Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 230 - 239)

THURSDAY 18 JANUARY 2001

MR JOHN MUMFORD, MR PAUL BECKWITH, MR DETLEF FRANK, MR BERNARD CAREY AND MR MALCOLM FERGUSSON

  Chairman: Good morning gentlemen, welcome to our Committee. We are very grateful for your attendance this morning. We are also particularly grateful to you for agreeing to be seen together. It does save time and time is very important to all of us I am sure. Thank you also for the memoranda which you sent into the Committee. We are grateful for those and they helped us to focus our questioning. As you know, we are looking in depth at the fuel duty and the various changes which took place, particularly as announced by the Chancellor in the pre-budget statement before Christmas but looking in more depth at the whole business of car taxation, the future of different technologies and so forth. This is obviously a very fundamental question which no doubt all governments face but we face rather acutely in the United Kingdom having particularly high taxation of petrol. Before we begin asking you questions, is there anything any of you would like to say by way of an additional statement or preliminary statement, however brief, before we actually start? Fine, thank you very much indeed, that saves time. Some of our guests like to go into rather lengthy statements which we are not always in favour of.

Mr Chaytor

  230. May I put my questions to Mr Carey and Mr Frank specifically? I understand that representatives of BMW have made comments about the absence of a long-term strategy in respect of the UK Government's policy on fuel duty. Is this your official view and if you are critical of the long-term thinking what does the Government need to do to make its thinking more long term?
  (Mr Carey) The actual words of the Managing Director of the UK sales organisation for BMW were that there is little evidence of long-term thinking in some of the taxation policies on vehicle excise duty and on company car tax. He was looking for more commitment from government of whatever hue, to long-term policies on achieving an economy based on alternative fuels. We welcome, as do the Society of Motor Manufacturers and Traders (SMMT), some of the measures taken to encourage consumers to change their behaviour. We welcome some of these measures on taxation to encourage consumers to change their behaviour and to move to alternative fuel and we welcome measures which are designed to bring in alternative fuels more readily. I was personally a member of the Cleaner Vehicles Task Force (CVTF) which set out a report last year on how governments and society might go about achieving this. We BMW, were not trying to be too critical, we were simply saying we would like to get more involved with Government and to get Government more involved with the industry and with industry generally with the supplies of fuels and systems to make the alternative energy economy happen rather than just trying to push people towards it. My colleague Mr Frank has far more awareness on this subject and perhaps he can say a word on that.
  (Mr Frank) Our main concern when developing vehicles is the environment—I am Head of the Science and Transport Section of BMW and I also serve on a parliamentary committee in Germany on sustainable energy supplies for Germany over the next 50 years in view of the climate change problems and so on. The main concerns back in the 1970s were COs, hydrocarbons and particulates in vehicle emissions and the only solution for removing them was to remove carbon from the fuel. Over the last ten years or so the concern turned to the CO2 issue, where carbon is again the problem. The only answers engineers have so far come up with is to use a carbon-free fuel, so BMW actually started to develop engines and then cars back in 1979 which can run on hydrogen as a fuel. We are now ready to show that the technology is available, so we have brought a fleet of 15 vehicles onto the street this year serving as the service fleet for the Expo World Fair in Hanover and what we did as engineers has been justified by the latest development in the climate debate. The Rio conference set as an objective to stabilise greenhouse gas concentrations and the Kyoto protocol set the first figures. In parallel the Inter-governmental Conference on Climate Change, IPCC, interpreted this in a way which means we have to reduce CO2 emissions by 50 per cent by 2050. There is a further interpretation that because developing countries have to have an allowance for CO2 emissions the industrial countries have to reduce CO2 by 70 per cent or more; some estimates go up to a reduction of 80 per cent. If this is the goal, the only answer from the engineering point of view is to reduce carbon content and the best thing is carbon-free fuel. That was the reason we went straightaway in that direction, with a small intermediate step of checking the natural gas route which could be one intermediate step because natural gas contains less carbon than conventional fuel. That is the main background. We have been working on a reduction of CO2 and we have demonstrated it. What we did was to develop the engineering route from the engine through the fuel system, the tank, the filler coupling, the petrol station. All we need is the infrastructure for the fuel. That is the status today.

  231. The company's position is not critical of the policies on fuel duty as such. It is the fact that you do not think Government has done enough in the United Kingdom to advance the arguments and support the technology in the transition to the hydrogen-based motor industry. Are there specific things the German Government has done in assisting BMW and other manufacturers in moving to alternative fuels that our Government has not done? That is what I am curious about. What has the German Government done which has assisted you? What has the British Government done which has not assisted companies in Britain?
  (Mr Frank) The German Government has done two things. We do have some subsidies for research work which mainly went to our suppliers. BMW itself actually did not get too much money but we need a lot of assistance for tank development, because we liquify the hydrogen to -253ºC and that is a big engineering task. We need help from the universities and so on. This has been partially paid for by research subsidies from the German Ministry of Technology. The second is that two years ago the German Government formed, at the initiative of BMW, Daimler-Benz and other companies, a strategy group for future fuels; we call it the Traffic Energy Strategy (TES). It includes fuel suppliers, natural gas providers and others, about 11 or so, not all but many coming into this initiative. They looked into 84 different ways of producing fuel for transport, including biomass fuels, everything you can think of, to make a decision on the future of fuel. They ended up with three alternatives to choose from: hydrogen, natural gas and methanol, with a slight preference for hydrogen. That is the stage we have reached now under the chairmanship and with some support of the Government. They have a third route which I do not think worked: they imposed an eco-tax on fuels for environmental reasons but so far I must say as an engineer and scientist this was of no help because they did not use the money for environmental purposes, they used it as backup for the pension funds. So far my interpretation is that the Finance Minister cannot want people to use less fuel otherwise this tax would go down. Talking about Germany, we are critical about that for as long as that money does not go to help the environment even though it is called an environmental tax.

  232. You would be much happier if the eco-taxes, the petrol duties, were ring-fenced to be reinvested in research and development in the transition to the hydrogen based fuels.
  (Mr Frank) Correct.

  233. Did I understand earlier that Mr Carey said he was a member of the Cleaner Vehicles Tax Force?
  (Mr Carey) Yes, I was a member of the Cleaner Vehicles Tax Force.

  234. Is it not the case that the Cleaner Vehicles Tax Force could be doing exactly what Mr Frank has described has happened in Germany?
  (Mr Carey) Some of the sub-committees of the Cleaner Vehicles Task Force looked at longer-term alternative fuels but the main focus of the brief of the task force was to look at more immediate alternatives; more immediate was to reduce CO2 emissions from transport. Hence the final conclusion paper was more about how we get LPG for example into the system more quickly through tax or through local planning changes and how Government and local government can help.

  235. Maybe we are looking now at putting the focus back on the Cleaner Vehicles Task Force to ask them to think 20, 30, 40 years ahead rather than ten years ahead?
  (Mr Carey) Yes, although in Germany there is a much broader view. In Germany it is not simply a committee which looks at transport, it is a committee which looks at the whole alternative energy spectrum. From my limited knowledge of what has happened in Germany I would think that debate in Germany is a couple of years ahead of where we are now in the UK. If we did mean to criticise in anything we said in the last year, it is simply to say we want that debate to move on now and we, as one company in the car industry, have technology which will work now, so how do we make it happen?

Chairman

  236. Do any of our other guests have any particular comments on this question of whether the UK Government appears to have a sufficiently long-term strategy linked to the short-term changes on policy on taxation?
  (Mr Mumford) I should like to comment that when viewing alternative fuels, we have to look at the complete lifecycle of the fuel end of the vehicle. It is actually an area of some complexity and whilst I would not disagree with what colleagues from BMW have said as a vision of where we are today, it is also true to say that vision has been evolving. We have been exploring a lot of other avenues and it is important to keep a variety of options open because we do not know where technology is going to lead ultimately. There may be new discoveries which will take us in different directions and it would be wrong to shut down an avenue which actually had future promise. When one looks at the total lifecycle of the creation of the fuel, the manufacture of the fuel, the use of the fuel in the engine and the actual efficiency of the vehicle itself, one sees a whole variety of different technological issues arising at each stage. We have to look at the entire lifecycle in order to be sure we have the best solution.

Mr Chaytor

  237. Is there no consensus within either the oil companies or the motor companies about the importance of hydrogen?
  (Mr Mumford) Not total consensus.

  238. It is not agreed that hydrogen will be the dominant fuel of the future.
  (Mr Mumford) We have been involved in the Cleaner Vehicles Task Force and also a number of other joint committees with the motor industry which the DETR and DTI have sponsored. The thing which has impressed me in those groups is that it will be a consensus between the fuel industry and the motor industry. We are seeing the issues through very much the same lens. There is no difference of opinion. As of today, a hydrogen economy does look the best long-term threat, but it is still a reasonable distance away and there are other things which may come out as well. I am not saying we should not put a lot of energy into making the hydrogen economy a future possibility. I am just saying we should not be premature in shutting down other options.
  (Mr Fergusson) As to strategy, obviously there have been elements of strategy. There was a sort of strategy on fuel duty which was blown off course a bit by external events recently which is regrettable and there are other elements. A certain amount has been done on vehicle excise duty, the new company car tax is fine, we have the Powershift programme and now the green fuels challenge. You could say there are elements there, but it does not amount to a strategy. It is not giving the long-term signals people need. That is certainly true. To put it in its historical context, the UK has been rather slow and sceptical in relation to alternative fuels in the past and personally I think that is perhaps fair enough, but clearly we are now at a point where we do need some strategic thinking and some serious debate. The sort of discussion and evaluation they had in Germany has not really taken place here. The Cleaner Vehicles Task Force was more focused towards short-term options and—I do not know, perhaps Mr Carey might correct me on this—it seems to me that the alternative fuels one was not actually all that positive or definite in its outcome. Inevitably, when you have different sectoral interests, everybody, be it the biofuels people, gas people, oil people, hydrogen people, all have their own axe to grind and they all think theirs is the best option. That is understandable. I do actually think in the context of the green fuels challenge, we need to have a broader debate which involves independent analysts so that we can actually come to the long-term view that they have come to in Germany and know what it is we are going for. We have not seen that happen here.

Joan Walley

  239. Pursuing this point about the long term and about how we can change the policy and get a strategy which is good enough for the long term, one of the things the Committee did a couple of weeks ago was to interview the Treasury Minister and talk about part of the pre-budget report which looks at the environmental impact of the Government's budget measures. It seemed to us that that could have been the engine for shifting from where we are now, the means by which we could reach a more long-term strategy. Given the points you make in your paper in paragraphs 12, 13, 14, that you do not feel there is sufficient opportunity within the pre-budget report to do a genuine assessment of the different options of audit that the Government could take compared to the amount of attention which is given to economic considerations, I should be very interested indeed in your comments on how adequate or otherwise, if we are really planning for a strategic long term, this kind of environmental assessment and audit could be, so that we could look at all the options, we could actually do what you have just been talking about, look at all the different interests and then have some mechanism by which we could steer the path in the long term.
  (Mr Fergusson) One thing to be said is that the numbers in the PBR which relate to the environment are largely confined to the table on page 139, Table 6.2. Almost by definition they are rather short term in view. A lot of them just say what might happen in the next year as a result of the budget changes. There are some specific problems around that. There is the basic point that it is a couple of pages out of a very substantial report devoted to the environment and a second point is that when you are talking about the numbers and the analysis, it is really not very transparent. I know that honest efforts are being made to improve our CO2 modelling in the transport sector within Treasury and DETR, and that work is ongoing. The problem is that until that is in the public domain and publicly understood, until the background figures in here are understood, then it is quite difficult to evaluate the figures in here even in their own terms and say that looks a bit high or low.


 
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