House of Commons - Environmental Audit

Select Committee on Environmental Audit Tenth Report

Transport

23. Transport accounts for over 30% of total energy consumption. There has been a steady increase in the volume of road traffic since 1970, and this is a key area where the trend is still moving in the wrong direction and the headline indicator is red.[20] Last year, in an effort to present the position more positively, the Government included an additional indicator for 'traffic intensity'—a measure of vehicle kilometres per unit of GDP. This shows a steady fall since 1991, though in the last three years the trend has flattened out. While it demonstrates some decoupling from growth, it should not obscure the fact that growth is still occurring and carbon emissions from this sector rising.

24. Indeed, carbon emissions from transport since 1990 have moved spectacularly in the wrong direction—in marked contrast to other sectors. We reproduce below a graph which the Office for National Statistics published in the latest set of Environmental Accounts.[21] In view of the dramatic increase in transport emissions, we were surprised that the ONS chose not to mention it in the Summary of the Environmental Accounts and note that this might have been due to pressure from the Department for Transport.[22]

Source: Office for National Statistics (Environmental Accounts, Spring 2004)

25. 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.

Emissions targets for road transport

26. In July 1998, the European Car Makers Association[23] concluded a voluntary agreement with the EC to reduce the average carbon emissions of new cars to 140 gC/km by 2008; and to 120 gC/km by 2012. The following table sets out performance to date.

EU-15	CO₂ (g/km)
	1995	1996	1997	1998	1999	2000	2001	2002
Petrol-fuelled vehicles	189	186	184	182	180	178	173	172
Diesel -fuelled vehicles	179	178	175	171	165	163	156	157
All fuels	186	184	182	180	176	172	167	166

Source: European Commission, COM (204) 78 final.

27. We asked the Society of Motor Manufacturers and Traders about the feasibility of meeting these targets.[24] Mr Everitt pointed out that two interim targets had been met,[25] and he felt that they were therefore on course to meet the 140 gC/km target, though the SMMT was much more cautious about the 2012 target. We are somewhat less sanguine even about the earlier target, as the evidence suggests that rate of improvement tailed off in 2002. There have also been reports that European and Japanese car makers have emphatically rejected suggestions that they could achieve the 2012 target of 120 gC/km.[26] Moreover, we noted that the UK's performance was rather worse than the EU as a whole with emissions of 174 gC/km in 2002, as against the EU average of 166.[27]

28. With regard to targets set by the UK Government, the Ten Year Plan for Transport stated that

"The levels of investment in the Plan will help to develop the transport measures described in the UK's draft Climate Change Programme. Together with the 4.0 MtC anticipated from the voluntary agreement with car manufacturers, they are projected to deliver savings in CO2 emissions in 2010 equivalent to 5.6 million tonnes of carbon (MtC). Further savings should be achievable with additional measures under consideration, including further improvements in vehicle efficiency and new technologies."[28]

Yet, in evidence to the Transport Committee, the Government acknowledged that these figures were over-optimistic and not now likely to be achieved.[29] We trust that the revised energy projections and the review of the 10 Year Transport Plan will clarify what level of savings can now be expected.

29. 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.

30. There are also two other targets we noted. The Department for Transport's Powering Future Vehicles strategy (July 2002) set a target that 10% of new vehicles will emit less than 100gC/km of CO2 at the tailpipe by 2012. This compares to a current fleet average of 174gC/km decreasing at only 3-4 gC/km per year. Even vehicles such as the Smart car are higher than this: the Toyota Prius, which utilises hybrid electric/petrol technology, is one of the very few cars which meets this specification. The Society of Motor Manufacturers and Traders commented that the 10% target was feasible but the dominant focus for industry was going to be the European level agreement rather than on creating a small and specialised niche market.[30]

31. The other target was not so much a target as a promise to set one. The Powering Future Vehicles strategy referred to "the expectation that a significant proportion of the 2020 cars will offer zero tailpipe emissions. The precise target, including the definition of 'ultra-low carbon' will be quantified within one year."[31] The first annual review of the strategy was published in October 2003, but it states only that it has asked for advice on this target from the Low Carbon Vehicle Partnership (LowCVP) which was established in January 2003 to bring together stakeholders and help promote a shift to low carbon vehicles. The SMMT told us that there were so many technologies being developed and so many areas of investigation underway that it was not possible to come up with a rational and dependable 2020 target.[32]

32. The other main way the Treasury and the Department for Transport can assist is through the structure and amount of capital funding they provide for innovative projects and infrastructure development. However, there are a variety of bodies involved,[33] and various funding initiatives such as the New Vehicle Technology Fund, and the Ultra Low Carbon Car Challenge. The first annual review of the Powering Future Vehicles strategy states that:

"The PFV Strategy identified the need for closer links between the various R,D&D programmes, and the Government has asked the LowCVP R,D&D working group for its recommendations on how to improve these linkages. We have also asked for the Partnership's advice on setting up a 'single portal' to build stronger links between Government programmes and provide a single point of advice and information on the support available."[34]

The SMMT acknowledged the need for more coordination here, and subsequently provided evidence to suggest that the extent of Government funding for such initiatives compared poorly with other countries.[35]

33. 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.

Fuel duties

34. In our report on the 2002 Pre-Budget Report, we were critical of the absence of any strategy underpinning the Treasury's policy on relative levels of fuel duty.[36] The 2003 Pre-Budget and 2004 Budget report has now, for the first time, included an 'Alternative Fuels Framework' which aims to set out the rationale behind the relative levels of fuel duty and provide certainty about future levels of duty on a three year rolling period. In line with the Alternative Fuels Framework, the Budget included the following main announcements with regard to fuel duty:

an overall increase in zero sulphur fuel only in line with inflation (though low-sulphur fuel will increase by 0.5p a litre more than this)l
the 20p incentive for biodiesel to be maintained at least until 2007;
a 20p incentive for bioethanol to be introduced from 1 January 2005 and to be maintained at least until 2007;
Compressed Natural Gas (CNG) to be maintained at its current price of 41p until 2007; and
LPG to be increased by 1p each year until 2007 from its current rate of 41p.

35. The Energy Saving Trust argued forcibly that three years was not long enough to constitute a strategy, and that in any case there had to be more clarity on the reasons for giving tax breaks for particular fuels:

The reason we want a long-term strategy for each fuel which is clear is that there are two reasons for giving a tax break to a particular fuel. One is that it has environmental benefits and that justifies a tax break over a long period, but the other is to support an innovative industry, where that is environmentally beneficial. That requires a higher initial level of subsidy, but there has to be some level of certainty in the industry about what the initial level will be and how that will come down. We do not have any problem with the view that the level of support should be reduced as the market grows and costs reduce. We just say that people need to be clearer about what that level and reduction will be, if we are to expect them to invest.[37]

36. The Energy Saving Trust also expressed concern about the message which the increase in duty for LPG might send—not just in terms of the impact on the LPG market itself but more widely on all investors in alternative fuels.[38] We have considerable sympathy for their arguments, and it reminds us of the difficulty renewable energy projects have faced of putting together a business case to attract long-term investment. Indeed, the Government has itself recognised the latter when it was forced to extend the targets for the Renewables Obligation on a ten year rolling basis. The position with regard to alternative fuels does not seem to us to be radically different. The Government faces major choices in terms of the role it sees biofuels, LPG, or CNG playing in future. Such issues would, however, justify rather more of a strategy than the Alternative Fuels Framework currently provides.

37. A particular cause for concern is the impact of the rise in duty on the fledgling market for LPG. We heard that uptake had significantly increased in the last 18 months. Even so, it amounts to very little: recent available data suggests that only 73,000 tonnes of LPG was sold in 2001, some 0.2% of the total market for petrol and diesel sales. It is particularly disappointing that Government departments have signally failed to promote LPG within their car fleets.[39] We do not know whether LPG represents a lost opportunity or whether it could still play a significant part in future strategy. Nor do we know whether the rise in duty on LPG will have a significant impact on investors not just in LPG but in other alternative fuels as well. A Treasury strategy covering a longer period would certainly help to assuage such concerns.

38. The lack of a clear strategy also affects biofuels, where greater challenges lie ahead. The EU biofuels directive, agreed in May 2003, requires member states to promote the use of biofuels or other renewable fuels as a substitute for petrol or diesel in the transport sector, to set indicative targets for biofuel sales for 2005 and 2010, and to introduce a specific labelling requirement at point of sale for biofuel blends in excess of 5 percent.[40] With regard to the indicative targets, member states must take account of two prescribed reference values—2% of all road fuel sales (calculated on the basis of energy content) by December 2005, and 5.75% by 31 December 2010. Member states must also report to the Commission each year on measures taken to promote the use of biofuels and on levels of biofuel sales.

39. In response to this directive, the Government published a consultation in April 2004. This considered how support could be provided for biofuels (eg through the use of fuel duties or some form of obligation, and the need for regional support), aspects of production and labelling, and the nature of the targets which should be set. We note that the proposed target for 2005—144 million litres—is only a fraction of the 2% suggested in the directive;[41] and that the Government is proposing to delay setting a target for 2010 until 2007. While we appreciate the policy difficulties facing the Government, it does appear to us that such proposals reflect the absence of a coherent strategy. We do, however, note the commitment in the Energy White Paper to evaluate the move to hydrogen and large-scale biomass fuels, and welcome the fact that this assessment is now in progress.[42]

40. 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.

41. With regard to other fuel duty rates, the most important decision in Budget 2004 was the commitment to increase the duty on zero sulphur fuels from 1 September 2004 only by the rate of inflation. By levying an above inflation increase on ultra low sulphur fuels, the Treasury is once again planning to shift the market entirely to sulphur free fuels. This will be the fourth Budget in succession where there has been no real-terms increase in fuel duty. Indeed, this is one of the main reasons why environmental taxes have fallen in recent years as a proportion of total taxes.

42. When he gave evidence to us on the 12 May 2004, the Economic Secretary gave a categorical assurance that the increase in fuel duty would take place as planned on the 1st September.[43] But on the 20th July 2004, along with the publication of the Future of Transport White Paper, the Treasury announced that the increase in fuel duty, which had been under review since 3 June, would not take place due to continuing international uncertainty in oil markets.[44]

43. Yet the real cost of petrol fell by 11% over the period 2000 to 2002 while disposable incomes increase by 9% over the same period.[45] The latest available data for petrol prices, covering the first quarter of 2004, shows that—despite the recent rise in oil prices—petrol is still at least 10% cheaper than in 2000 in real terms.[46] These figures do not even take into account any changes in the capital costs involved in car purchase. Moreover, Government data reveals that the real costs of motoring have remained static since 1970 in marked contrast to the trends in public transport and disposable income, as the following graph demonstrates:

Source: DEFRA, national indicator T4

44. We appreciate that the shadow of the fuel protests of 2000 still hangs over the Government and that it is fearful of a repetition of those events. Indeed, this is an issue which is of particular sensitivity not only for the Government but for those in all mainstream political parties. Politicians have hardly tried to convince the public that motoring has not become more expensive, and they have failed to make the case for the environmental benefits of taxing fuel to reflect the damage—particularly in terms of global warming—which it gives rise to. In addition, we firmly believe that the public would respond more favourably if they saw clearly that increases in duty were being recycled to promote the deployment of low-carbon alternatives to conventional fuel—such as biodiesel and renewable hydrogen.

45. 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.

46. 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.

47. The introduction from April 2002 of a new environmental company car tax scheme has been a significant success. The Energy Saving Trust thought that this was an area where the Treasury had done good work and wanted to see 'much more of the same'.[47] More specifically, the Society of Motor Manufacturers and Traders suggested that the scheme should provide clearer support for cars with very low CO₂ emissions.[48] We also note that Budget 2003 abandoned the earlier commitment to reduce the emission thresholds by 10g each year, and instead reduced the lowest threshold by only 5g. Budget 2004 has gone further by announcing that the minimum rate will be frozen at 140 gC/km in order to give time to assess the impact of the system and provide certainty to company car managers about future rates. We feel that the Treasury could have been more ambitious here. 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.

Vehicle Excise Duty

48. Vehicle Excise Duty (VED) represents another area where the Treasury introduced welcome reform by introducing a graduated scale of charges which relate to emissions performance and the type of fuel used. The new scheme was announced in Budget 2000 and introduced from April 2001 with four emissions bands and charges. With the exception of Budget 2003, VED rates have been frozen since their introduction. But two additional low-carbon bands have been introduced, one in Budget 2002 for vehicles producing less than 120 gC/km, and one in Budget 2003 for vehicles producing less than 100 gC/km. The current pattern of charges is set out below.

		Diesel Car		Petrol Car		Alternative Fuel Car
Bands	CO₂Emission Figure (g/km)	12 months rate £	6 months rate £	12 months rate £	6 months rate £	12 months rate £	6 months rate £
Band AAA	Up to 100	75.00	41.25	65.00	35.75	55.00	30.25
Band AA	101 to 120	85.00	46.75	75.00	41.25	65.00	35.75
Band A	121 - 150	115.00	63.25	105.00	57.75	95.00	52.25
Band B	151 - 165	135.00	74.25	125.00	68.75	115.00	63.25
Band C	166 - 185	155.00	85.25	145.00	79.75	135.00	74.25
Band D	Over 185	165.00	90.75	160.00	88.00	155.00	85.25

49. What is immediately striking about this table is that it is fairly complex while at the same time the range of charges is not particularly great. The Department for Transport carried out an evaluation of the scheme in mid-2003.[49] The results showed that most car buyers were entirely unaware of the connection between VED and car emissions and that environmental factors ranked low on purchasing considerations. Furthermore, the research concluded that:

the current graduated scheme does not offer a large enough incentive to encourage behavioral change. And indeed across both recent and potential buyers there is a significant minority who believe that the current scheme and any subsequent increase to the differential will not help to reduce CO₂ emissions.
Looking to the future and possible changes to the scheme, a differential between bands of £50 would be enough for some buyers to choose a different car (33%). Others would consider it. At a differential of £150 55% would change to a lower emission car to benefit from the saving. There is however a core of buyers who would not change their vehicle choice regardless of the differential (28%). This hard core are typically older, of higher social class and own or intend to buy a larger sized engine vehicle.

50. The obvious conclusion to draw from this is not that the attempt to 'green' VED is a waste of time, but that differentials will have to be increased very much more substantially if we are to bring about a significant behavioural shift towards the purchase of low-emission vehicles. Some other EU states have put in place considerably wider differentials than the UK. And more recently, we have the example of the French proposal to introduce a very high rate of tax on SUVs while recycling the proceeds to reduce tax on low emission vehicles.

51. We asked the Economic Secretary for his views on VED and were surprised that he did not appear to agree that one of the main objectives of the scheme was to influence buying decisions.[50] We found his attitude extraordinary given the importance which successive budgetary reports have placed on this aspect. 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.

Energy Efficiency

20 The 15 headline indicators have been chosen by the Government as a basis for summarising progress in all areas of sustainable development. They cover economic, social, environmental performance and are reported on every year in the Government's annual report on progress against the Sustainable Development Strategy. Back

21 ONS, Environmental Accounts, Spring 2004, page 27. Back

22 "Officials try to hide rise in transport pollution", The Guardian, 27 May 2004. Back

23 The Association des Constructeurs Européens d' Automobiles(ACEA) Back

24 Q48 ff Back

25 Firstly, the availability in 2000 of a vehicle with a performance of less than 120 grams per kilometre; and secondly that, by the end of 2003, the average new car emissions should be between 175 and 165 grams per kilometre. See Q48. Back

26 ENDS Daily, 15 March 2004. Back

27 Society of Motor Manufacturers and Traders. Back

28 Op.cit. paragraph 8.9. Back

29 Evidence given before the Transport Committee, 10 March 2004, Q 596ff. Back

30 Q 59. Back