Examination of Witnesses (Questions 84
- 99)
WEDNESDAY 29 MARCH 2006
MR SIMON
BARNES, MR
JOHN KINGSTON,
MR STEVE
CAUTLEY, MR
GREG ARCHER,
MR GRAHAM
SMITH AND
MR NICK
HARTLEY
Q84 Chairman: Good afternoon and
welcome to the Committee. We are grateful to you for coming in.
Perhaps I could just kick off with a general question about how
you think the car manufacturing industry is responding to the
challenge of reducing carbon emissions from cars. Perhaps both
groups would like to respond in turn.
Mr Barnes: I am Simon Barnes from
the Society of Motor Manufacturers and Traders. I must declare
an interest in the LowCVP where I am also Chair of the Passenger
Car Working Group for the LowCVP; the two organisations are obviously
closely interconnected. In terms of our response, there is no
doubt that the car industry recognises the contribution it needs
to make to climate change and recognises the impact of CO2
in climate change and is serious about its response, certainly
in Europe and at a UK level through, for example, the Voluntary
Agreement of which the current phase is scheduled to terminate
in 2008-09 so we still have a period to run towards the Voluntary
Agreement. Increasingly we recognise within the industry that
vehicle technology alone is not a solution to some of the issues.
Its contribution cannot be played down but other areas of the
industry, such as the fuel, will become increasingly important
now and as we move forward in the next 20 years or so to making
a contribution towards CO2 reduction from the transport
sector. Progress on a technical front is very much influenced
by the choice of the individual when they purchase the vehicle,
how they use the vehicle and what mode of transport they use.
I think a recognition of that is helpful and some of the challenges
that have been placed on the industry also need to be recognised
from some of the other relevance of the total package of road
transport and CO2 emissions. Specifically on the technology,
technology will move forward; we have new technology coming into
the market. We, as the industry, very much support a technology
neutral approach which can be through either a diesel route, a
petrol route, a hybrid route or a combination thereof. We would
want to ensure that there is some form of long-term strategy to
support all of those technologies and that is what we would want
within the UK and the European environments.
Mr Smith: If I could lead the
response for the Low Carbon Vehicle Partnership, my name is Graham
Smith and I am Chairman of the Low Carbon Partnership; I am also
Managing Director of Toyota in the UK. I am joined by the Director,
Greg Archer, and a fellow Board Member, Nick Hartley of OXERA.
From our point of view I will comment around two or thee aspects
of the contribution of the motor industry. First of all, we are
a stakeholder organisation; we have just under 200 members and
we have very, very active participation from representatives of
the UK and indeed the global motor industry. There is no lack
of willingness to engage with the Low Carbon Vehicle Partnership
as it moves towards trying to map out the journey towards a lower
carbon future for road transport. One of the early achievements
of the Partnership has been the environmental or fuel economy
label. This was a voluntary initiative; it was brokered by the
Low Carbon Vehicle Partnership with very strong support from the
SMMT. It requires every motor dealer in the UK on every new car
sold in the UK to place a colour coded label. The bands follow
VED bands and that, as I say, was a voluntary initiative and led
what is prospective European regulation in this particular area.
Again, this is an indication of the general willingness of the
industry to engage with the Partnership and with activities of
the Partnership as we move forward. Greg, is there anything that
you would like to add on this particular point?
Mr Archer: Whilst the Partnership
is focussed on accelerating the shift to low carbon vehicles and
fuels and the market transformation that that requires, we do
recognise that the softer issues—issues to do with the way
that vehicles are driven, the choice of vehicles that people make,
the way that road infrastructure is used—all do have a profound
effect upon the level of greenhouse gases which road transport
produces and I think everybody here would recognise that we have
some form of approach which encompasses the vehicle technology,
the fuel technology and the way the vehicle is used if we are
going to drive down CO2 emissions. It just happens
to be that the mission of the Partnership from the time it was
established focuses upon the market transformation aspects.
Q85 Dr Turner: The Government has
a Powering Future Vehicles strategy which it published back in
2002. That had a target of 10% of new cars emitting less than
100 grams per kilometre by 2012. On an annual basis that would
need around 250,000 such cars a year to make the 10% but so far
it has not got very far; the figure in 2004 was 481. Why do you
think they are making such slow progress and why do you think
cars such as the Honda Insight just did not sell?
Mr Smith: I will lead but I am
sure the SMMT will have a view on this. You make the point about
the Honda Insight, that vehicle was launched in the UK; it was
a two-seater and as a consequence would not meet the requirements
of every family in terms of their transport requirements. There
are very, very few other vehicles currently capable of achieving
100 grams or less; there an increasing number in the range of
100 to 120 where progress is much more obvious and where technology
is delivering an increased number of options for consumers. To
get below 100, even deploying the very best of diesel and hybrid
technology, is technically difficult. As an example (I have mentioned
my role as Managing Director of Toyota UK) our hybrid Prius is
104 and there are other models, including diesel models, that
fall in that range increasingly close to the 100 threshold. I
am sure that in the near future there will be an increasing number
of vehicles that will fall below 100. Choices for consumers are
currently extremely limited; we are at the edge of technology
at 100 grams.
Q86 Dr Turner: Out of curiosity how
do you classify in that respect a bio-fuel driven vehicle on,
say, E85, where the fossil fuel emissions are going to be in the
order of 40 although the actual total CO2 emissions
will still be fairly high?
Mr Archer: At present tail pipe
emissions are what are measured in terms of grams per kilometre.
A number of the kind of targets which the LowCVP has set—for
example the target for low carbon buses—is based on a well
to wheel basis and we have been encouraging the Government to
look at the overall greenhouse gas savings of bio-fuels on a well
to tank basis. You are quite right in saying that at the moment
an E85 vehicle would not necessarily get the credit in terms of
the overall benefits to the climate that would arise from using
the E85 fuel. In relation to the other point, I think it is important
to say that if we are going to have large numbers of cars below
100 grams per kilometre at present then that is really going to
require us to develop some kind of micro car sector in the UK
which other European countries such as France do have but which
really have not taken off in the UK. This is partly because we
have not developed the sorts of incentives which, for example,
the French have allowing people to drive these vehicles at 16
and so forth. Whether we want to do that is a different matter,
but what we can see is that we have had good levels of improvement
in the kind of 100 to 120g/km but sales below 100g/km are actually
falling. The 2005 figure I have for you is 467.
Q87 Dr Turner: Do you think there
is anything the Government can do to help speed up progress?
Mr Archer: I think there are things
the Government is already doing to speed up progress but I think
particularly on the issue of sub-100 grams per kilometre then
it is a particular challenge because it is essentially a new sector,
a new segment of vehicles which you need in order to meet that
very low level target. At the moment the UK is focussed on trying
to drive down CO2 emissions from more conventional
vehicles rather than these micro two-seater cars. That, overall,
would deliver much higher levels of greenhouse gas saving.
Q88 Dr Turner: Your body is actually
undertaking a review of the Powering Future Vehicles strategy
right now. What direction do you think you would want to see policy
going?
Mr Archer: We have not completed
that review at the moment and we will do so around the summer
time. I think one of the things that is very clear is that the
current target of 100 grams per kilometre is not really driving
policy in any significant way. You can see from last year's figure
of 467 vehicles we are nowhere near achieving that target. I think
our view is that what we need is a target which is challenging
but which is achievable and, more importantly, one which we actually
see policies put in place to try to meet. At the moment we do
not really have the policies to try to achieve the 100 gram per
kilometre target.
Q89 Dr Turner: Do the Motor Traders
have anything to say?
Mr Barnes: We would re-iterate
the view of the Low Carbon Vehicle Partnership to some extent.
The sub-100 market is a specialist market from the point of view
of either the type of car or some specialist technology in cars,
whereas the sub-120 market is serving more of a popular market
and gives people far more options in terms of buying a four-seater
car, for example. Therefore in terms of encouraging the public
to buy low carbon cars at present the sub-120 criteria is much
more relevant to them than a sub-100 market. I think to some extent
we have to look at the total carbon savings that can be made by
the target and if a greater total carbon saving can be achieved
by a different target then I think the industry would support
that as making our contribution. As Greg says, the target needs
to be ambitious but it also needs to be achievable and be something
where the industry can be seen to be making more of an effective
contribution I think.
Q90 Mr Stuart: Talking of targets,
the industry voluntarily agreed to the Voluntary Agreement with
the aim of getting the average emissions from new cars down to
140 grams per kilometre by 2008. Can you tell us your assessment
of progress towards meeting this?
Mr Barnes: That was the European
target and we know historically that the UK started from a higher
level and therefore to some extent may well finish at a higher
level. In terms of progress towards that target, the three groups—ACEA,
JAMA and KAMA—recently reported to the Commission on the
interim targets and progress is being made towards the interim
targets. The reduction that is required from the interim target
to the 140 is more challenging; there is no doubt about that and
I think the objective for getting towards the 140 is difficult,
particularly with some of the technologies that are needed to
get there. Within our own report, for example, we have done a
calculation that if everyone actually drove the lowest carbon
car, in each sector of the market, in the UK we would have an
average CO2 of 118 grams per kilometre as opposed to
the 169 grams we have in reality so to some extent it is down
to the public buying a lower carbon choice in the type of car
that they are buying. That is something that would certainly help
a move towards people taking up the newer technology. To some
extent the technology is there, but there is a lack of propensity
of the public towards buying it. The industry recognises that
that is a difficult target; it acknowledges that something will
be put in place to replace that target and that that contribution
will continue. That is part of the discussions we now know are
taking place at a European level.
Q91 Mr Stuart: Following on from
that, can I ask why do you think new cars in the UK are less carbon
friendly than the EU average and what could the Government do
to get the UK car market to look more like those in France, Italy
and Spain where new cars are, on average, more carbon efficient?
Mr Barnes: Certainly the level
of dieselisation is an issue there in that the level of dieselisation
in 2005 in the UK was 36.8% and in Europe there is an average
of is nearly 50% so we do not have the level of diesel in the
UK and on a like-for-like basis a diesel car currently versus
a petrol car is something between 15 and 20% more fuel efficient
in terms of CO2. We understand there are other issues
with diesel technology, but I think moving forward it is possible
to resolve some of those air quality issues. Steve from Ford will
be able to tell us about some of the investment that Ford is making
in diesel technology and sees that as a way forward in the future.
Q92 Mr Stuart: Would the industry
welcome stricter targets?
Mr Barnes: I think it is difficult
to define what stricter targets are. We would certainly want them
to be technology neutral so that different manufacturers are able
to follow different technology routes. This is something we have
to acknowledge, that depending on the circumstances in which either
it is their home market or their main market they may well be
following a different technology route. Going back to the question
that Dr Turner was asking about how our interpretation of well
to wheel is in terms of this, I think in the future we would certainly
want people to think more in terms of well to wheel—or fuel
to wheel, depending on how you see it—as a potential target
to include the fuel element in there to give the car manufacturers
the opportunity to work with the fuel industry.
Q93 Chairman: Given that we had some,
I thought, rather small changes in the Vehicle Excise Duty regime
in the Budget, do you think a clearer incentive for purchasers
of new cars to have much wider variations in the bands of emissions
levels would be helpful?
Mr Smith: Possibly the LowCVP
should lead on that one. For a start I have spoken on a number
of occasions publicly on behalf of the Low Carbon Vehicle Partnership
pointing out the fact that if you take newly registered vehicles
in the UK, those registered by the fleet sectors—company
cars, if you like—the trend of CO2 is downwards
and continues to fall. That is a consequence of the fiscal regime
within which company cars operate. That leads towards a low CO2
outcome; that has driven the trend towards dieselisation in the
UK. Aside of the associated air quality issues that has made a
contribution for the private individual, VED—as we all know
as private motorists—is the only element that guides choice
towards a lower carbon alternative. There is both research and
a fair amount of evidence that the differentials are a great deal
smaller than for the company car driver and his benefit in kind
and they are clearly insufficient to drive the outcomes that the
LowCVP is trying to encourage. From that point of view the fiscal
regime within which private buyers operate is not having the same
effect on that part of the market as the company car sector and
the way they are responding to their regime is producing. There
is clearly an opportunity but then we move into the politics of
that opportunity in terms of how far can we take a fiscal approach
and the extent to which, alongside the fiscal approach, incentives
or encouragement of other descriptions are deployed. There were
in place grants to consumers—not, I stress, to my colleagues
along the table, to the vehicle manufacturers—to encourage
the purchase of low carbon vehicles. These were the Transport
Energy grants; they were subject to review. The new proposals
were deemed to be potentially in contravention of the State Aid
rules, they went to Europe and we await an outcome in relation
to that. They are currently suspended so even the modest encouragements
in terms of grants to consumers to select the lowest carbon vehicles
are no longer in place. Together with the light fiscal touch the
stimulus to the consumer to select lower carbon options is relatively
weak.
Q94 Chairman: Was that a way of saying
that wider differentials on VED might achieve the same sort of
outcomes we are now seeing in the company car sector because of
the bigger incentives that exist there?
Mr Smith: The incentives in the
company car sector are significantly larger than those that bear
down on the private motorist and the outcomes are similarly more
obvious.
Mr Archer: If you ask private
consumers they normally require about £1,000 to £1,700
incentive before they are willing to downsize their vehicle and
select a smaller vehicle. At the moment the Vehicle Excise Duty
gives you a range of between nought and about £220, whereas
if you take company car tax for a £12,000 vehicle, a higher
rate tax payer, depending on the CO2 emissions of the
vehicle, that could be anything between £700 and £17,000.
With the new regime that will come in in 2008 that bottom end
will fall to more like £450. That is the sort of level of
differential that consumers say will make them consider a less
polluting vehicle. I think it is important to recognise that fiscal
measures are not the only incentive that can be put in place.
For example, the congestion charge discounts were a very significant
driver to sales of exempted vehicles in London; they doubled in
the year following the exemptions. Also we could look at other
forms of encouragement to people around perhaps preferential parking
places and things of that nature. Financial incentives alone are
not going to drive this; there have to be other things that are
put in place alongside that.
Q95 Colin Challen: When you say that
the incentive of the congestion charge—or the disincentive
perhaps—doubled the number of vehicles that were exempt,
what were the numbers? Can you recall?
Mr Archer: The numbers were small.
Q96 Colin Challen: A hundred to 200?
Or 1000 to 2000?
Mr Archer: I think it would have
been more in the order of 1000 to 2000. The vehicles that qualified
were things like the hybrids, the Toyota Prius, LPG vehicles and
things like that.
Q97 Colin Challen: Has that change
levelled off?
Mr Archer: I believe there is
still particularly strong support in London. For example, the
resale value of a Toyota Prius, second hand, is better in London
than it is in other parts of the UK largely because of the exemption,
so that signal is still there.
Mr Smith: One could have a debate
about how these kinds of things should be structured. You have
heard the comment about technology neutral more than once; the
congestion charge exemption is not technology neutral but that
is a separate issue. The fact of the matter is that there is a
discount or an exemption that applies to certain vehicles; the
sales of those vehicles are, without question, stimulated by that
exemption and in some ways it is out of proportion to the financial
benefit. I think people are also quite intrigued—or whatever
the word is—to not be paying a congestion charge. They do
not actually sit down and work out what it costs in a year; it
is the very fact that they do not have to go through the routine
of paying and giving their credit card number and all that kind
of thing.
Q98 Mr Hurd: Mr Archer, I think it
would be quite interesting for the Committee if you could point
us to that research that you mentioned which indicates the kind
of price points at which consumers were interested in engaging
with.
Mr Archer: It is a Department
for Transport study that was done by MORI but we can send it to
you.
Q99 Mr Hurd: In relation to the Voluntary
Agreement, in all probability it will be a failure in terms of
achieving the target. Therefore in terms of defining what "strict
targets" are one definition might be mandatory in the next
phase. Are you sensing any messages from the political system
in that direction?
Mr Barnes: We have regulation
in vehicles already at the moment in the air quality attitude
and we know that air quality standards have been increasing all
the time and air quality has improved by 90% as a result of regulation
on air quality. However, to some extent that has not impacted
on the product and the kind of cars people are buying, and they
have not been asked to adopt new technology as a result of that
regulation and improvement in air quality. In terms of a regulation
on CO2 that is a different attitude and a different
ball game. I accept what you are saying, on the face of it, to
the Voluntary Agreement, but the Voluntary Agreement has achieved
a reduction in CO2 emissions. The road transport sector
is the only one that has done that. I think in terms of the principle
of Voluntary Agreement time will tell to some extent whether another
Voluntary Agreement would not be a suitable replacement for the
current one. There are options in between a Voluntary Agreement;
we are aware of that and suspect that those will be discussed
at a European level and a UK level in terms of other mechanisms.
I think a full discussion has to take place in Europe as to which
is going to be the best approach.
| 
