Memorandum by Mobil CNG (IT 75)
Mobil CNG-An Introduction to the Company:
In response to the demand for "greener"
fuels, Mobil has established Mobil CNG Ltd, a UK-based subsidiary
of Mobil Corporation. Mobil CNG offers a comprehensive fuel supply
package, increasing the choice of more environmentally friendly
fuels available to fleet operators.
About Compressed Natural Gas:
There are huge reserves of natural gas in the
UK and a national distribution network, which provides secure
and easy access to these gas volumes.
Compressed Natural GasCNGis a
natural gas taken from the pipeline and compressed to a fraction
of its volume, without losing any of its energy potential. Trucks
and buses fuelled by CNG can travel up to 350 miles between fills.
CNG is an environmentally friendly and fundamentally
economical fuel, which is, at present, most suitable for the commercial
vehicle sectorfor example, local authority and private
sector waste disposal vehicles, bus fleets and lorries delivering
to large retail chains. For example, Safeway uses Mobil CNG in
its distribution fleet.
CNG is the best choice of all the alternative
fuels because it is the safest, quietest and has the lowest overall
environmental impact: The appendix gives further details.
Overall Environmental Impact
Natural gas is produced either as the primary
product from a gas well or in association with oil from oil wells.
Once it has been dried it is distributed via the underground national
mains gas system. As it requires so little processing, over the
life cycle of the fuel it is the most environmentally friendly
fuel currently available.
Current technology for CNG engines provides
exceptional performance in relation to emissions legislation,
both the Euro 11 and 111 standards and in relation to the UK's
own National Air Quality Strategy.
CNG is an extremely safe fuel. The technology
used already exceeds the stringent safety requirements of the
offshore oil and gas production industry. Since the fuel is lighter
than air, in the unlikely event of a leakage it will harmlessly
CNG vehicles are between 50 per cent and 80
per cent quieter than traditionally fuelled HGV vehicles. Use
of CNG vehicles can significantly contribute to enhancing the
environment. It can also ease traffic congestion by allowing for
far greater flexibility in delivering goods, during the night,
in residential areas.
In this submission we focus our responses to
the White Paper on Part III, Chapter 4, "Sending the Right
Mobil CNG welcomes the White Paper's recognition
that the costs paid by transport users do not reflect the environmental
costs associated with different transport use, in particular noise,
pollution and nuisance. Mobil CNG also supports the notion that
the use of economic instruments is an important means of influencing
travel choice and of encouraging the use of more environmentally
friendly fuels. However, Mobil is concerned that where Government
seeks to change patterns of transport use and to deliver more
choice into the market by use of fiscal incentives, those incentives
should be effectively, timely and workable. Below, we present
our view on existing incentives and suggest an improved system,
which, we believe, would meet the Government's good intentions
more quickly and more effectively and without the waste that exists
within the current incentives scheme.
4.121 Increasing fuel duty has proved an effective
way of directly influencing CO2 emissions from road
transport as part of our strategy for tackling climate change.
Government should make a distinction between
achieving the CO2 targets agreed at the Kyoto Summit
and the National Air Quality Strategy Targets set out in the UK
by the Department of the Environment Transport and the Regions.
The latter concerns the emissions ejected into the atmosphere
by vehicles, which are harmful to the nation's health and for
which, in conjunction with our European partners, stringent targets
have been set.
Effecting a substantial overall reduction in
CO2 emissions will be achieved by reducing the total
amount of all carbon-based fuels burnt, on a global scale. Although
the type of fuel burnt by vehicles is a factor in this equation,
it is only a tiny proportion of the overall problem. Mobil CNG
believes that Government should focus its fiscal incentives on
improving air quality and reducing other emissions, namely carbon
monoxide, oxides of nitrogen, other non methane hydrocarbons,
particulate matter, (especially PM10s) and sulphur oxides.
4.122 We will continue to encourage the use of
environmentally friendly fuels.
4.123 We have frozen gas duty on road fuel gases
The Government states that the key to increasing
the use of environmentally friendly fuel will be an industry response,
offering more choice on the forecourt. Mobile CNG stands ready
to deliver this further choice but does not believe that the current
differentials in duty have any significant effect on catalysing
this market. It is also important for government to focus on which
fuels are realistically likely to be taken up by particular market
sectors over, say, the next five to 10 years.
In order to promote the use of CNG fuel by commercial
fleet vehicle operators, a price advantage needs to be demonstrated.
The example of unleaded fuels showed that the creation of a price
advantage was the crucial determining factor in private motorists
making the switch from leaded to unleaded fuels. This is even
more likely to be true of commercial operations. Consequently,
Mobil CNG believes that for the Government to achieve its intentions
gas duty must continue to be decreased significantlynot
only in real, but also in cash terms. In order for this fiscal
measure to be significant we believe it should be decreased towards
the EU minimum of 7.8p per kilo.
4.124 The 1999 Finance Bill will provide an incentive
for cleaner vehicles through the vehicle excise duty arrangements
for lorries and buses. From January 1999 lorries and buses producing
very low particulate emissions will receive an incentive of up
to £500 off VED rates to encourage owners to achieve tough
The proposed changes in VED give the greatest
incentive to users of the smallest vehicles. Mobil CNG believes
it is the operators of fleets of large vehicles that are the key
to establishing the more widespread use of CNG. Fiscal incentives
should therefore be initially directed at these users in preference
to light vehicle users and individual motorists. Consequently,
Mobil CNG does not believe that this rebate constitutes a serious
incentive at this time. Mobil CNG would not suggest that this
rebate should be increased, but rather that the scheme be revised
to make the incentive attractive to those who are most likely
to help the Government meet its objectives soonest. The incentive
needs to be directed at the operator at the stage at which the
decision to make the shift to gas powered vehicles is made. In
this way, we believe maximum advantage could be derived from the
4.127 Local Bus Services have benefited from a
scheme for Fuel Duty Rebate since 1962, designed to avoid increases
in fuel duty feeding through into fares. For the first time since
1993 we are increasing this rebate by £40 million in line
with the duty increase on diesel.
Mobil CNG does not believe that this rebate
is effective in either providing an incentive to bus companies
to switch to environmentally friendly fuels or in promoting cleaner
bus use over polluting buses. The rebate was originally introduced
in order to safeguard fare levels in the face of increasing diesel
duty. However as will be clear from the example given below, the
rebate is not consistent with the Government's objectives and
dilutes the incentive effect of the duty differential that already
exists between CNG and diesel.
The Pricing Economics
Given equivalent economies of scale CNG could
be produced at a similar cost to diesel. Currently, CNG receives
a 100 per cent duty rebate on bus routes on which diesel attracts
a 30 pence per litre rebate. However, because CNG fuel is more
expensive in trial size volumes, the effect of the rebate is neutral.
Mobil CNG believes that if the Government encouraged the development
of a CNG refuelling network, the industry could eventually provide
CNG at a base price broadly in line with that of diesel. Currently
the effects of the rebate are as follows (the figures used
are approximate to illustrate the example).
|Diesel||10p per litre
|Duty||45p per litre|
|Net price||55p per litre
|Total price||25p per litre
|CNG||23p per litre
|Duty||16p per litre|
|Net price||39p per litre
|Rebate 16p (@100 per cent)|
|Total price||23p per litre
As will be obvious the 2p differential does not compensate
bus companies for additional vehicle purchase costs. In fact,
alternative fuels would be more attractive to bus operators
if there were no rebates.
If duty rebate is now frozen as it has been previously and
CNG duty continues to attract a 100 per cent rebate, the differential
will grow as the 6 per cent real terms increase in duty will hit
the diesel bus operator which will encourage more gas fuelled
Statement of Intent
The uncertainty of whether the rebate will increase in line
with duty increases and whether the CNG duty rebate will continue,
leaves companies who are making long-term investments in bus fleets
unwilling to take the plunge. A clear statement of intent from
Government as to the timespan of this rebate and rationale for
future changes would assist industry when making these investment
The Government should recognise that this rebate is currently
cancelling out any price advantages for gas fuels arising from
the existing duty differential.
Section III: The Way Forward: Some Questions for Consideration
in Delivering the Switch to Alternative fuels.
As previously stated, Mobil CNG welcomes the Government's
objectives of encouraging more choice in the use of environmentally
friendly fuels and in coupling those aims with an economic incentive.
However, we believe there is a significant risk that the present
arrangements will not deliver those worthy objectives. Consequently,
we believe that the Select Committee should address the following
1. AN INTEGRATED
It is not Government's job to second-guess industry or back
winners in the field of alternative fuels. In reality, although
there are a number of alternative fuels on the market-see Appendixthere
is still not a clear view on which of them, if any, will in future
come to be seen as mainstream alternatives to petrol or diesel.
Mobil CNG believes that the Government should undertake its own
investigation into which alternative fuels are most likely to
deliver the maximum commercial and environmental benefits. The
Government should also consider that different fuels might be
more appropriate for certain sectors than others.
Return to base fleets for example, is one instance where
the benefits of CNG can currently be demonstrated. Mobil CNG has
recently launched a major new initiative with Safeway Stores plc
to power a fleet of gas vehicles which deliver to more than 50
stores in London and the Home Countries. Mobil CNG has installed
a refuelling point at Safeway's depot in Welwyn Garden City which
members of the Select Committee would be welcome to inspect.
2. ASSESSING OVERALL
It is important for the Government to consider the overall
impact of different fuels. At each stage, production, transportation,
storage and delivery environmental factors need to be assessed.
Any additional refining processes undertaken, such as cleaning
up petroleum based products, adds to the environmental impact
of a fuel. Mobil CNG believe that CNG scores so highly on an environmental
index because of the low energy usage involved at each stage.
Therefore, Mobil CNG suggests that in addition to formulating
an integrated fuel policy, the Government formulate realistic
criteria for assessing environmental impact based upon a life-cycle
analysis of each alterative fuel.
3. MAXIMISING THE
It is important for the Government to identify, in the face
of limited refuelling infrastructure, which vehicle sectors are
realistic targets for significant growth in the use of low-emission
or alterative fuels. It is clear that the HGV and PSV sectors
are far more likely to respond to the development of alternative
fuels at this point in time than the private car market.
The Government needs to ensure those economic incentives
such as rebates, duty differentials and grants are more effectively
targeted. The core of the problem as it currently stands is that
the incentives assume that there are cost effective alternatives
to petrol and diesel already operating at a significant level
in the market. This is not necessarily the case. What are required
are fiscal incentives, which will act to catalyse the market,
in order to provide that choice. Such measures should include
Assistance to manufacturers planning to develop new
engines capable of running on environmentally friendly fuels.
Continuing the provision of incentives through the Powershift
Scheme. Mobil CNG has some new ideas on how this could best
be designed to meet the Government's objectives, which we would
be glad to share with the Select Committee.
4. COMPARISONS WITH
Finally, the Government should examine what has been effective
in catalysing the market for alternative fuels in other, especially
EU, countries. The Government should also consider the unique
possibilities of the UK market, which make CNG so attractive;
abundant natural gas reserves, a highly developed distribution
infrastructure, a competitive natural gas market and a small landmass
with high population density.
5. IN SUMMARY
To achieve maximum benefit from economic incentives two objectives
must be met. Firstly the initial capital costs of vehicle purchase
must be overcome. This could most easily be achieved through a
revamping of the Powershift scheme. Secondly, a significant difference
in running cost needs to be demonstrated through a reformed duty
regime. If the Government wishes to kick-start the alternative
fuels market in any significant way, "pump-priming"
measures will be required. Mobil CNG would welcome the opportunity
to develop our ideas with the Select Committee Members.