Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by the Energy Saving Trust


  The Trust believes the Government should give a clear signal to transport markets that the costs of using polluting fuels and vehicles will increase over the long term. We believe that any short term measures to support to low-income motorists and hauliers against the effects of increased oil prices should be given in reducing taxes on vehicles and clean fuels. The fuel tax differential for road fuel gases should be maintained or increased.

  Support for innovation and clean technology rather than subsidies to polluting behaviour will be the key to long-term international competitiveness for UK business. Additional resources should also therefore be made available for transport through:

    —  fiscal and grant support for clean fuels and clean fuelled vehicles;

    —  further reduced vehicle excise duty for smaller and more efficient vehicles; and

    —  support for new technology and for innovative transport solutions.


  The Energy Saving Trust supports the "Statement of Intent on Environmental Taxation" made by the Chancellor of the Exchequer in his 1997 Budget.[19] We believe that there needs to be a shift in the UK tax base—from "goods", such as income, jobs and profits, to "bads", notably resource consumption and pollution. There are other important concerns, including international competitiveness and impacts on disadvantaged groups in society. But subject to these being addressed, we believe environmental tax reform can be effective and popular.

  Reducing emissions of carbon dioxide form fossil fuel combustion is the single most important environmental challenge facing the UK and the other economies of the developed world. The UK has international obligations under the Kyoto Protocol of the UN Framework Convention on Climate Change (UNFCCC). The Government has taken a lead both in international negotiations and in setting a challenging, but achievable, goal of reducing carbon dioxide emissions by 20 per cent by 2010.[20] Even this is only a start—the Intergovernmental Panel on Climate Change has identified the need for long-term reductions of 60 per cent if the world's climate is to be stabilised[21] and the Royal Commission on Environmental Pollution has recently advocated a UK target along these lines for 2050.[22] At present 26 per cent of UK CO2 emissions come from transport, largely road vehicles. This is the fastest growing source of emissions and is projected to increase to 29 per cent by 2010.[23] In addition, urban air pollution, largely from road transport, is responsible for an estimated 24,000 early deaths annually.[24] Reducing road vehicle emissions is therefore fundamental to environmental policy.

  This is a critical time for the international climate change regime. The Sixth Conference of the Parties to the UNFCCC meets in The Hague next month. If the UK and EU partners do not play a leading role there is a real risk that the negotiations will fail and the Kyoto Protocol will not enter into force. It is therefore imperative that the UK does not undermine its own credentials on greenhouse gas abatement.

  We believe it is important to bear in mind this long-term perspective. The future structure of the transport sector will need to be very different. Radically increased energy efficiency, alternative fuels, increased use of information technology and improved public transport will all be necessary. An "early mover advantage" in these technologies is essential to the long-term competitiveness of the UK transport sector.


  The Trust was established as part of the Government's action plan in response to the 1992 Earth Summit in Rio de Janeiro, which addressed worldwide concerns on sustainable development issues. The Trust is the UK's leading organisation working through partnerships towards the sustainable and efficient use of energy by small customers. Its membership includes the Secretary of State for Environment, Transport and the Regions, the First Minister of the Scottish Parliament, the National Assembly for Wales, the Secretary of State for Northern Ireland, and many of the UK's energy companies. This response should not be taken to be the policy of any member of the Trust.

  The Trust's transport group was introduced in 1996, as the Trust recognised the major and growing contribution of transport to total carbon dioxide emissions as well as being the major cause of urban air pollution. The group currently runs two national programmes—"Powershift" and "Clean-up"—with a total budget from government of £16 million. The older programme, "Powershift", has been successful in helping to stimulate the development of markets for vehicles running on alternative transport fuels including LPG, natural gas and electric (including hybrid) vehicles. The market for "clean fuel vehicles" has grown from virtually nothing at the inception of the programme in 1996, to sales of around 15,000 units this year (projected to grow to 35,000 in 2001).

  The new £6 million "Clean-up" programme is designed to encourage the retrofitting of emissions control equipment to the worst polluting vehicles operating in urban areas and thus contribute to an improvement in air quality.

  The Trust's transport group have also been participants in the DETR's "Cleaner Vehicle Task Force" that has recently been concluded, and were responsible for chairing the alternative fuels sub-group. For the last three years, the group have been the co-ordinators of the EC-funded (DG-TREN) UTOPIA project; a pan-European project involving 24 partners from 12 countries. UTOPIA involved research into the most promising options for the future development of new transport modes and methods in cities across Europe.

  The Trust therefore has a good understanding of the practical issues involved in green road transport markets. We plan to expand our activities in the field. We would be happy to give oral evidence to the Committee on both our own programmes and more general issues.


  Recent concerns by some groups in society about petrol and diesel prices were triggered by dramatic rises in world oil prices rather than tax changes. The Chancellor announced in this year's Budget that the automatic road fuel duty escalator would be ended, with future increases in duty hypothecated to transport improvements. In the context of rising oil prices an automatic increase in fuel duty may not be required each year. From an environmental policy perspective it is the consumer price not the tax rate that matters. However, it is important to keep a long-term signal that the costs of using polluting fuels and vehicles will rise. This will require increases in petrol and diesel duty rates when oil prices stabilise or fall.

  Despite anecdotes to the contrary, fuel prices have a significant environmental effect. Higher prices in Europe have encouraged the sales of smaller, more fuel-efficient vehicles and better public transport systems than in the USA. The Government estimate[25] of a long-term fuel price elasticity of -0.41 is broadly consistent with other analyses. The effects of the fuel escalator between 1996 and 1999 will reduce UK road fuel CO2 emissions by approximately 6 per cent—a very significant contribution to climate change goals.[26]

  However, the Trust believes that relying on fuel price increases alone to deliver environmental goals would be very unwise. It would clearly risk being unpopular. As importantly, it would not be as effective as possible. The fuel price elasticity is not fixed, it is affected by the alternatives available. People will use public transport, more efficient vehicles and less polluting fuels and rely more on walking and cycling, if these alternatives are convenient, comfortable and cheap. "Carrots" for alternative options are therefore at least as important as applying "sticks" to polluting behaviour. The same level of tax increases will give greater environmental benefits if these greener alternatives are assisted. These programmes could be funded by hypothecation of transport taxes.

  In this context, the Trust strongly supports the hypothecation of future fuel duty increases to transport, provided the revenue is used to assist environmentally beneficial transport modes. We welcome the very large spending increases proposed for public transport infrastructure in the Integrated Transport White Paper.[27] We believe that some of the key decisions remain to be made within the context of the £19 billion allocated to local transport plans.


  The Trust recognises that there are concerns about the impacts higher fuel prices on some groups in society. However, some have been exaggerated. In particular, given the low rate of duty on agricultural diesel (3.1 pence/litre), we do not believe changes to fuel taxes can play any significant role in addressing the competitiveness problems of UK agriculture.

  Overall, the Trust believes that road fuel taxation is progressive, as lower income groups are less reliant on cars. However, we recognise that fuel duty may impact heavily on some low-income drivers, for whom there are limited alternatives, for example in rural areas. The National Travel Survey shows that these drivers tend to use smaller vehicles and drive fewer kilometres than the average.[28] Reducing fuel duty would therefore benefit them less than it would higher income groups. Reduced Vehicle Excise Duty (VED) rates for small vehicles would seem to be a more appropriate way to address the needs of this group.

  The Trust also believes that the international competitiveness problems of the UK road haulage sector have been exaggerated. Over 99 per cent of internal UK road freight transport is undertaken by UK based businesses. For cross-border freight the concerns are better founded. However, the Energy Efficiency Best Practice Programme recently found that 80 per cent of fleet managers were unaware of their total fuel consumption despite evidence that up to 25 per cent improvements in fuel efficiency are achievable.[29] There is a great deal more that many road hauliers can do to reduce fuel costs through energy efficiency and thereby to improve their own competitiveness.

  The Trust believes that it is important to recognise that diesel-powered road haulage imposes very significant costs to society. In particular, diesel fumes are the main cause of the very serious health problems, including premature death, associated with air pollution. HGV taxes and duties do not cover the costs they impose to society in health, noise and road damage.[30] The long-term solution to competitiveness problems is therefore not to subsidise UK hauliers, but to reduce the larger subsidy to their overseas competitors. We believe the Government should give a high priority to measures to ensure overseas hauliers contribute fully to the costs they impose on the UK and to seeking a substantial increase in the EU minimum rate of diesel excise duty. This would assist the environmental goals and climate change programmes of our European partners. In the short term we recognise that the Government may feel it is necessary to protect the UK road haulage industry in other ways. We believe that this would be better achieved by reducing taxes on vehicles than on fuel. This approach would provide support, whilst maintaining a strong incentive to improve energy efficiency and reduce pollution.

  Our specific proposals for additional support to greener transport options are as follows:


  The Trust welcomes the fiscal measures that the Government has already put in place to support clean fuels:

    —  the lower rate of fuel duty for road fuel gases (liquid petroleum gas, LPG and compressed natural gas, CNG)—9 pence/litre compared with 55 pence/litre for petrol; and

    —  the £5 reduction in VED for new gas-fuelled vehicles.

  The reduced fuel duty, coupled to the Trust's Powershift programme of 40 to 75 per cent grants towards the incremental costs, is having a radical effect in the LPG market. We expect that the number of new vehicles sold next year will more than double the size of the LPG fleet. The fuel tax differential for road fuel gases needs to be maintained or increased if this momentum is to be retained. However, the VED differential is currently too small to have any significant effect on decisions. Moreover, it does not apply to converted vehicles. Other constraints on future expansion are refuelling point availability, some poor quality conversions and uncertainty about the used LPG car market. Of about 500 refuelling points most are for fleet vehicles with only 100 on forecourts. To address these issues and continue the expansion of the LPG market we believe the following measures should be taken:

    —  a significant increase in the VED differential for clean fuelled vehicles;

    —  vehicle conversions to be entitled to these reduced rates of VED;

    —  support for LPG infrastructure in Planning Policy Guidance and guidance on local Transport Plans;

    —  addition of vehicle conversion to clean fuels and clean fuel infrastructure expansion to the technologies qualifying for enhanced capital allowances for businesses in the Climate Change Levy Energy Efficiency Fund; and

    —  continued support for the Trust's Powershift and Clean-up programmes with increased emphasis on developing a second-hand vehicle market and accrediting conversions.

  The use of CNG has made less progress in the market. It is most useful in buses and HGVs, where the additional weight of a compressed gas tank is less problematic. The lower cost of CNG offers hauliers, in particular, the prospect of significantly improved competitiveness if conversions are undertaken. And the environmental benefits of public transport will be maximised if the vehicles are as clean as possible. The limited gas compression infrastructure and relatively high costs of its installation remain barriers to expansion. The following would be helpful in assisting the market develop:

    —  clear guidance to bus operators on the phasing out of older, heavily polluting vehicles;

    —  maintaining or increasing the fuel duty rebate for gas-powered buses;

    —  increased support for installation of CNG infrastructure conversion; and

    —  further fiscal incentives, especially VED differentiation, for gas-fuelled HGV's.


  Even without fuel switching there is much that can be done to incentivise lower emissions vehicles. The Trust welcomes the existing VED differentiation:

    —  the £55 reduction for existing vehicles with small engines;

    —  the incentives for new vehicles based on CO2 emissions to be introduced next year; and

    —  the incentives for less environmentally damaging HGVs.

  For the reasons given above, we believe that further incentives for small vehicles and low emissions vehicles would be the most appropriate way to cushion motorists from the impacts of world oil price rises.


  The structure of road transport markets and the needs of road transport users are complex. Whilst public transport is generally environmentally preferable, it cannot address all needs. For this reason, the Trust welcomes the Government's emphasis on integrated transport solutions. A simplistic division between public and private transport is not appropriate or helpful. Increasingly there are modes and approaches that fit comfortably into neither, such as taxis, car and ride sharing. The UK, with its high population density, needs to be at the forefront of using innovative measures to reduce congestion in order to protect business competitiveness.

  Integrated transport plans and, at the workplace level, green commuter plans can use these intermediate modes effectively, especially by using the power of IT and new communications technology to provide services when and where required. Alternatively physical transport may, in some cases, be replaced by communications technology, eg internet shopping and video-conferencing.

  This type of broader thinking about mixed modes and new approaches offers significant potential. These "mobility services" might be provided by the public or private sectors, or a partnership of the two. They provide a range of new commercial opportunities in which the UK could take the lead, improving competitiveness and, with the support of the new Kyoto Mechanisms Office, providing export opportunities. To achieve these goals will require a commercial climate in which new approaches are incentivised to replace older, polluting and less flexible approaches. Ways forward that might be considered are:

    —  tax incentives for employers to support green commuting and for employees to participate;

    —  assistance for pilot car sharing and ride sharing initiatives and their IT support systems; and

    —  piloting of mobility service companies offering new service packages.

31 October 2000

19 Back

20   Rt Hon Tony Blair MP-Speech to the CBI/Green Alliance Conference on the Environment, 24 October 2000. Back

21   Intergovernmental Panel on Climate Change Working Group I "Climate Change 1995: The Science of Climate Change." J T Houghton et al (Eds). Cambridge University Press, 1996. Back

22   Royal Commission on Environmental Pollution, 22nd Report, "Energy-The Changing Climate" Cm 4749 Stationery Office, 2000. Back

23   HM Government, Draft Climate Change Programme, 2000. Back

24   Committee on the Medical Aspects of Air Pollution "Quantification of the Health Effects of Air Pollutants in the United Kingdom, Department of Health, 1998. Back

25   Shaping Change. The Energy Report. Department of Trade and Industry, 1997. Back

26   HM Government Draft Climate Change Programme, 2000. Back

27   Department of the Environment, Transport and the Regions, "A New Deal for Transport: Better for Everyone, 2000. Back

28   National Travel Survey 1997-99. Back

29 Back

30   The True Costs of Road Transport, Maddison D et al, Earthscan, 1996. Back

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