Memorandum from Calor Gas Ltd
A: SUSTAINING THE MOVE IN TAXATION FROM ENVIRONMENTAL
GOODS TO BADS ROAD FUEL GASES
Calor Gas Ltd is the UK's leading supplier of
liquefied petroleum gas (LPG). LPG is an environmentally preferable
road fuel better for the environment than petrol or diesel. It
could contribute more to UK air quality objectives and Kyoto targets
given the right fiscal framework. One of HMG's major themes has
been to shift taxation from environmental goods to bads. This
has stimulated usage of LPG as a road fuel but the verdict must
be "could do better". The potential environmental benefits
from the use of LPG has a road fuel are far from being reached:
the pre Budget report sees the potential market for LPG cars as
being 100,000 by 2006. in 1998 MarketLine International [MI] an
independent, unsponsored research organisation, reckoned the potential
market with the right policy framework to be 524,000 vehicles
by 2003. Clearly, the overall policy framework is not maximised
to the benefit of the environmentally friendly road fuel gases.
Calor has given evidence to the EASC before about the "dead
time" wasted by HMT in changing fiscal frameworks too tentatively
There is a healthy market for LPG is countries
with the right policy frameworkthere are 400,000 LPG vehicles
in Holland, one million in Italy, 350,000 in the USA and 330,000
in Australia. In France, with tax exemptions for buses, taxis
and company cars running on LPG there are 150,000 LPG vehicles.
Worldwide four million vehicles run on LPG. There are about 50,000
LPG vehicles in the UK (Source: LPGA).
LPG MEANS CLEANER
"Noise disturbs sleep and affects performance
in school children. It indicated that noise may increase the risk
of developing chronic heart disease and psychiatric disorders"
("New Deal for Transport" 1998). Noise is the aspect
of transport that causes the most nuisance to the most people
in the UK (Royal Commission on Environmental Pollution, 20th Report).
LPG engines are 50 per cent quieter than diesel engines and marginally
quieter than petrol engines.
The external costs of air pollutants in terms
of mortality and morbidity are becoming clearer. We now know that
drivers, far from being insulated from the emissions they inflict
on pedestrians, are exposed to levels of VOCs, CO and NOx of between
three and six times greater than those at urban background locations
(The Air Quality Strategy, 2001AQS).
Kyoto demands reductions in greenhouse gases
of 6 per cent below 1990 levels between 2008 and 2012. The protocol
covers all greenhouse gases including CO2 and methane. CO2 emissions
from LPG are better than from petrol; life-cycle emissions of
hydrocarbons (including methane) are far lower for LPG than petrol
(Alternative Road Transport Fuels by the Energy Technology Support
Unit1996). Thus, LPG could help attain the Kyoto targets.
Benzene and 1, 3 Butadiene
These dangerous carcinogens carry risk at the
smallest dose. The main source of benzene is petrol. LPG emissions
of benzene are about one thirteenth of those from petrol and half
of those from diesel. 9,000t of benzene was emitted to air by
petrol cars in 2000. In 1996, three-fifths of 1, 3 butadiene emissions
(6,310t/yr) came from petrol vehicle. LPG emits less than half
the amount of 1, 3 butadiene. HMG wants "dramatic" decreases
in benzene emissions: the AQS 2001 sets stricter long-term UK
targets for benzene to achieve by 2010.
Carbon Monoxide (CO)
CO concentrations are dangerous for people with
existing heart or nerve disease. 75 per cent of CO emissions come
from petrol. Petrol emits about 2.5 times the amount of CO emitted
The largest source of PM10 emissions is road
transport. 75 per cent of these are from diesel engines. Road
transport's contribution to PM10 emissions is higher in urban
areasin London traffic contributes 78 per cent of emissions.
Diesel emissions are growing owing to the increase in heavy vehicle
traffic and a more towards diesel cars. Estimates of the total
damage from PM10 range from £10.5-£26bn annually; the
external costs of PM10 arising from diesel range from £2-£12.4bn
a year. PM10 emissions from LPG engines are over 90 per cent less
than from diesels. A significant shift of diesel fleets to LPG
would reduce external costs dramatically. A ten per cent switch
to LPG across the engine size range could save £200m-£1.2bn/yr
in external costs.
The health gains from reducing particle levels
are greater than for those of any other pollutant. High PM10 levels
cause congestive heart failure, heart disease, cerebrovascular
problems and asthmatic attacks. PM10 is estimated to advance 8,100
deaths/yr in Great Britain and to cause an additional 10,500 respiratory
admissions to hospital ("Quantification of the Effects of
Air Pollution of Health in the United Kingdom", DoH, 1998
[QEAP]). Recent evidence suggests that there may not be a safe
threshold for health effects of particles at all.
The latest evidence confirming the deleterious
health effects of particles leads the AQS 2001 to supplement existing
2004 targets with new stricter targets to be achieved by 2010.
The AQS estimates that in 2010, even on the basis of its new
national policy measures concentrations at 1369 road links across
the UK will be in excess of the limit value.
PM10 may not be the measurement most representative
of that part of the total particle mixture that is responsible
for harmful effects. The toxicity may lie in a finer fraction
of particles, PM2.5 or smaller. Road transport was the largest
single source of national emissions of PM2.5 in 1999, being responsible
for 28kt of the total emissions of about 109kt. Of these, diesel
vehicles produce about 22kt. Recent tests have shown that LPG
emits up to 99.8 per cent fewer ultra fine particles than ULS
"An Economic Analysis to Inform the Review
of the Air Quality Strategy Objectives for Particles" (DEFRA,
2001) proposes measures involving a reduction of some 33 per cent
of particulate emissions and estimates that up to 508,000 life
years would be gained in the UK. However, no large scale shift
from conventional fuels to LPG was factored into this analysis.
Oxides of Nitrogen (NOx)
NOx advances and increases hospital admissions
by 8,700/yr (QEAP). 48 per cent of NOx emissions come from road
transportin London this figure rises to 75 per cent. AQS
sets a target of an hourly mean of 200bg/m3more stringent
than that originally set for 2005. LPG engines offer a 90 per
cent reduction of NOx compared with diesel, and 40 per cent with
Ozone is created by chemical reactions involving
NOx and VOCs. Ozone causes irritation to the airways. For every
bg/m3 reduction on ozone there would be 170 fewer deaths advanced,
and 145 fewer respiratory hospital admissions in Great Britain
every year. LPG engines emit 70 per cent less ozone precursors
than diesel and 80 per cent less than petrol.
LPG AS A
(i) Extend the Commitment to Fuel Differentials
to 2006 at least
MI identified a "strong government commitment"
as a vital factor in encouraging conversion. This is underlined
by research reported on in Transport Action's website: "The
research also considered the importance of a number of market
factors in influencing decisions to switch to clean fuels. . .
The strongest concern was a lack of confidence in the Government
maintaining the fuel duty differential". The Pre-Budget Report
repeats that the commitment is valid till 2004. Fleet managers
and drivers need confidence that if they buy LPG cars now they
will see a return on their investment. Only Vauxhall and Volvo
make dual fuel vehicles in significant volumes; other OEMs have
chosen not to invest in this technology. Those OEM manufacturers
who have made considerable investment in production lines deserve
to see a return for their investment in green technology; and
other manufacturers will not enter production without the necessary
confidence. Ministers may be reluctant to commit for longer than
a Parliament, but it would consolidate confidence in this market
sector if the differential could be maintained for at least five
years from the date of the last Election.
The shift to OEM production has been slow, and
the need for an incentive is clear particularly amongst SME manufacturers
and specialist converters where risk capital is harder to source.
Calor made a submission to the Green Technologies Challenge arguing
for ECAs to be applied to the incremental investment specifically
necessary to a LPG specialised production lines; the Pre-Budget
report marks no advance yet. It promises only to "investigate"
the area of cleaner fuels and vehicles.
(ii) Let Government Continue to Invest in
SuccessNot in Dubious Technology
The pre-Budget report announced tax breaks for
hydrogen fuelling infrastructure, landfill gas use in vehicles
and testing of methanol in vehicles, and the publication soon
of a draft strategy"Powering Future Vehicles".
Calor urges caution if this implies any reduction in the incentives
to go green with road fuel gasesa successful, practical
technology already with us. Calor urges caution in the expenditure
of taxpayers' money in "visionary" technologies. Vision
tends to cost money.
For instance, in relation to hydrogen/fuel cell
technology, there is one taxi propelled by a fuel cell in the
UK and the company that made it has gone out of business. There
is no commercially available production of vehicles powered by
hydrogen. The prospect of developing commercial production of
vehicles powered by hydrogen is said to be promising. In 1874,
Jules Verne predicted the derivation of energy from water via
hydrogen; 100 years later "Road and Track" magazine
was predicting a future for hydrogen powered cars (March, 1974).
The phrase "hydrogen economy" was coinednote
wellby General Motors four decades ago. Could it be that
hollow promises of the cleaner fuel to come "in the near
future" are being used to buy more time for conventional
"Very real economic factors . . . make
centralised production and distribution of hydrogen gas impractical.
. . Powering a car with the hydrogen electrolysed on board. .
. is wildly uneconomical (Xogen Power Inc 2000).
"DaimlerChrysler has built a compact car
powered by fuel cells. . . the latest demonstration of progress
of fuel cell cars. . . powered by liquid hydrogen, an impractical
fuel for mass marketing" (Associated Press, March 1999).
"Fuel cells making progress, but still
unlikely in any numbers before 2020... Asked if fuel cells were
at a technical turning point... Watanabe [Toyota Managing Director]
noted that a number of issues, including cost, safety and reliability,
need to be addressed before fuel cell vehicles become a common
sight on the world's road" (Reuters News Service, 10.4.01).
(iii) Further Rebalance Company Car Taxation
in Favour of Greener Fuels
Company car taxation has been moving over time
to recognise the environmental goods of cleaner fuels and penalise
environmental bads. It has also been moving in such a way as to
bring these market signals to bear on users as well as fleet
owners. Given a more directive taxation regime it becomes even
more important to achieve equity in these price signals. It is,
of course, amongst company fleets that the most dramatic gains
can be produced by choosing LPG over traditional fuels. We suggest
that a greater recognition of the desirability of LPG over petrol/diesel
be built into the company car tax regime. Further, we believe
that the fuel scale charges and VAT charges are unfair because
they do not parallel the fuel differential LPG has over petrol
We suggest that:
The extra cost of having LPG on a
type approved cargenerally about £2,000be fully
discounted for the purposes of calculating benefit in kind tax.
The fuel scale charge for LPG be
half that of petrol recognising its price differential and environmental
The fuel scale charge calculator
based on CO2 emissions gives LPG cars a three per cent discount
mirroring the 3 per cent supplement which diesel attracts. This
recognizes the lower CO2 emissions of LPG vehicles.
VAT charged on private fuel charged
per car be reduced by half from the petrol equivalent recognising
LPG's price differential and environmental benefit.
The pre-Budget report announced a consultation
on options for changes in VED to encourage cleaner vans, and foreshadowed
restructuring the fuel scale charge to relate it to CO2 emissions
in 2003. We hope that Calor's recommendations ultimately find
HMG is underachieving to potential
in the switch from conventional fuels to LPG
HMG should commit to maintain the
fuel duty differential till at least 2006
ECAs for OEMs to invest in road fuel
gas production lines should be advanced
HMG should not allow support for
experimental environmental goods to crowD out support for practical
environmental goods with significant under exploited potential.
B: SUSTAINING THE MOVE IN TAXATION FROM ENVIRONMENTAL
GOODS TO BADS REFRIGERANTS
The Pre-Budget Report misses yet another opportunity
to advance UK Climate Change objectives by accelerating a move
away from hydro fluorocarbon (HFC) refrigerants now recognised
by HMG as "not sustainable in the long term". The report
clams that, "The Government uses the full range of instruments
to address environmental issues, including public spending, voluntary
agreements, regulation, taxes and other economic instruments,
such as permit trading". However, HMT has not taken up our
suggestion for a levy on HFC refrigerants. This has the potential
to remove greenhouse gas (GHG) emissions amounting to a third
of the UK's legally binding figure. The levy will accelerate the
move away from HFCs and build upon the achievements of the Climate
Change Levy (CCL). We are also becoming increasingly concerned
that public spending on air conditioning equipment in Government
Departments appearS to continue to favour unsustainable HFC technology
over practical environmentally benign alternatives. In this, the
Greening Government process is underachieving.
CFC and HCFC refrigerants damage the ozone layer
and have significant global warming potential (GWP). So, under
the 1987 Montreal Protocol CFCs and HCFCs have been banned or
are being banned in most developed countries. HCFCs are prohibited
under EU legislation in new cooling systems from 2001, and the
use of virgin product for maintaining equipment is to be prohibited
from 2009 with an earlier prohibition for refrigerants. Most users
of refrigerants decided to switch to HFCs for the lack of other
alternativesbut HFCs themselves have high GWPs. Thus HFCs
are an intermediate, and relatively environmentally damaging technology.
If HMG is to meet its own GHG targets additional
measures are required. Encouraging the refrigeration industry
by means of a new economic instrument to invest in environmentally
benign alternatives to HFCs, where such practical alternatives
exist, would fulfil Lord Marshall's call for clear signals to
business: "Without an imminent signal of where commerce and
industry needs to be beyond 2010, there is a risk that companies
investing now could get locked into capital stock which does not
meet future requirements. . .To advocate doing the bare minimum
now could provoke more costly and painful change." A strong
economic signal of Government support for environmentally benign
alternatives (sometimes called "NIKs"Not In Kind)
would prevent industry suffering the cost of a double switch from
HCFC to HFC to NIKs.
In 1995, the UK Government Panel on Sustainable
Development recommended phasing out HFCs. The Fourth Report of
the Panel in 1998 repeated the demand. On average, HFCs have 2,274
times the GWP of CO2. 1 Kyoto included HFCs amongst the emissions
that must be reduced to stop global warming. HMG now accepts that
the extended use of HFCs is environmentally unsound and unnecessary.
The Climate Change UK Programme (CCUKP) states: "HFCs should
only be used where other safe, technically feasible, cost-effective
and more environmentally acceptable alternatives do not exist.
. . HFCs are not sustainable in the long term". NIKs are
available to be used as viable, cost-effective and environmentally
benign alternatives to HFCs for refrigeration.
Most HFC emissions arise through leakage from
systems in the course of use or disposal. 75 per cent of HFCs
are used for topping up leaking systems (BSRIA 19982). During
2000, some 1,700t of HFCs were emitted to air from refrigeration
in the UK. By 2010 HFCs will account for 10.4m.t CO2 equivalent
of emissions, according to the 1999 DETR Report3 in a business-as-usual
scenario. More pessimistic studies exist eg Eric Johnson of Atlantic
Consulting, forecast that by 2010 HFCs may represent about 4 per
cent of the nation's GHG emissions. On this basis, phasing out
HFCs would help Britain achieve a third of its legally binding
target reductions of 12.5 per cent of GHGs. The HFC lobby claims
that the pollution potential can be reduced by leakage control,
recovery and recycling. Indeed, public policy is predicted on
UNrealistic leakage rates of 3 per cent to 4 per cent. Even countries
like the Netherlands and Sweden where emissions are tightly regulated
have been able to reduce leakage rates to only around 10 per cent
at best. Johnson found much larger leakage rates in countries
where the emissions are not tightly regulated and policed. Without
a radical step-change in technology, incentives, or both, it is
hard to see the leakage forecasts of the UK and Dutch Governments
as realistic." 4 HMG acknowledged the problem in the CCUKP:
"Leakage is currently at a level well above the minimum that
can be effectively achieved." 5
Historical HFC annual leakage rates are 30 percent
for distributed systems (eg supermarkets), refrigerated transport
and mobile a/c, and 15 percent for central chillers; the average
loss of charge on disposal has been 75 per cent for distributed
systems, 25 per cent for central chillers and 100 per cent for
refrigerated transport and mobile a/c6. On a high emissions business-as-usual
scenario the DoE's 1999 March report estimated that emissions
from refrigeration, using the 1990 baseline year as 0.0mt CO2
equivalent, would rise to 0.8mt CO2 equivalent in 1995, to 4.7mt
CO2 equivalent by 2010, the date by which public policy demands
a fall of 20 per cent in CO2 emissions from 1990 limits.
HCs do not damage the ozone layer and have an
almost negligible GWP approximately 1000 times lower than the
HFC average. Amongst the NIKs, natural hydrocarbons (HCs), such
as found in Calor's CARE product range, are a safe and proven
refrigerant technology. 95 per cent of German domestic refrigerators
now use HCs and Germany has some of the toughest environmental
and safety legislation in the world. After more than 100 million
operational years, mostly in Germany, there has not been a single
HC systems are cost-effective: users report
savings of up to 22 per cent in energy consumption. This energy-efficiency
is acknowledged by Canada. 7 HCs, using less electricity, reduce
the amount of CO2 released to the atmosphere by power generators.
Thus, the use of NIK systems, such as HCs, causes a double reduction
in global warming. NIKs have negligible GWP, and NIKs reduce demand
for electricity. This is not an insubstantial point: "the
refrigeration and air-conditioning market segments use significant
quantities of electricity, which lead to indirect emissions of
CO2 at power stations." 8 HC refrigerants are kinder to refrigeration
systems and need less servicing over their longer life spans.
Increased energy efficiency can also result in reduced whole life
costs. The British Refrigeration Association President Graham
Garner acknowledged: "Our best [lifecost] option would be
to use a hydrocarbon primary with a liquid secondary. This reduces
maintenance costs/energy costs and is totally environmentally
We discuss below a number of potential policies
to reduce the harmful emissions of HFC: we believe that a new
economic instrument will be most effective in delivering such
Voluntary restraints are inadequateof
over 7,000 companies in the UK refrigeration industry only 200
have signed the appropriate voluntary code. "Sustainable
Business" (DETR, 1998) discusses voluntary agreements: "The
number of parties involved should be limited, but there needs
to be sufficient coverage of the sector in question. . .The objectives
of agreements need to be clear, with milestones and targets. There
should be provision for annual review and independent verification.
Responsibility for measuring and verifying progress must be agreed".
Using these criteria, the current voluntary codes for HFCs are
a failure: they have insufficient coverage of the sector; there
is no annual review procedure and no independent verification.
The CCUKP states that, "It is also clear that, in their present
form, the voluntary agreements would not deliver significant reductions
in emissions in the short and medium term . . . (and HMG) is considering
whether further action is necessary to complement the voluntary
Lord Marshall was dismissive of voluntary agreements:
"Being voluntary, there is no guarantee they will deliver.
Because of the imbalance of information between firms and the
regulator, it is only fair to recognise that the Government cannot
be sure that an agreement is offering the right deal in terms
of emissions reductions. To the extent that agreements fall short,
other sectors of the economy and industry will have to do proportionately
more. For all these reasons I would not expect them to be the
mainstay of the Government's programme." 11
HMG is considering "defining minimum qualifications
for people who handle refrigerants, which includes HFCs"
and "wants to ensure that HFCs are handled and used responsibly."
5 Such action would be welcome, but proposals at this stage are
vague and are unlikely to deliver the necessary improvements in
leakage without rigorous monitoring and a dedicated inspectorate.
3. LEAKAGE REDUCTION
This is another option canvassed in the CCUKP.
It is a worthwhile concept. To be sure of delivering actual reductions
it would require rigorous monitoring, and a system of penalties
if leakage rates do not match targets; but, it would require a
complex bureaucracy to administer.
4. THE USE
Lord Marshall felt that there was a role for
economic instruments to improve the use of energy and reduce GHG
emissions. The CCL is a model here to build on. Indeed DETR's
March report12 deemed the use of fiscal instruments, as a means
of reducing emissions, to be either "good" or "reasonable"
for a number of the major refrigeration market sectors. Environmentally
conscious nations are increasingly turning to the use of economic
instruments to incentivise a move away from HFCs. Denmark does
not believe in solving one problem at the expense of another ie
it is best to move straight from CFCs/HCFCs to NIKs. Denmark introduced
a tax on "synthetic" refrigerants in March 2001 in an
attempt to move the a/c and refrigeration markets away from HFCs
towards natural substances. The tax rate is 0.1 DKK (Danish Kr.)
per kg based on the GWP of the gas. The tax in sterling equivalent
£15 (173 kr) per kg of 410A
£28 (326 kr) per kg of 404
£13 (153 kr) per kg of 407C
£11 (130 kr) per kg of 134a
£8.50 100 kr) per kg of 134
Norway's Pollution Control Authority has proposed
an import tax on HFCs equal to £21/1,000 kg CO2 equivalent.
This works out at £27 per kg of R134a and £70 per kg
for R507; to encourage recycling this would be refunded on the
return of recovered fluid. Luxembourg insists that only ammonia
should be used in large central plant systems; Sweden restricts
HFC usage to 200kg per site and proposes a similar tax to the
Danes but at four times the level. Austria proposes a ban from
2002 on HFCs from all new domestic and small commercial refrigeration
and a/c equipment. This would be followed by mobile a/c two years
later with a total ban in all new equipment from 2005. Thereafter,
HFC use would be restricted to maintenance and repair of existing
equipment before disappearing completely in 2010.
Such an economic instrument in the UK would
encourage at least three of the four "technical opportunities"
for reducing emissions that were identified in the March report12
ie: (a) minimising emissions through the lifecycle of a product,
(b) using zero/low GWP alternative fluid, and (c) using an alternative
or NIK technology.
A tax on the GWP of refrigerants would have
the following advantages:
Simpler and less bureaucratic to
implement and administer than any leakage penalty system;
A strong signal to business considering
investments in refrigeration technology;
Maintaining market choice whilst
encouraging the use of environmentally preferable alternatives;
Rewarding the industry's own efforts
in leakage reduction.
Lord Marshall stressed the need to recycle the
proceeds of an economic instrument back to business in the form
of schemes to promote energy efficiency and reducing greenhouse
gas emissions directly. We would be happy with this approach,
which could include:
Funding proper local authority refrigerant
reclamation and disposal schemes;
ECAs to encourage the manufacture
of environmentally benign refrigeration technology
Boosting Powershift which actively
promises HC as against HFC refrigeration.
1. UK Use and Emissions of Selected Halocarbons,
Department of Environment, 1996.
2. Building Services Research Industry Association
(BSRIA) Report, 1998.
3. UK Emissions of HFCs, PFCs and SF6 and
Potential Emission Reduction Options, Department for the Environment,
Transport and the Regions, January 1999.
4. Global Warming from HFC, Eric Johnson,
The Environmental Impact Assessment Review, November 1998.
5. Climate change: The UK Programme, DETR,
6. Proposed New Controls on CFCs, HCFCs,
1,1,1-Trichloroethane and Carbon Tetrachloride, UK Compliance
Costs An Impact Study, Department for the Environment, Transport
and the Regions, September 1998.
7. Analysis of alternative technology options
in the residential sector, Expert Panel on Alternatives to Refrigerants,
Environment Canada, March 1999.
8. UK Emissions of HFCs, PFCs and SF6 and
Potential Emission Reduction Options, Department for the Environment,
Transport and the Regions, January 1999.
9. Interview with Graham Garner from Refrigeration
and Air Conditioning, October 1998.
10. Climate Change: The UK Programme, DETR,
11. Economic Instruments and the Business
Use of Energy, Lord Marshall, November 1998.
12. UK Emissions of HFCs, PFCs and SF6 and
Potential Emission Reduction Options, DETR 1999.