Select Committee on Environmental Audit Appendices to the Minutes of Evidence

Annex 1

WWF submission to the Pre-Budget Report October 2000


  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.

Negotiated Agreements

  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 on offer.

  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 renewable energy.

  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" contracts.

  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 action.

  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 trading system.

  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 billion windfall):

    —  £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 million.

  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).

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