Select Committee on Environmental Audit Second Report


Environmental Appraisal

69. The Pre-Budget Report 1999 reconfirmed the key principles of the Government's Statement of Intent on Environmental Taxation. It highlighted the requirement that environmental policies "must be based on sound economic evidence".[132] Mr Timms confirmed that the Treasury assesses all budget measures for their environmental impacts using the guidance which has been set out by the DETR.[133] He told the Committee that he knew that the Government had made available the documentation about environmental appraisal of measures it had introduced.[134] The DETR's role in relation to the environmental appraisal of budget measures is to provide advice to the Treasury. The Treasury then uses this advice to produce the environmental appraisal of the tax policy in question.[135]

70. English Nature welcomed "the attempts at environmental appraisal of measures on the Pre-Budget Report" but believed that a "more detailed analysis should be provided including the effects of different options".[136] They would like to see further explanation of the carbon reduction resulting from changes to VED and felt that the effect of lowering overall motoring costs was not clear. The Environment Agency welcomed the fact that there was an environmental strategy that underlied the Pre-Budget but wished to see the strategy explained more fully.[137]

71. The AA told us that they had found the introduction of the FDE "a particularly distressing experience" because there was no evaluation of what its purpose was by either the Labour or Conservative Governments.[138] The AA has previously described the Government's position on the FDE as "green rhetoric"[139] and felt that it was "basically a revenue-raising measure dreamt up by the Treasury without any assessment with some environmental wording in coverage"[140] thus creating a "green fog".[141] They also felt that there was no evaluation of the alternatives and what might be cheaper and more cost-effective for families to achieve the same goals such as home insulation.[142] Ultimately, they told the Committee that they thought the Government had not made a case for the FDE,[143] it was "unnecessary" and that the environmental goals could be achieved through a mixture of regulation, technology and revenue-neutral tax adjustments.[144] However, the AA did acknowledge that the Government was now more engaged with them in the kind of debate they wanted to have.[145]

72. In the Committee's report on the Pre-Budget Report 1999,[146] we made it clear that we considered that the failure of the Government to publish an environmental impact assessment, on the likely effect of abandoning the fuel duty escalator, revealed how far Government had to go to place sustainable development at the heart of policy making. We urged the Government to rectify matters.[147] The Government response, pointed to the appraisal table in the Red Book

as detailing the environmental effects of all measures whose primary aim was environmental including an appraisal of the FDE.[148]

73. This appraisal was presented as an indication of the amount of carbon that would be saved through the operation of an escalator by 2002 (2-5 million tonnes). The removal of the FDE was then shown as a reduction in the additional environmental benefits of real increases in fuel duties revised for the fact that the escalator would only be in place up to and including Budget 1999 (ie savings of 1-2.5 mtC by 2010). However, as we noted in our report, "The Pre-Budget Report itself did not set out this decrease in impact, nor did it contain any appraisal of the relative economic, distributional and environmental merits of the move".[149]

74. The Committee is still unaware of any appraisal which has compared and contrasted the environmental, social, and economic trade-offs which could be associated with the policy of no longer maintaining an automatic duty escalator. For example, setting out how far present circumstances in terms of policies, initiatives or oil prices would compensate for the loss of the escalator and therefore justify the present policy to abandon the automatic escalator for a Budget by Budget approach. The Government "cancelled" the FDE in 1999 and therefore there has been plenty of time for the Treasury, in conjunction with DETR, to conduct a thorough analysis of the policy change and make this reasoning transparent to the public.

75. Mr Timms felt that an automatic annual increase in fuel duty had a significant environmental effect which could be discussed but that it was that effect which needed to be assessed. He thought that leaving duty unchanged in real terms, as in Pre-Budget 2000, was not something that the Treasury would consider as having a significant environmental impact.[150] However, Mr Timms did eventually agree that the loss of the FDE did constitute a change in policy.[151] He maintained that the Treasury had amply set out the thinking that it had been through which had led it to the conclusions that had been announced and published.[152]

76. The Committee reminded Mr Timms that it was Government policy that policies with significant environmental effects must be supported by an environmental appraisal.[153] The Committee has seen no appraisal to support the introduction of ULSP, VED and company car taxation demonstrating how far the environmental benefits outweigh any other factors. For example, the Committee has seen no "well to wheel" appraisal of the move to ULSP.

77. The PBR concentrates on providing information regarding the advantages of moving to ULSP in terms of lower sulphur dioxide emissions and therefore improvements in local air quality. However, it does not offer any assessment of the likely short term increase in carbon dioxide emissions of switching to ULSP, especially in the absence of the fuel duty escalator, and what policies will be countering this. Mr Timms admitted to the Committee that he had not received a set of data weighing up the air quality improvements to be generated from using ULSP and GDI technology against the additional energy (and associated carbon dioxide emissions) required to produce it.[154] He felt it was clear that there would be "significant" environmental benefits from the introduction of ULSP and that was the justification for introducing the duty incentive for ULSP.[155]

78. Mr Timms was not sure that it was necessary to do a point by point calculation about every single measure if it was clear that it was a beneficial one.[156] However, the Government's own guidance on policy appraisal states that even "if the policy you are responsible for is designed to enhance the environment you need to ensure that it maximises benefits and minimises costs". [157] Such appraisals are intended to demonstrate the nature and magnitude of such a benefit and the trade-offs involved in attaining the benefit.

79. The Green Alliance felt that the PBR provided a qualitative assessment of the environmental measures proposed but no quantitative assessment of the implications of the proposals. For example, the environmental implications of the changes to the fuel duty arrangements or the degree to which the policies will tackle the need to reduce traffic growth. Like the Committee, the Green Alliance, hoped that these figures would have been derived in the process of changing policies or introducing new policy.[158] The WWF was concerned that the PBR measures relating to transport would "do nothing to reduce the amount of road traffic and may result in an increase in CO2 emissions".

80. The Committee accepts that neither the Pre-Budget or Budget Report is the primary forum to present full environmental assessments of policy. However, these reports should refer the reader to any such assessments that have been carried out and at least indicate the factors which have been taken into account.

81. The Committee has found no evidence that the Government has carried out a comprehensive environmental appraisal of its Pre-Budget measures which would even satisfy its own guidance in this area. For example, the Pre-Budget Report does not refer to any assessment of:

    —  the expected effect of the duty cuts on car use;

    —  the local air quality benefits of Ultra Low Sulphur Petrol (ULSP) against the additional carbon dioxide emissions generated in its production and how far these will be counteracted by more fuel efficient engines in the longer term;

    —  how far the new VED rates for lorries reflect their environmental costs.

82. Moreover, the Committee is not satisfied that the Government took its Pre-Budget decisions on fuel duty, Vehicle Excise Duty (VED), and company car taxation on the basis of a comprehensive appraisal of the trade-offs between its social, economic and environmental objectives. It is therefore difficult for the Committee to be convinced that the Pre-Budget transport measures will have the overall, positive environmental impact which the Government assumes.

132  Stability and steady growth for Britain: Pre-Budget Report, HM Treasury, November 1999 Back

133  Q68 Back

134  Q69 Back

135  HC 326 (1998-99) Eighth Report of the Environmental Audit Committee, The Budget 1999: Environmental Implications, Memorandum from the DETR, Appendix 4, para 6 Back

136  Ev p75, para 4.1 Back

137  Ev p76 (b) Back

138  Q144 Back

139  Glaister S and Graham D, The effect of fuel prices on motorists, AA/UKPIA, September 2000, p1 Back

140  Q155 Back

141  Ev p26, para (ii) Back

142  Q146-The AA commissioned the UK Centre for Economic and Environmental Development to list and price the various carbon dioxide reduction measures which were possible and how much they would cost relative to one another given that carbon dioxide was a uniform pollutant Back

143  Q163 Back

144  Q158 Back

145  Q149 Back

146  HC 76-I, (1999-2000), Fourth Report of the Environmental Audit Committee, The Pre-Budget Report 1999: Pesticides, Aggregates and the Climate Change Levy Back

147  HC 404 (1999-2000), Sixth Report of the Environmental Audit Committee, Budget 2000 and the Environment, para 63 (x), pxxx. Back

148  Printed in HC 404 (1999-2000), Sixth Report of the Environmental Audit Committee, Budget 2000 and the Environment, pp xxiii-xxxi. Back

149  HC 76-I (1999-2000), Fourth Report of the Environmental Audit Committee, The Pre-Budget Report 1999: Pesticides, Aggregates and the Climate Change Levy, p xl, para 118, Back

150  Q71 Back

151  Q75 Back

152  Q74 Back

153  Q76 Back

154  Q61 Back

155  Q62 Back

156  Q62 Back

157  Policy appraisal and the environment, DETR, 8 April 1998, para 5.3 Back

158  Ev p84, para 8 Back

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