Let me start by thanking both noble Lords for their valuable contributions to this debate. The need to make progress with decarbonisation of course remains an absolute priority for the Government, so we have to keep up the pace of change to fuel what will be a green, sustainable recovery as we build back better from the pandemic. So, to keep us on track, as noble Lords will be aware, the Government recently launched a landmark net zero strategy setting out how
the UK will secure 440,000 well-paid jobs and unlock £90 billion-worth of investment by 2030—all on our path to ending a contribution to climate change by 2050.
However, to meet net zero, we are of course aware that virtually all heat in buildings will need to be decarbonised. Moving away from burning fossil fuels for heating is a great challenge, but it presents enormous opportunities for jobs, growth and levelling up. We are clear that achieving net zero will require a range of technologies and solutions for buildings, and that there is no single silver bullet. It is not a question of choosing whether electrification, hydrogen or heat networks are the answer, but of doing something on all of them, and everything that we can to deliver on all these fronts.
As I said in my introduction, within that framework biomethane has a clear role to play in decarbonising our energy supplies. The Committee on Climate Change stated that biomethane will be valuable across all decarbonisation pathways and recommended continued government support. Injecting biomethane into the gas grid means that more of the gas used in a gas boiler in a home or in industrial processes across Great Britain will be from renewable sources, meaning lower carbon emissions and a lower impact on climate change. Continued policy action is essential for maintaining investment in the biomethane industry and enabling the development of new production plants for biomethane to allow injection into the gas grid.
The green gas support scheme will also help to meet our commitments made in the 2019 Spring Statement and 2020 Budget to increase the proportion of green gas in the grid. It will help to promote a circular economy by encouraging the use of domestic and industrial food waste to heat our homes and businesses. It will contribute to achieving short-term carbon budgets and our broader target of net zero emissions by 2050. In addition, it will support high-quality jobs in the renewable energy sector as well as the development and diversification of the rural economy, in line with our net zero levelling-up agenda.
My noble friend Lord Naseby made a point about energy crops. Using waste feedstocks can contribute to carbon savings and to a circular economy, but given the uncertainty around food waste availability, a higher threshold could have had a negative impact on plant deployment and encouraged unintended competition within the anaerobic digestion industry. We will undertake a mid-scheme review in 2023 to review the waste feedstock thresholds, and we will adjust if necessary. My noble friend asked about the length of time needed to set up a plant. The answer depends on the size of the plant and the location, but in general it is about 12 to 18 months. He also asked how we will ensure that local government will collect waste to feed the new plants. We certainly expect food waste volumes to increase significantly over the lifetime of the green gas support scheme as a result of Defra’s household food waste collection policies. Those are outlined in the Environment Bill, which the House is debating as we speak.
I turn to the noble Lord, Lord Grantchester, who asked whether there will be crossover payments from the NDRHI and the green gas support scheme. We have
carefully ensured that the regulations do not allow one plant to receive payments from both schemes; that would clearly be unfair to the taxpayer. We understand from market intelligence that roughly 53 plants will be deployed on the scheme, and we hope that building will begin on several of them later this year. The noble Lord also asked about value for money for the scheme. The degression mechanism will act to prevent the risk of overcompensation for deployment that exceeds forecast expenditure thresholds in year. The mechanism has been designed specially and revised in the light of the lessons learned under the RHI—for example, the degression triggers have been adjusted to mitigate some of the dynamics that were seen under the RHI. As always with these schemes, we need to balance our ambitions for biomethane plant deployment against the possible impact the scheme will have on the bills of domestic and industrial consumers. Budget management measures are designed to ensure that the decarbonisation of the gas grid occurs at the best possible value for money for bill payers.
Moving on to the noble Lord’s question about the definition of food waste, my department works closely with Defra, including on the waste hierarchy. This requires the prevention of waste in the first place; that is a good starting principle. Where that is not possible, we support the reuse, reduction or recycling of materials before, ultimately, disposing of any remaining waste safely through incineration, with the appropriate energy recovery. My department also works closely with the Department for Transport to ensure that the green gas support scheme and the renewable transport fuel obligation seamlessly work together to support industry, again ensuring no element of double subsidy.
On the question about miscanthus, energy crops are allowed on the scheme—up to 50%. As I said earlier, that threshold will be part of the mid-scheme review. On the noble Lord’s question about whether this levy will bring about any new levies on hydrogen, it is important to confirm that the green gas levy is the sole source of funding for the green gas support scheme. The Government have set out separate hydrogen and net-zero strategies, with the intention that, from 2025 at the latest, all revenue support for hydrogen production will be levy-funded. This is subject to consultation and the appropriate legislation being in place.
The noble Lord also asked me about reviews of the scheme and, as I said, a mid-scheme review will take place to ensure that it is meeting its aim to look at the balance of food stocks and energy crops. The broader decarbonisation of gas in the round is considered in the recently published Heat and Buildings Strategy and the various consultations alongside it.
On the noble Lord’s question about how this will impact households in fuel poverty, the Government’s impact assessment found that, even at the peak of the levy, the impact on both the number of people in fuel poverty and the size of the fuel poverty gap was minimal across Great Britain compared to the baseline scenario, where the levy is not imposed. The Government recognise the benefits of a volumetric levy, as opposed to a meter-point levy, which aligns cost more closely with gas consumption. We have committed to transitioning to a volumetric levy as soon as possible, subject to
overcoming the various feasibility studies of which the noble Lord is aware, including the impact on energy-intensive industries and other important UK businesses. We are clear that any volumetric levy design must be simple to administer and must deliver and minimise the costs to consumers. Before we proceed on this, we will ensure that we fully consult on any new proposals in this area.
The noble Lord also asked how the Government will manage the cumulative impact of levies. The Government are committed to ensuring that the costs of decarbonising the energy system are fair and affordable for all energy users. We are considering the benefits and costs of the different approaches and, as always, are committed to working with industry and consumers to keep costs down and identify ways to incentivise behaviour change towards decarbonisation. As we announced, we will launch a fairness and affordability call for evidence on options for energy levies and obligations to help rebalance prices and support green choices, with a view to taking final decisions on that next year.
I think I have dealt with all the questions that were asked of me and, with that, I commend these draft regulations to the Committee.