climate Change Committee advised the Government. The IPCC also recognise the important role that biomass can play in decarbonising the economy and helping us to meet net zero. You are right that both carbon capture and storage and biomass are scarce resources and should be used where other options are not available. The only way to achieve the net in net zero, though, is to ensure that CCS is being used for technologies that remove greenhouse gases from the atmosphere, which is what you can get with biomass.

Even if we succeed in making the technology work, it is going to be a long way off, is it not, Mr Pocklington? It is not just carbon that we are talking about. It is other gases as well that are caused by burning, such as NOx. This is a real problem. Meanwhile, we are just emitting huge amounts more of carbon by burning it, surely.

There are lots of questions there. Can I just start with the fundamental question of biomass? I want to emphasise that its role in an unabated form is as a transitional technology. We do not see it as a permanent part of our system. I recognise there is a range of views, but ultimately the argument here that is put forward by proponents of the technology is that those CO2 emissions released during burning have to be offset by the CO2 that is captured by the continuous growth of the forest. You need to look at this at the system level. That is the basis for arguing that biomass can be a low-carbon technology. If, under power BECCS, you go further and then you capture that carbon at the end, that is when you can start to get the net in the net zero. That is the argument for it, but I recognise there are a range of views on this issue and that, ultimately, this will be a very scarce resource. That is factored into our analysis.

That is a very eruditely put argument, but those who are not in favour of biomass would say you sequester the carbon from growing trees, you go and burn it and it takes many decades to reproduce those trees. You are not actually solving anything. If anything, you are making the problem worse, rather than making it better.

Again, you are getting to the level of principle here. I recognise that there are a range of views on biomass. Proponents would say you need to assess this at the level of the forest, not the individual tree. While it is true that, when you burn a tree, you are releasing carbon dioxide, if you believe that the forest is sustainably managed and that the carbon stock of the forest is being protected, that is more than offset by the CO2 that is captured by those trees as they are growing. That is the argument for it. It is a highly technical area. You are then going to get into a whole range of arguments as to what would actually happen if you did not remove the low residue from the forest. I am afraid you are taking me there, Chair. It is not the case that the forest would just have remained as it was. The forest would have to have been managed. What actually happens, often, is that the trees are then discarded. A lot of them are burnt at the roadside. It is really important to have a strong sustainability regime, hence the issues we have been talking about at the start of this hearing, and that we create a system whereby we prioritise higher-quality uses of the wood. Preparing for this hearing, I looked at what is happening to market forces in the US, because it is an interesting area. The price of timber in Georgia in 2024 is $8 a tonne for the type of wood that has ended up in the wood pellets. It is $24 a tonne for saw timber that is used in other industrial uses. Wood pellets are only 5% of the mass of the total wood extracted through forestry in the south-east of the USA. Huge amounts of wood pellets of course come each year. Of course, millions of tonnes come to Drax, but this is part of a much bigger industry. I recognise there are a range of views on this.

In asking my next couple of questions, I have to declare my interests. One is that I am a small recipient of one of your RHI schemes. The second is that I am a farmer. On the first one, on the RHI schemes, I know that the price of pellets has trebled in the last 10 years. No doubt, with this supply and demand, they are going to go on trebling for the next 10 years. Are we really sure that this biomass, particularly the amount I have already illustrated comes from abroad, is going to be sustainable in the period that we are talking about?

This comes down to, as Jeremy was saying, the counterfactual of what has happened to waste. This is waste from the timber industry used for construction particularly, and for other uses. It is the waste that goes aside it. In the biomass strategy, we looked at a range of different scenarios. You are right that the UK has a greater share of the biomass compared to globally but, under those scenarios, we considered that there would be sufficient quantities for the uses as we have been setting out.

On the farming point, I could grow trees, I could grow miscanthus or I could grow soya, sugar beet, wheat or whatever. The more land we take out for trees, miscanthus and so on, eventually we are going to reduce the amount of food we produce in this country. You have said, Mr Pocklington, the level of biomass in this country would remain constant or grow, which inevitably means that the amount of land taken out of production is either going to stay at the same level or it is going to increase, but that is going to have an effect on food production. What work are you doing in your Department and in DEFRA on this whole matter?

Can I just correct you? I was talking about the Climate Change Committee’s modelling assumptions about biomass, not the Department’s position, just to be crystal clear on that.

Thank you for that clarification.

The Government are currently consulting on land use. The consultation closes on 25 April. This will inform a land use framework that we will publish later this year, which will look at this issue. The Government are looking at the very important question of ensuring that protections are in place to reduce the risk of competition between biomass production and food production. The importance of food security is well understood in Government.

To touch partly on what has already been mentioned, but also to move on, it would be really helpful for me to understand what exactly DESNZ is doing at the moment to support the smaller-scale biomass facilities when it comes to carbon capture and storage, both those that do have a direct pipeline connection and those that do not have one.

We are engaging with a range of small-scale biomass producers to consider if they would need further support when their support starts to come off post 2027. We are engaging with them on those. That is specifically on ongoing support, along with future bioenergy and carbon capture storage models.

To add to Sarah’s answer, we are also, as part of our HyNet expansion process, talking to a number of different companies that are looking at either carbon capture and storage or some other form of greenhouse gas removal. We are taking forward discussions with some of those companies as part of that process.

Moving on slightly, how confident are you that the Department is intervening at the appropriate points to make sure that biomass does not have a detrimental impact on the environment? I appreciate that you commented on the support that is coming in from 2027. It would be useful for me and for the Committee to get a broader understanding of what intervention has been taken to ensure that environment, air quality and biodiversity are not going to be continually negatively impacted by biomass.

That is very much the purpose of the common framework that we are looking to put in place and we will be consulting on later this year. We will ensure that we have robust criteria across all the support schemes that we have and particularly any future support schemes that are put in place.

There is one last thing I would like to have a bit more understanding on. We have talked a bit about the work of the Climate Change Committee and what it has said, in terms of the role of carbon capture and what it should be doing to ensure that this is a greener technology. Can you offer reassurance to the Committee about the scope of the pace of change with regard to the use of carbon capture and storage, and how quickly we can expect to see that implemented?

We announced back in October £21.7 billion for the first two CCS clusters. Since then, we have reached financial close with the East Coast Cluster, Net Zero Teesside and the Northern Endurance Partnership, which will provide thousands of jobs in Teesside to produce the world’s first at-scale gas-fired power station with CCS. We are hoping to reach a conclusion with HyNet as soon as we can. These are a world-leading set of arrangements. They were the subject of a discussion at this Committee a month or two ago. We are very confident in the projects we are taking forward and we are continuing to think about how that technology might be deployed into the future.

Mr Pocklington, given your comments just a moment ago, it would be remiss of me not to highlight that the IPCC says, “The IPCC guidelines do not automatically consider or assume biomass used for energy as ‘carbon neutral’, even in cases where the biomass is thought to be produced sustainably”. You will be aware of a study from late last year that found that the intensive forest management needed to source the 7 million tonnes of wood pellets from forests in the US to burn as fuel in this country every year would erode the carbon stored in those ecosystems of those pine forests for at least 25 years. Is the Department confident that the new US Administration will accurately account for the carbon in wood pellets harvested for the UK biomass industry from their position outside of the Paris agreement?

There is quite a lot in that question. We work very closely with the IPCC—we are a member—on the arrangements in this space. Indeed, there was a meeting just last week, which talked through some of these issues. The sustainability requirements we have for large-scale biomass generators, which we are tightening through the new arrangements we are putting in place with Drax, have a set of robust sustainability criteria underneath them. They include a tightening of the emissions intensity standard associated with the producing and transporting—the logistics, if you like—around getting the wood pellets from where they are produced to where they are being used, to align with the best standards. We continue always to look at how we can learn and improve our arrangements. The arrangements we are putting in place through the new contractual arrangement will be underpinned by strong sustainability criteria, independently audited in the ways we were discussing earlier.

Sure. Forgive me if I am wrong, but my understanding for the way that BECCS carbon accounting works is that the carbon from the harvesting is supposed to be accounted for in the country where the harvesting takes place. The US has removed itself from the Paris agreement. Would it be sensible for the UK to adjust its policies to reflect this, by ensuring the emissions for that harvesting are accounted for here?

We need to ensure that we do not have double accounting between the accounts. It is the US’s responsibility to report the emissions in its sovereign. We note as a memo in our accounts the emissions associated with the burning.

You are confident that the US will continue to properly account for those outside of the Paris agreement.

It is difficult for me to account for how the US will operate.

I am not asking you to set American policy. I am asking whether we are confident that the correct maths is being applied and that the correct accounting is happening on their side, for us to be sure about the total overall sum.

At the moment, we are confident that it is done in line with the IPCC requirements. We engage with them on how those frameworks are developed and the methodologies that are being put in place around it.

Chris Hinchliff has raised a very interesting point. While, at the moment, under their regulations, the burning and production of CO2 is accounted for in the country of origin of the growing of the trees, what happens when you put BECCS on that? Who accounts for the carbon that is recovered from the atmosphere?

Those questions are ones we are working through, as part of our development of a power sector model for bioenergy with carbon capture and storage. We will be setting out our thoughts on that in the period ahead. It is a piece of work we are working on at the moment, in terms of how exactly you would account for those different emissions.

I take your point that you do not want to double count, but it does jar with a lot of people that we are producing CO2 in this country and we are not accounting for those emissions ourselves. It really jars. If we could change those regulations, that would make biomass a lot more acceptable.

One thing I would note, if I may, is that the standards at the moment have greenhouse gas emission criteria for the supply chain, irrespective of where that supply chain is at the moment. There is an important point around counting that you are raising, but the fundamental, underlying issue of how the carbon overall is being managed through this system is something that we already look at and will continue to look at as part of our criteria.

It will also be tightened through the contractual arrangements.

Thank you for that. That is very helpful.

I had a further question, which is about the timescales that we are looking at to achieve our objectives through this. In the last carbon budget delivery plan, the expectation was that BECCS would be delivered at scale by 2030. The CCC in CB7 now say at scale by 2032. How many times can this date be pushed back, and is there a date we can go no later than before the Department starts to substantially reduce our reliance on BECCS in carbon budgets?

The Government will set out their plans in the carbon budget delivery plan later this year.

Okay. I sense where that is going.

To move the conversation on a little, I would like to go back to Drax and get a better understanding of what detailed work the Department has done in terms of the full-on environmental impact of continuing to support Drax from 2027 until 2031.

As part of considering the case for further support, we have carried out a full business case, considering both the emissions associated with Drax and also the counterfactual, compared to unabated gas, as we have mentioned previously.

Is that not in direct contrast with what I raised earlier? Drax has said that it is reducing the amount that it invests in greener technologies.

We considered it against the counterfactual of unabated gas. It was purely on the basis of energy security, making that comparison, as opposed to thinking about their future plans for bioenergy with carbon capture and storage. That contract does not take account of future investment.

In light of what has been since said by Drax, what work is the Department doing to try to offset some of that inevitable negative environmental impact that that is going to have? They are reducing the amount that they invest in greener technologies, in carbon capture and storage.

We are still engaging with them on their future programmes for investment in carbon capture and storage over the longer term.

Can you tell the Committee what you think the end point of that is likely to be? Lots of people on this Committee, I am sure, were quite shocked at what they read in the media last week around the fact that, despite this huge amount of public, taxpayer support, it is now backpedalling on its investment in greener technologies.

I will not talk for its longer-term investment plans, but we understand that it is still very much interested and engaged longer term in power BECCS at the site.

It is worth adding that we have not taken any decisions about any future contractual arrangements on power BECCS as part of this process. The issue here is principally around security of supply, following the advice of our national energy system operator. The comparison we made was between Drax remaining on the system versus an alternative of seeking to procure new capacity through the capacity mechanism, if it were not available. On that basis, we took the decision to reach an agreement with Drax, because we could have more confidence in that set of arrangements than in the alternatives materialising.

You reached the agreement that you did in terms of how much public money would go towards subsidising Drax, but it does slightly worry me, and I am sure other members of the Committee, that that agreement was struck fairly recently, and yet this information came out just last week around them scaling back investment in greener technologies. That is starting from 2027, which is the same period in which you have given further public money to subsidise Drax. At the same time as both of those things, we know that the company is highly profitable. It does slightly alarm me that the Department is going into these negotiations, going into these conversations with the likes of Drax and stumping up a significant amount of public money to a company that is highly profitable without clear guarantees as to how they will ensure that Drax invests properly in greener technologies, rather than reducing the amount of investment as we have seen to be the case. It would be useful for me to get a better understanding as to what work the Department is doing to ensure that we do not repeat this, either with Drax or with other large biomass power stations in the future. You could have a highly profitable company that gets a lot of taxpayer subsidy but, at the same time, is rolling back on its environmental commitments.

Again, the contract is not linked specifically to its investment in future technologies.

Do you accept that that might be a mistake?

We deliberately did not want to link that contract to that investment now, because we are keeping the options under review. This is a contract only for four years, recognising the contribution that Drax can make to our energy security.

I understand the question. What we have put in place here is a transitional arrangement. That report is saying that Drax is not gearing up for carbon capture and storage at quite the same pace that it might have been previously. I think that is what you are saying to me. The issue with us doing more now is, ultimately, the investment in carbon capture and storage will require a business model with Government that will need support from consumers. That is the negotiation that would need to happen to bring that forward. We discussed at length at the previous hearing on carbon capture and storage the various sequencing and timing issues around that and, indeed, my industry Minister has written to the Committee around the timing issues of that. Ultimately, it has taken longer than some previous strategies set out to reach the agreement with the first two clusters. The Committee has advised us in the Department to take our time, following the agreement around the East Coast Cluster and HyNet, before moving on to where we go next with carbon capture and storage, including the potential role around Viking cluster. It is right that we are completing negotiations around HyNet and the East Coast Cluster and that we are reviewing the plans we will set out in the carbon budget delivery plan.

I accept what you have said around this being a transition. It is a short agreement and it is very much a transition. Could you go into a bit more detail about what financial support might be given to other similar, large power stations beyond 2027? Secondly, it would still be helpful to understand how you reconcile the current decision-making around this shorter period of support, from 2027 to 2031, with the clear advice given by the Climate Change Committee, which says that we should not be further subsidising these types of plants if they are not going to have the appropriate greener technologies, such as carbon capture and storage.

The latest advice from the Climate Change Committee was that it should not be at the high load factors that we are seeing currently. This is why we have introduced in the new contract a cap on the load factors. It is down to 27%, when, typically, it is operating at about 65% at the moment, to ensure that we are only paying for the energy when it is really needed for the energy system.

What we are doing is consistent with Climate Change Committee’s recommendation to us not to support Drax at the high load factors that we have seen in the past. Your question implied it was the reverse, but what we are doing is consistent with what their advice to us has been.

To the other part of your question, we are continuing to talk to some of the other large-scale biomass generators. There is only one, really, but we have not reached the same position with them as we have with Drax as of yet. We are continuing to talk with them.

Given the uncertainty of the technology, the NAO said that the Government should regularly review the role of BECCS and make contingency plans if it is not delivering as hoped for. Given the point I tried to make earlier about the date for BECCS delivery at scale continuing to be pushed back, what contingency plans do the Government currently have to achieve net zero if BECCS delivers fewer negative emissions than currently hoped?

As Jeremy said, we will be setting out our position on carbon budgets 4, 5 and 6 later this year. We will separately be responding to the Climate Change Committee’s report point on carbon budget 7, which we received last week, to answer exactly those questions about how we envisage meeting our net zero targets, both through the carbon budgets but also in the long term.

We have also set up the independent review of greenhouse gas removal, which is very relevant to your question, around the potential role of power BECCS and alternative technologies to remove greenhouse gases. That is looking into the longer term around how we can best meet our net zero targets out to 2050.

Without asking you to set out specific policies, given, as you have just said, that the Government will be setting those out in due course, can you tell the Committee whether the Government are currently working now on developing contingency plans, should BECCS not deliver what is hoped for?

We are continuing to look at a range of technologies and a range of alternatives. There is no single pathway to 2050 and the Department has to be ready in case one or more of the different technologies ultimately does not succeed at the scale intended. Focusing on the power sector, there are other forms of low-carbon generation that can provide low-carbon dispatchable power, a bit like power BECCS. An example would be hydrogen to power, which we are currently developing business models on. We have been working very closely with Ofgem on long-duration energy storage, which potentially plays a role as well. It is important for us to develop a range of alternative technologies. We are looking closely at, for example, other proposals around direct air capture as well. The issue with power BECCS is that it is about providing the net in the net zero. Of course, as you will know, that is the advantage and something we can get from power BECCS that is hard to see from other sources. Direct air capture potentially could play a role, but it is still a very nascent, immature technology.

Will that range of alternative pathways be set out in the Government’s response to the carbon budgets?

Some of that will be probably more appropriately part of our response to carbon budget 7, which we need to set out in due course. In statute, we are required to set that out by the middle of next year. We will set out further details of this Government’s plans in the carbon budget delivery plan. That is focused on the slightly shorter term, rather than things like direct air capture.

I would like to quote a little bit of Drax’s evidence to us to you, if I may, Mr Pocklington. It sounds like a bit of pressure in this from Drax: “The low-carbon dispatchable generation post-2027 will provide the bridge to BECCS at Drax, maintaining the option to convert the power station to provide up to 8 million tonnes of CO2 per year of permanent GGRs. And the Government has already made progress with the work to date in the development of a power BECCS business model. The initial business model proposals do not include full strike price support for unsold volumes and instead only provide a ‘top up’ of revenue achieved for sold volumes”. This is the bit that I think they are trying to pressurise you on: “Failure to provide some level of support for the full volume sequestered by a project will consequently mean that projects, like BECCS at Drax Power Station (DPS), do not have sufficient revenue certainty and will not be able to take up full investment decisions”. In other words, what they are saying is that, on the current prices, they are not going to have enough to invest in any future BECCS projects. How do you react to that?

We are working hard in the Department on what the exact model would be for supporting BECCS into the future, talking to Drax and others. As you might recall from our hearing recently on carbon capture and storage, the arrangements we have put in place for Net Zero Teesside are a combination of an availability payment and a price support payment, recognising that, in that case, we are looking for that project to deliver ahead of unabated gas but behind renewables, recognising the value it brings. The exact business model for BECCS is still something we are working on and we will set that out in due course.

Do any of the bits of the heads of terms, the MOU, in this contract renewal from 2027 involve Drax doing any work on BECCS, any research at all? There is none at all.

No.

Clearly, there is quite a bit of concern about this. The more open we can be, the better. Therefore, can I invite you and maybe entice you into publishing two particular documents? One is the full terms of the MOU heads of terms and the second, to give you time to think about that one, is the dreaded subject of the KPMG 2022 report. I gather your Department now has that and that both you and Ofgem have scrutinised it. Is there any reason why that should not be in the public domain?

On the first, on heads of terms, I will write to the Committee with as much detail as I can. We have already set out a lot in the public domain. I am very happy to do that.

On the KPMG report, Jonathan might wish to comment. Although it is correct that the Department has had a chance to see that report, we do not have that report. It was shared with us under a non-disclosure agreement. It does not belong to us.

I need to emphasise that we were given the KPMG report under regulatory conditions of commercial and legal confidentiality. My understanding is there are some reasons why Drax may be reluctant to issue that, but really it is a matter for it and not a matter for us. We cannot, given our role, release it ourselves.

That is a fair enough answer.

Could I just add to that? I know the KPMG report has been the subject of intense interest. To be very clear, Ofgem has reviewed all of the reports in full in a significant amount of detail. I really want to stress that they are just a part of the wider enforcement investigation that we undertook. That investigation looked at over 3,000 documents from a range of sources. This was one input, but we spoke to colleagues in Drax at a range of levels. We took information from different sources. Again, stepping back, it is really important to refocus on the scope of that investigation, which was about annual profiling data and two very specific information sets that Drax misreported. In reviewing those reports, what I can say is that they focused on analysis around Drax’s supply chain, specifically in western Canada, and provided detailed analysis on that. As Government colleagues have said, we have reviewed it in detail and are content there were no points of illegality raised in there and no evidence that would suggest that Drax was wrong to receive its subsidies.

I accept your answer. It is not your report; it belongs to Drax, and it is up to Drax whether it wishes to publish it. It is just that your finding that bits of their inventories were not entirely complete and therefore you levied a £25 million fine has excited a lot of interest and led to the belief that there may be something in this KPMG report that they would like to see. I know you have reviewed it thoroughly. I accept that it is not a matter for you. You cannot release something that does not belong to you. That is absolutely fair enough. I suppose anybody who wants to see it could ask Drax whether it is prepared to let them have a look at it. We have covered a lot of ground in this Committee today. Can I thank you, Permanent Secretary, and your team very much? Can I thank you, Jonathan Brearley, and your team very much? We rely on you very much to do your auditing job and we will be watching you very carefully to see how you are doing that in future. No doubt, we may like to see you in this Committee again sometime. In the meanwhile, thank you all very much for your help today. An uncorrected version of our transcript will be available in the next few days.