Memorandum submitted by the Energy Saving
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
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.
We believe that there needs to be a shift in the UK tax basefrom
"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
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.
Even this is only a startthe 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
and the Royal Commission on Environmental Pollution has recently
advocated a UK target along these lines for 2050.
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.
In addition, urban air pollution, largely from road transport,
is responsible for an estimated 24,000 early deaths annually.
Reducing road vehicle emissions is therefore fundamental to environmental
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
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 centa very significant contribution to climate change
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.
We believe that some of the key decisions remain to be made within
the context of the £19 billion allocated to local transport
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.
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
There is a great deal more that many road hauliers can do to reduce
fuel costs through energy efficiency and thereby to improve their
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.
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;
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
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
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 http://www.hm-treasury.gov.uk/budget/1997/hmt4.hmtl. Back
Rt Hon Tony Blair MP-Speech to the CBI/Green Alliance Conference
on the Environment, 24 October 2000. Back
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
Royal Commission on Environmental Pollution, 22nd Report, "Energy-The
Changing Climate" Cm 4749 Stationery Office, 2000. Back
HM Government, Draft Climate Change Programme, 2000. Back
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
Shaping Change. The Energy Report. Department of Trade and Industry,
HM Government Draft Climate Change Programme, 2000. Back
Department of the Environment, Transport and the Regions, "A
New Deal for Transport: Better for Everyone, 2000. Back
National Travel Survey 1997-99. Back
The True Costs of Road Transport, Maddison D et al, Earthscan,