Select Committee on Environmental Audit Tenth Report

Conclusions and recommendations

Overview

1.  As a percentage of total tax, the revenues from environmental taxes have recently been at their lowest level since 1993. The latest Pre-Budget and Budget Reports contain few significant new measures, and fail to take forward the Treasury's strategy of shifting the burden of taxation from "goods" to "bads". Indeed, the Economic Secretary for the Treasury admitted that the Treasury's environmental tax strategy was a framework for taking decisions rather than a strategy as such. (Paragraph 14)

2.  Recent data supports our contention that the Climate Change Strategy is seriously off course. The policy instruments the Government has put in place have yet to make a significant impact on the UK carbon emissions trajectory. The Government's latest forecasts indicate that carbon emissions will fall only to around 140 MtC by 2010—some 8 MtC more than the target. This carbon gap could be much greater if the policy instruments in place and planned fail to deliver the reductions envisaged. (Paragraph 21)

3.  In view of its central coordinating role, the Treasury will need to play a significant part in the review of the Climate Change Strategy and in exploring with other departments the scope for introducing further policy measures to promote both renewable energy and energy efficiency. A more imaginative and radical strategy which might involve the use of fiscal instruments—in particular for transport and domestic energy efficiency—is called for. (Paragraph 22)

Transport

4.  Carbon emissions from transport are still moving in the wrong direction. The Government must use the fiscal incentives at its disposal to curb transport growth while at the same time ensuring that there is sufficient investment in low-carbon public transport systems—particularly in the development of new communities—to provide an efficient and effective alternative. (Paragraph 25)

5.  The voluntary agreement with European car-makers may not deliver the forecast emission reductions, and the savings of 5.6 MtC predicted in the Government's Ten Year Transport Plan will not now be achieved. This highlights the need for complementary measures, including fiscal measures, to promote a shift to low carbon transport. (Paragraph 29)

6.  The attempt to set additional targets for low carbon vehicles in 2010 and 2020 was not particularly helpful, though we appreciate the Government's desire to give a long-term signal to the industry. Capital grants and investment subsidies provide another way to promote change, and we are not convinced that there is sufficient Government support for, or indeed coordination between, the various bodies involved. (Paragraph 33)

7.  We welcome the introduction of the Alternative Fuels Framework. We see this as a direct response to our earlier recommendations on this score. But the Government faces major choices in terms of the role it sees biofuels, LPG and CNG playing in future. The Treasury cannot expect industry to provide long-term investment in alternative fuels unless it adopts a long-term strategy itself, and there is clearly a need for a rather more substantial strategy than the Alternative Fuels Framework currently provides. (Paragraph 40)

8.  The continued growth of carbon emissions from transport remains one of the most serious problems we face, and the Government's commitment to sustainable development will be called into question unless it takes steps to confront this issue. The 1999 Pre-Budget Report included a commitment to ring-fence any above inflation increases in duty and recycle the proceeds. We urge the Government to implement the planned rise in fuel duty at the earliest opportunity, and to consider the case for recycling proceeds from future increases in order to subsidise transport spending and low carbon alternatives to conventional fuels. It would be helpful if the Treasury's fuel duty strategy could in future include specific discussion of this issue. (Paragraph 45)

9.  We are disappointed that the Future of Transport White Paper had nothing new to say on the practical steps the Department for Transport would take to tackle carbon emissions from transport and to promote a shift to a low carbon economy. It will take 10 to 15 years to introduce road charging on a national basis and such a regime would be far more of a blunt instrument than the present system, where larger differentials in rates of fuel duties and VED can potentially be used to promote a shift to low-carbon vehicles. We therefore see a continuing and important role for an environmental fuel duty strategy over the next decade or more. (Paragraph 46)

10.  We trust that the review of the company car tax scheme will give full consideration to the scope to widen the differentials further in order to increase the incentives for purchasing very low-emissions vehicles. (Paragraph 47)

11.  The Government's own evaluation of the current VED scheme shows that current differentials are insufficient to prompt behavioural changes. The Government should increase them radically as part of a coherent strategy to promote low-carbon transport. (Paragraph 51)

Energy Efficiency

12.  It is unfortunate that the Energy Efficiency Action Plan has had to be produced before a number of key evaluations on which it should have been based—including Spending Review 2004, the revised DTI Energy Projections, and the review of the Climate Change Programme. As a result, it is impossible to assess to what extent the measures it contains are sufficient to deliver the absolute emission levels required, or even unclear whether the various components of the Plan will indeed deliver their forecast benefits. (Paragraph 58)

13.  In publishing the revised energy projections, the Department of Trade and Industry must highlight the extent of any 'carbon gap' and reconcile the impact of current policies to the 20% UK target for 2010 of 132 MtC. (Paragraph 59)

14.  It is disappointing that the Treasury, after consulting in both 2002 and 2003 on fiscal measures for domestic energy efficiency, was unable to include in Budget 2004 a more significant package of measures. (Paragraph 63)

15.  We share the concerns expressed by the Energy Saving Trust about the scale of the savings which can realistically be expected from the Energy Efficiency Commitment, and about the commitment required to achieve these savings. While it may be right for the Government to adopt a cautious approach here, it is surprising that it did not seek to involve the Energy Saving Trust more fully in agreeing the figures in the Action Plan. (Paragraph 66)

16.  We welcome the evaluation which the Carbon Trust has recently carried out of the impact of Enhanced Capital Allowances (ECAs), and the Treasury should publish it immediately. But we remain concerned about the extent to which efficiency savings from ECAs would in any case have resulted from the introduction of the Integrated Pollution Prevention and Control regulations. (Paragraph 70)

17.  We recommend that the Treasury should fulfil its earlier commitment to this Committee and regularly carry out systematic ex post appraisals of environmental tax measures. (Paragraph 71)

18.  The Treasury now considers that the introduction of the EU Energy Products Directive provides a basis for extending eligibility for Climate Change Agreements to energy intensive industries. Yet it has failed to set out the rationale for introducing such an extension at this time or to include this measure in the table of environmental impacts appended to Chapter 7 of the Budget Report. (Paragraph 73)

19.  We are sceptical of the figures quoted for emissions savings from Climate Change Agreements and recommend that baseline figures and future assessments, including that for 2004, are independently audited. The transparency of reporting could be improved and it would be helpful if DEFRA assessment reports could include a more strategic overview of performance, including progress against targets under the Climate Change Programme. (Paragraph 76)

Conclusions

20.  A central theme emerging from this report is the difficulty of assessing progress on energy efficiency in the absence of robust and reliable energy projections and systematic ex post appraisals of the impact of specific policy measures. For this reason it is difficult to come to any conclusive view on the extent of any shortfall between the savings which current policies will deliver and the absolute level of emissions we need to meet. However, as we have suggested, there are grounds for supposing that this shortfall might be more substantial than currently envisaged, and that the Government will need to adopt more radical policies and implement them with still greater commitment if we are to attain the challenging objectives it has set. (Paragraph 78)

21.   we fear that the Treasury is failing to exploit opportunities for more imaginative policy initiatives which might deliver the step changes needed rather than steady incremental progress. The crucially important series of reviews which are taking place this year and next provide an opportunity for it to look afresh at the scale of the challenges we face and re-assess the adequacy of the policy mechanisms we have in place to meet them. (Paragraph 79)

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Prepared 11 August 2004