Select Committee on Environmental Audit Second Report


Memorandum from Calor Gas Ltd


  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 and slowly.

  There is a healthy market for LPG is countries with the right policy framework—there 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).


(i)   Noise

  "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.

(ii)   Pollutants

  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, 2001—AQS).

Carbon Dioxide

  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 Unit—1996). 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 by LPG.

Particulates (PM10)

  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 areas—in 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 diesel.

  "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 transport—in London this figure rises to 75 per cent. AQS sets a target of an hourly mean of 200bg/m3—more 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 petrol.


  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.


(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 Success—Not 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 gases—a 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 coined—note well—by 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 fuels?

  "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 and diesel.

  We suggest that:

    —  The extra cost of having LPG on a type approved car—generally about £2,000—be 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 benefit.

    —  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 favour.


    —  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.



  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 alternatives—but 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 accident.

  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 friendly.

  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 reductions.


  Voluntary restraints are inadequate—of 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 agreements." 10

  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.


  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.


  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 is approximately:

    £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, November 2000.

  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, November 2000.

  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.

November 2001

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