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Why does Drax the tree destroyer get eco cash?
The wood-burning power company has friends in all the right places
The City likes Drax, the world’s biggest publicly listed burner of biomass — or wood, as it used to be called. The firm is to announce its annual results this week, and the investment bank JP Morgan has enthusiastically declared the shares “a top pick”. Which is fine and dandy for all concerned, except the only reason Drax is handsomely profitable is the colossal subsidies it receives. Its profits for 2021-22 were £398 million, but its subsidies, courtesy of the ministry then known as BEIS (now the Department for Energy Security and Net Zero), were £893 million. There would be no dividends for shareholders at all, or even a functioning business model, without the intervention of government. It is thought that while Drax’s profits for the latest year will have risen to at least £540 million, the subsidies, per megawatt hour of energy produced, will have also increased.
What’s that all about? Drax, which used to burn coal in its Yorkshire power stations, has switched most of them to wood — and as wood is “renewable”, it attracts subsidies similar to those accorded to, for example, solar power generation. Drax does this on a vast scale, getting through the equivalent of about 27 million trees a year and almost 14 per cent of the wood pellets burnt globally.
Not one of those trees is cut down in the UK. They are all imported, largely from Louisiana and Canada, where they are turned into pellets suitable for use in Drax’s power stations before being shipped across the Atlantic in vast diesel-powered container vessels. Now here’s the trick: the CO2 “chimney emissions” in the process are not recorded in the UK’s carbon accounts as the trees are not chopped down here. They are on the American and Canadian carbon balance sheet.
But what about the CO2 produced in Yorkshire when the stuff is actually burnt? As, among others, the Intergovernmental Panel on Climate Change has observed, wood-burning, per unit of energy produced, puts more CO2 into the atmosphere than coal, and overwhelmingly more than natural gas.
How does that make Drax the darling of the government as it seeks to make the UK “net zero” by 2050 (as mandated by a parliamentary statutory instrument in the dying days of Theresa May’s rule)? Answer: it argues that all these millions of trees are replaced by newly planted ones, which will absorb the CO2 in the atmosphere as they grow. Drax also claims that what it chops and burns is mere “waste wood”; it denies the charge of a BBC Panorama programme that it has been felling trees from primary Canadian forests.
This justification, at least insofar as it purports to address the “climate emergency” and the 2050 target, is extremely dodgy; the carbon payback period of a mature tree — how long it takes to absorb the CO2 it will give off in being burnt — is likely to be at the upper end of a range of 44 to 104 years, according to the Chatham House think tank. That doesn’t help at all if the emergency is now, as claimed.
This point was made in “Letter Regarding Use of Forests for Bioenergy”, addressed to world leaders in 2021 from a cavalcade of scientists (their signatures filled 27 pages). They, too, pointed out that “wood burnt for energy emits more carbon up smoke-stacks than using fossil fuels ... governments must end subsidies and other incentives that today exist for the burning of wood, whether from their forests or others’.”
Later that year a group of MPs in this country led by the Father of the House, Sir Peter Bottomley, and including the solitary Green in the Commons, Caroline Lucas, wrote a letter demanding the government stop subsidising Drax; they argued that “the switch to burning wood has led to huge extra emissions — equivalent to three million more Ford Fiestas on our roads” and that the day “the last tree will be burnt in our power stations ... cannot be soon enough”. Yet the government’s plan is to burn up to 120 million trees a year by 2050, nearly all imported.
Those MPs had found it extraordinarily difficult to get answers to their concerns via the normal parliamentary process. To such written questions to the energy secretary as, “What are the ages of the forests burnt by Drax?”; “What are the CO2 emissions for domestically sourced coal versus imported wood?”; and, “What are the chimney CO2 emissions from Drax?”, the answer was, consistently: “The government does not hold this information.”
Eventually, in August last year — shortly before he became the ill-fated chancellor in Liz Truss’s self-immolating administration — the energy secretary, Kwasi Kwarteng, met some of a group of 84 MPs concerned about the wood-burning subsidy racket. They were able to point out that it had taken eight months to get him to agree to see them, whereas Drax had had no fewer than 32 meetings with the secretary of state since he joined BEIS.
Anyway, Kwarteng, to the MPs’ surprise and delight, told them that his own department’s policy of subsidising the burning of millions of imported trees a year at Drax was “not sustainable”, that “it doesn’t make any sense to me at all” and that he was close to deciding “to just draw the line and say that this isn’t working, it doesn’t help carbon emission reduction and we should just end it”.
We know this because someone at the meeting recorded Kwarteng and passed the remarks to the Financial Times. The Drax share price plummeted. But then BEIS put out a statement insisting the secretary of state “fully backed” the existing policy after all — and Drax’s shares regained most of their losses. The FT’s Lex column suggested “furious power companies and bureaucrats had presumably applied thumbscrews” to the hapless secretary of state.
Well, Drax is a formidable lobbyist with friends in all the right places. For some time its “head of climate change”, Rebecca Heaton, was simultaneously on the Climate Change Committee, the official body charged with advising the government on such matters. Drax’s chief executive, Will Gardiner, chose to mark the death of the Queen and the accession of King Charles by issuing a press release reminding us that “His Majesty ... invited me to join the Carbon Capture, Use and Storage task force”. And earlier this month Gardiner was pleased to announce that he had “joined the World Economic Forum’s Alliance of CEO Climate Leaders”.
That reference to carbon capture is important. Drax aims to make its wood-burning “negative CO2 emitting” by developing a way of burying the emissions under the North Sea in depleted oil or gas fields. That would make its existing subsidy tally of about £7 billion look puny: its plan for bioenergy with carbon capture and storage would require subsidies of at least £30 billion to make it financially viable.
Apparently that makes Drax shares a raging buy. Most odd.
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