WWF submission to the Pre-Budget Report
WWF, the global environment network, has long
supported financial instruments such as taxes as a means of achieving
environmental objectives, provided they are part of a broader
package of measures including incentives for positive action.
WWF has thus broadly welcomed the Government's proposals for a
climate change levy. We have also supported the fuel duty escalator
as a means to make the polluter pay. However, we are concerned
that in the current climate of high international oil prices,
as well as the strong value of the pound, opposition to the application
of environmental taxes has been growing. In our view, this opposition
can be overcome through carefully designed packages of measures,
with both sticks and carrots. In our view, the polluter pays principle
must become a fundamental feature of the tax system and we would
like to see further environmental tax measures in future budgets.
In this submission, we make a number of proposals
which we believe would enhance the design of both the climate
change levy and the fuel tax.
WWF welcomes and supports the proposals to introduce
the climate change levy in April 2001. We commend the Government
for standing firm despite strong opposition from some sectors
of industry and are pleased that the levy appears to be on track
to be introduced on time. We would however like to make the following
comments regarding the design of the levy and suggest a number
of improvements to the overall levy package.
In WWF's view, the negotiating process for these
agreements has been flawed. Several deadlines have passed and
the negotiations are still not completed, with few details in
the public domain.
We are concerned that the protracted delay in
finalising these agreements has been used by some industry groups
to call for a delay in the introduction of the levy. This should
not be allowed to happen as the reduction in CO2 emissions
should not be delayed any further. WWF maintains that ambitious
targets need to be agreed in return for the 80 per cent disount
WWF urges the Government to announce the details
of the agreements as soon as possible and make them available
for public scrutiny.
The level of the levy
WWF believes that the rate of the levy should
be reviewed every year, in line with energy prices. This review
should look to increase energy prices above the rate of inflation
thereby ensuring that industry is sent a continuing signal that
they need to be improving their efficiency and looking for alternative
forms of energy.
An increase in the price of energy would improve
the economics of renewable energy. WWF believes that at the current
rate the levy will only have a marginal effect on investment in
Any increase in revenue from the climate change
levy should be returned to industry through, for example, the
carbon trust and enhanced capital allowance elements of the climate
change levy package.
WWF would also like to see a less cumbersome
process for gaining renewables exemption, so as not to deter many
companies, particularly SMEs from signing "green electricity"
WWF calls on the Government to commit to continually
increasing the cost of energy and to simplify the process for
gaining Climate Change Levy exemption for renewables.
WWF has been closely involved with the discussions
(initiated by the Emissions Trading Group [ETG] surrounding the
establishment of a UK emissions trading scheme. WWF believes that
emissions trading does have a role to play as part of a package
of measures to reduce emissions in the UK and welcomes the discussions
that have been taking place. However, we do have some concerns
as to the current proposals, particularly regarding the reduction
targets to be achieved and the payment of an incentive to firms
participating in the scheme.
The UK scheme must be seen to help deliver the
20 per cent CO2 reduction target (and not just focus
on the 12.5 per cent target). This is particularly important given
the public money that is now involved (the £30 million incentive
announced in the Comprehensive Spending Review 2000).
The success of the scheme will also depend on
whether companies see an advantage in joining the trading scheme
earlier rather than later. This will only happen if the Government
makes clear that at some point in the future (at least the Kyoto
commitment period) all companies will have to take on mandatory
caps, whether or not they choose to participate in emissions trading.
This will incentivise companies to join the voluntary scheme to
gain experience of trading and the advantages of being an "early
mover". Similarly, it should be emphasised that in the medium
term, allowances will not be based on historical emissions, but
rather will be auctioned, with the income generated earmarked
for investment in renewables and other low carbon technologies.
This will provide an additional incentive for firms to take early
It should also be made clear that the Negotiated
Agreements will not be renegotiated when they expire and that
the firms involved will be expected to take on a mandatory cap.
WWF urges the Government to ensure that any
UK emissions trading scheme contributes to the 20 per cent CO2
reduction target. A clear signal should be given to firms in all
sectors that they will have mandatory caps imposed in the future.
The Incentive Payment
WWF believes that it is inappropriate that firms
should effectively be subsidised for implementing measures that
will only represent a small first step towards the emission reductions
necessary to prevent serious climate change and that may in many
cases be profitable.
To be credible the incentive payment must be
seen to benefit those firms who have the greatest difficulty in
meeting the targets set, and should stimulate additional investment,
not subsidise activities that are already profitable.
The incentive should be limited to the five
years between its introduction and the beginning of the Kyoto
commitment period. It should be clear that taking advantage of
the incentive commits a firm to participating in an emissions
trading system from which there is no subsequent opt-out once
the incentive period has expired.
Since public funds are being utilised, it is
vital that there be complete transparency in the setting of targets
and allocation of the incentive and in the operation of the emissions
WWF urges the Government to ensure that any
incentive paid to trading firms reflects the polluter pays principle,
is carried out in a transparent manner and ensures that only investment
yielding real reductions is rewarded.
WWF advocates and supports the use of taxation
to ensure there is a continuing increase in the price of fuel
over the long term for environmental reasons. It is important
that this principle is not lost in the Government's response to
the "fuel crisis". However, the environmental case for
the current high fuel price is difficult to make given that there
is a real lack of alternatives to oil based road transport and
currently none of the revenue raised by taxes on fuel goes to
fund development of the alternatives.
WWF believes that the Government should use
the tax windfall from increased VAT receipts and higher oil revenues
gained as a result of higher than expected fuel prices to compensate
those hardest hit by the fuel price without undermining environmental
objectives. WWF proposes the following package (based on a £1.5
£1 billion should be spent on
measures specifically designed to compensate motorists and hauliers
for the unusually high oil prices faced during this year.
The measures are designed to specifically help
those motorists facing genuine hardship rather than those with
a real lifestyle choice: lower mileage and lower income motorists,
not least in rural areas. We reject an across-the-board cut in
fuel duty as it would reward those who drive the furthest, using
the most fuel, in the least efficient vehicles.
£50 cut in Vehicle Excise Duty (VED) for
cars up to 1,800 cc, about two thirds of cars
For most motorists this would be worth more
than a 3p per litre cut in fuel duty, which would save a typical
motorist about £35 a year. For example, the saving on fuel
costs for a 1.8 litre Ford Focus doing 10,000 miles, the most
popular car on sale this year, would be about £36.50. Relative
to a 3p cut in fuel duty, the winners from a £50 cut in VED
would be the owners of small and medium size cars who drive less
than about 15,000 miles a year (depending on fuel efficiency).
The losers wuold be those who drive gas-guzzlers or more than
about 15,000 miles a year (about 15 per cent of cars). This would
cost the Treasury around £800 million a year.
A level playing field on fixed costs across the
European haulage industry
The road and vehicle tax regime for hauliers
should be reformed to bring it into line with the rest of the
EU. The first stage would be an immediate cut in VED for lorries
of £500 on average across the fleet. The Heavy Goods Vehicle
(HGV) tax system is extremely complex and the tax cut could be
graded to favour the cleanest and least road damaging vehicles.
This would be an immediate cost to the Treasury of around £200
Note: WWF believes that the haulage industry
is facing some competitive pressure due to high fuel prices, but
it has exaggerated its claims. The Environment, Transport and
Regional Affairs Select Committee rejected the case for an "essential
user" rebate on diesel duty after a great deal of industry
evidence was placed before them. A recent survey by the Energy
Efficiency Best Practice Programme (EEBPP) found that only 20
per cent of haulage fleet managers were aware of their total fuel
consumption. Those companies receiving EEBPP advice on fuel efficiency
had cut their fuel bills by 20 per cent in five years.
£500 million should be used to set up a
green transport fund.
Increasing fuel duty rebate on ultra-low sulphur
diesel for buses from 75 per cent to 100 per cent
This would help to keep fares down and prevent
loss of services owing to higher fuel costs as a result of oil
prices increases. In return for a 100 per cent rebate, bus operators
could be required to offer a minimum half bus fare discount for
16-18 year olds in full-time education in association with the
introduction of the Government's proposed youth card. The cost
of transport is recognised as the biggest financial barrier to
staying on at school and college.The cost to the Treasury would
be about £105 million.
Extending 100 per cent fuel duty rebate on ultra-low
sulphur diesel to scheduled coach journeys
These journeys provide a socially important
service but received no public subsidy. In return, coach operators
could be required to offer a minimum half fare concession to pensioners
and disabled people, parallel to the new statutory minimum half
fare concession for local bus services. The cost to the Treasury
would be about £20 million a year.
Tax free travel vouchers to encourage green commuting
The vouchers could be used to pay for public
transport fares, including taxis in rural areas. The cost to the
Treasury of allowing employers to give up to £600 worth of
vouchers a year to each employee is estimated to build up to about
£200 million a year over time. A £600 maximum would
in particular encourage local rather than long-distance commuting,
and is particularly of benefit to bus users. For example, it would
cover the cost of an annual all-zones bus pass in London.
Establish a Rural Services Fund
Many people in rural areas cannot access local
services through public transport. As well as extra support for
rural buses, which the Government is already implementing, a Rural
Services Fund would support local shops, petrol stations and other
rural services in islolated communities. £100 million should
be dedicated to this fund and spent through grants, rate relief
and other methods to increase the accessibility of essential services
for rural dwellers.
Extend the Powershift Programme
This scheme run by the Energy Saving Trust provides
grants to convert cars and lorries to cleaner fuels, notably Liquid
Petroleum Gas (LPG) and Compressed Natural Gas (CNG). There is
scope to extend this scheme to more vehicles and extra grants.
We recommend that £50 million be allocated to such conversions.
Extend the Carbon Trust
LPG and CNG are both commercially viable fuels
whose use can be rapidly increased in the short term. In the longer
term, electric hybrid vehicles and, ultimately, hydrogen powered
fuel cell vehicles are the low or zero emission options of the
future. The Carbon Trust, being set up with money hypothecated
from the Climate Change Levy, will be funding research and development
into low carbon tehnologies. Its remit on alternative transport
fuels like hydrogen could be extended and backed up by providing
an extra £25 million from road fuel duty.
WWF urges the Government to commit to allocating
a portion of future revenues from the fuel tax to the development
of alternatives (through for example, a greater incentives for
purchasing/using more efficient vehicles, further funding of the
Powershift programme and Carbon Trust scheme).