Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 240 - 259)

THURSDAY 18 JANUARY 2001

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

  240. My concern is that if the Treasury were really doing an environmental appraisal which has looked at the options and then steered a way through for the long term, would this be just too narrowly confined? Should it be taking on much broader possibilities and options for consideration, some means of assessment? If you were doing it, how would you do it?
  (Mr Fergusson) I certainly say this is too narrow to do what you want it to do, there is not much doubt about that. I am not honestly sure that the PBR would be the place to do the alternatives. It needs a broader debate, it needs something like the CVTF, only better and deeper. It seems to me something like that is the right forum where we actually get modelling in, where we look at the whole lifecycle and we agree some strategic directions there. It seems to me that then it would be for the Treasury to say they think this is the way to get there. I am not honestly sure that it should be a budget-led process, if you are looking at the strategic level.

  241. Which was the sponsoring Government department for the Cleaner Vehicles Task Force?
  (Mr Fergusson) It was DETR. Lord Macdonald chaired it.

  242. Would anyone else like to comment on this issue of how we go about environmental appraisal in order to be able to change direction?
  (Mr Mumford) I should like to say that firstly we are involved in a number of pilot projects on alternative fuels, hydrogen, we are also the largest supplier of automotive LPG in the country and we are leading in introducing clean Fuels. We are very well placed to play a major role in any evaluation of the alternatives and we are very happy to do that. The other thing I would say is that it does require a pooling of knowledge from a number of different technical sources. It does have to be a technically led forum which achieves this.

Chairman

  243. Coming back to the point about the narrowness of the Government's present focus by comparison with the greater width which you require, just how wide do you go? Part of the point of fuel duty is to decrease the extent to which people use petrol and motor and they use public transport as an alternative. Surely it may be wrong, or would it, to confine it to cars and fuel technology. Maybe you should include public transport and the balance between public transport, railways, etcetera and private cars. I am just wondering what sort of framework you think it would be best to put this into.
  (Mr Fergusson) That is a good point. On the one hand you do need to look at the whole lifecycle of the fuels and that is an important element to put in there, especially when you are going to things like biofuels, hydrogen and so on. You really have to look at that side of it. On the other hand, it is wise not to look at the car as a system in its own right because yes, there are broader issues as well in terms of the transport system, in terms of demand for car travel for other modes and so on. None of this is straightforward. They do all need technical input from the individual business interests who are pursuing certain parts of the fuel chain. Yes, they do also need an analysis of the transport system. When you are setting up a lifecycle analysis you do actually need independent scientific expertise which can help you set out things like the system boundaries which you are going to look at. If you do not get that right, then you can come up with some very strange answers. It is not a straightforward process and no one sectoral interest is really capable of finding the whole answer.

Joan Walley

  244. What do you feel the scope is in Germany, given the support the German Government has given to research on some of these issues, for factoring concerns about competitiveness into this whole issue of environmental appraisal? If you were two years, three years ahead of the game, further down the road than we are, surely that has a tremendous part to play in terms of added competitiveness of German operations, manufacturing processes, over those in this country?
  (Mr Frank) I can assure you that we always look for the chance to be ahead of our competitors and we are happy if the Government or Parliament can help us in that. We also have some limitations and I have to confess that is the fuel itself. Even if we have different opinions about the technology under the hood of the vehicle, we need the same fuel. We are non-competitors in terms of fuel, independent of the technology we want to use or what type of vehicle we want to produce, for example buses, trucks, passenger cars. We are both at that time competitors for the vehicle itself, but we are not competitors for the fuel because we know we do not have a chance in the future if we work for too long on too many alternatives. We do have alternatives, round about ten different ways of fuelling cars, from petrol and diesel to electricity and whatever you can think of. We have proved that we can use it, vehicles run on it, that is not the question for the future. The question for the future is to decide on two or preferably one alternative, otherwise society cannot afford it. May I just add something more on a point you have raised? I would go even further: we should not only look at the whole transport system, not only at cars or buses, but the whole energy field. The German Parliament has set up a committee, on which I am sitting as an adviser, to look at sustainable energy supplies because if the goal is a reduction of 50 per cent in CO2 or even 70 or 80 per cent by 2050, that means that it is not only the transport system because in Germany this produces a little bit less than 20 per cent of all the CO2 emissions. Even if we shut down transport completely, we would still have 80 per cent of CO2 emissions. We must look for carbon-free energy in all the other areas and we should do so immediately because they may help each other for the production for the infrastructure. You are completely right and I would go a step further even.

Chairman

  245. So you need a transport focus and you need an energy focus.
  (Mr Frank) Correct.

Mrs Helen Brinton

  246. Gordon Brown fairly recently announced yet a further two pence per litre cut on ultra low sulphur petrol (ULSP). This really seemed to come as a total surprise to quite a lot of people, including the AA with whom we spoke last week. They had not been aware that it was already very readily available at the pump under different names and different guises. Why was it not publicised before in a very upfront way as it is supposed to be such a good thing?
  (Mr Mumford) All I can say is that it was.

  247. How did you go about it?
  (Mr Mumford) In February of last year BP launched what is now called ultra low sulphur petrol.

  248. Cleaner unleaded.
  (Mr Mumford) Yes. In other words, we did it in anticipation of the incentive coming through. We launched it in Edinburgh with quite a bit of press coverage, with the Scottish Minister for Environment actually performing the opening. We advertised it on all of the forecourts. We put it first into central Scotland and the reason we put it into central Scotland was that our refinery in Grangemouth was very well placed to make this fuel. We then followed that up in the middle of the year with a similar launch in the London area and rolled it out throughout the whole of the South East of England. By the time that the one pence was actually announced, 60 per cent of the unleaded petrol we were selling was already ultra low sulphur in its quality. We had already brought it in and we brought it in under a brand name, basically as a piece of environmental marketing, using the name Cleaner Unleaded. Other companies have done similar things, so there are other companies out there with similar products, with somewhat similar names. It has not been identified very clearly that it is exactly the same product.

  249. Do you think that is because of the different names?
  (Mr Mumford) There are two factors. The fact that we are each using different names, some names like City Petrol and things like that, would mean that people saw it as a slightly different product but not necessarily realise that it was of the same type of product. That is one factor. The more important factor is the fact that we have introduced this product as a grade substitution. The new product actually meets all of the specifications of the old product. It is a narrowing down of the specifications, it is a refinement, it is an improvement of the existing product. We have brought it in basically by taking the product to the supply chain and the dispensing chain that the previous product used ie a total substitution. The reason we have done that is that it is very much more cost effective to do it that way. If we were to bring the product in with a completely different supply infrastructure, then the additional cost would be prohibitive. Bringing it in in this way means that we can actually bring it on to the forecourts at the same price as the old product and deliver those environmental benefits extremely efficiently. That is why we did it, but the fact that the pump where you used to get your normal unleaded fuel one day has one sticker on and the next day has a slightly different sticker on means it is very easy not to notice that. I know I do not usually look at the stickers on petrol pumps when I am filling up. From a public point of view it is quite likely that the change will have come and although the advertising is there at the point of sale it would have passed them by and they would not have realised that they were using the better fuel.
  (Mr Beckwith) Another point on the name. When we chose the name Cleaner Unleaded we did do some market research with motorists. The result of that research was effectively that Cleaner Unleaded best portrayed the benefits that the fuel would give. We tested the name ultra low sulphur petrol and generally consumers were not able to identify what the benefits of that fuel were. This was obviously before the publicity around ultra low sulphur petrol.

Chairman

  250. Perhaps we ought to call it Gordon Brown. That would be the best publicity you had ever had.
  (Mr Beckwith) The name we chose worked well, at least in portraying that there was an environmental benefit with this fuel, which was why we chose that name. It was in good faith to try to help customers understand what the benefits of the fuel were.

Mrs Helen Brinton

  251. I am sure it is a great name. Cleaner unleaded sounds good. Surely there needs to be some sort of coalescing with various oil companies. I am not a motorist. I have never heard of City Fuel. I would not have known that was ultra low sulphur and therefore nice fuel. Surely the message here is that there has to be some coalescing with companies: whether it is cleaner unleaded or whatever name, there should be one message going out. Surely it makes sense?
  (Mr Mumford) As the industry we have been trying to put that message out. We have obviously been unsuccessful in getting that message to the broader public. We share your objective.

  252. Getting back to the actual fuel duty cut, it is not per se, is it, it is only conditional on guaranteeing nationwide access? Is that going to be a problem or is going to be readily available?
  (Mr Mumford) The introduction of ultra low sulphur petrol nationwide has caused problems for some companies, it is true. There are some challenges out there. When the product was introduced, some companies decided it was a good idea, some companies did not decide it was a good idea, because it was not incentivised at that point. What has now happened is that the roll-out has been accelerated rapidly. All of the major oil companies have indicated a willingness and a commitment to get the product to market. Everybody is trying extremely hard.

  253. Timescale?
  (Mr Mumford) The first of April is the target and everybody is attempting to get 100 per cent cover by that date. What we would be defining success as here is that everybody in the country can find the product somewhere near them. That does not mean to say that is available at absolutely every pump in every petrol station, but that every town has got it somewhere so that every member of the public has access.

  254. Most oil companies, including yourselves, have introduced ultra low sulphur petrol and ultra low sulphur diesel well in advance of the European deadline of 2005.
  (Mr Mumford) Yes.

  255. That is great, but are they not being rather pessimistic in Europe? Why was the deadline not tighter if it is so simple and easy to achieve?
  (Mr Mumford) The first thing I would say is that in this country tax incentives were given for the early introduction of these fuels. Those incentives were extremely effective. What it means is that instead of a fixed deadline where everybody has to change and people wait to the last minute because the fuel is more expensive to make and then there is a bit of disorderly introduction at that deadline, what happened in Britain was that an incentive, initially of one pence on ultra low sulphur diesel and then two pence, was announced. That then enabled the companies who could introduce it easily to bring it in, so it became very quickly available. As it became available it became the market standard and then obliged other companies to follow. It was a way of rolling it in over a period of a couple of years and it actually meant you could start the introduction much earlier than you would have been able to do had you said, here is a firm date and everybody has to produce it on that date. It is a question of taking the opportunity to move with the first mover as early as possible rather than everybody having to wait until the last mover was ready and then changing the whole lot.
  (Mr Beckwith) It may have appeared easy to introduce it quickly, but significant investments were involved in our refineries. The reason that it is not 100 per cent coverage now and is going to take some time to introduce is that more investments are required. For a certain period of time some of the fuel volume will be made up by imports from other parts of Europe. With the UK going ahead of a lot of the rest of Europe in terms of incentivising this fuel, it is easier to fulfil the UK demand from the European refining system where it is just a proportion of European demand. If all of Europe were trying to accelerate these fuels at the same time, then it would not have been so easy to introduce them so quickly.

  256. Gordon Brown's aim seems to be to move the consumer along a hierarchy of green fuels and use a duty differential as an incentive for that. You have already stated as a company that you will pass on the two pence per litre duty reduction for ultra low sulphur petrol when he implements in March of this year. Is this permanent? Are you going to do this anyway? Oil prices could go berserk but you will still do this.
  (Mr Mumford) Yes; absolutely.

  257. Great. That is a really great answer. Gordon Brown cannot force you or any other oil company like yourselves to ensure that this price differential is accessible and seen at the pump. He cannot do that; he has no powers to do that. Is this the big weakness in his schemes and plans? Is it a big weakness in his plans to encourage people to shift to friendly fuels like that?
  (Mr Mumford) The important issue here is consumer choice. If a consumer is faced with alternatives and those alternatives are readily available then a differential like two pence, when the fuel can be used equally well in everybody's vehicle, is such a large incentive that it will actually move the consumer very, very readily. Two pence is actually quite a lot of money.

  258. It does not sound like much to me. Why do you think it is going to make that difference?
  (Mr Mumford) In terms of changing motorists' behaviour when the product is available. In other words, two pence on a fuel which is not available would have no impact whatsoever, or if it were only available in certain places. When you have the fuel available then two pence will swing people very firmly onto the new fuel where it is available. You mentioned a differential. I suspect that what will actually happen is the ultra low sulphur petrol will pass through the two pence. That will then become the norm in the market and I suspect that the sales of the standard grade petrol will collapse overnight. I cannot see people wanting to buy it at two pence more than the low sulphur grade.

Mr Chaytor

  259. I am very interested in what you have said and you have described the way your company introduced ultra low sulphur petrol last year. The conclusion I draw is that the tuppence per litre cut is actually even more irrelevant because given that you have taken the decision to bear the costs of the transition to ULSP, given that it was going to appear on the forecourts anyway, would not any motorists choose to have the ultra low sulphur version, as long as it was marketed as a cleaner and greener fuel, regardless of any price differential? If there is a choice between eight pence per litre for dirty old-fashioned petrol and eight pence per litre for clean modern petrol, is the consumer not going to choose anyway?
  (Mr Mumford) What we saw when we were introducing ultra low sulphur diesel, which is a case study, was that at a one pence differential the one pence effectively levelled the cost of the fuels. At that the consumer was pretty ambivalent and there was not much penetration. In fact at that point we were hearing diesel users coming out with scare stories about it causing problems with fuel pumps or it was causing poor energy efficiency. There were all sorts of stories. It was not very clear cut. When the differential then went up to two pence per litre, a very clear customer preference swung in and everybody was trying to switch. It was eventually put up to three pence and that extra penny was irrelevant. By the time it went up to three pence, everybody had already moved because of the two pence.
  (Mr Beckwith) The difference between the one pence incentive going up to three pence. At one pence BP had already decided to introduce this fuel and for the bulk of our markets supplied directly from our refineries, we were in the process of introducing this fuel but not all other oil companies had decided to introduce the fuel at that stage. The additional two pence incentive effectively persuaded the whole industry that this was the way to go. We think that will cause the whole UK market to switch over to this fuel as the standard grade of unleaded and that mechanism in itself, because it is available through multiple channels, will ensure that the duty differential is passed through because of competition.


 
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