Motoring
75. The most high profile announcement in PBR 2006
concerning motoring was that fuel duty would be raised by 1.25
pence per litre, to keep it in line with inflation. This is only
the second time since 2000 that fuel duty has even been revalorised;
it has not actually been increased above inflation since the fuel
duty escalator was abolished in 1999. This is despite the PBR's
confirmation that "It is the Government's policy that fuel
duty rates should rise each year at least in line with inflation
as the UK seeks to reduce polluting emissions and fund public
services." The reason successive PBRs have given for not
doing so is "sustained oil market volatility", which
seems to be used to mean rising oil prices. Certainly, the Financial
Secretary told us that: "If you look over the last three
years, because of world energy changes and oil prices, the price
at the pump of petrol or diesel has gone up by about 18 pence
a litre. That is a price effect with demand consequences, with
an impact on the environment".[91]
As for why fuel duty was revalorised this year, the reason given
by PBR 2006 was that petrol prices had declined again, after hitting
a peak in July 2006.
76. We put the point to the Financial Secretary that
the conclusions of the Stern Review argued for a much bolder approach
to fuel duty. However, he countered by pointing to the negative
economic and social impacts of raising the cost of road fuel,[92]
before arguing that:
John Healey: […] Stern says
the costs are in the end only manageable if we build much flexibility
into the way that we reduce emissions and take policy decisions
and if we work principally internationally rather than simply
seeing our concern as to what is happening in the UK.
Finally, he and Beth Russell, Head of Environmental
and Transport Tax at the Treasury, argued that fuel duty was already
at a much higher level than would be calculated from the Government's
current Social Cost of Carbon, and seemed to suggest that it would
still be significantly higher than if calculated with reference
to Stern's suggested higher SCC.[93]
77. Overall, we are disappointed with the Treasury's
arguments surrounding its fuel duty policies. What was widely
reported as a rise in fuel duty in this year's Pre-Budget Report
was only a rise in line with inflation, and this was only the
second time it had been revalorised since 2000. As the PBR confirmed,
what this means is that fuel duty is 15% lower in real terms than
in 1999; and, that moreover, this real terms cut has offset the
rise in oil prices over this period.[94]
The PBR also confirmed that the overall costs of motoring have
fallen since 2000, and, that when measured as a share of household
disposable income, they "have fallen considerably in the
last ten years, as incomes have grown on the back of sustained
economic growth". This contrasts with the increasing costs
of public transport, with the real cost of bus and train fares
rising by 31% and 16% respectively from 1996-2005, with bus fares
in fact outpacing the rise in disposable income to make them absolutely
less affordable than before, not merely less affordable relative
to other modes of transport.[95]
Finally, we have some doubts that using Stern's Social
Cost of Carbon might imply a reduction from current fuel duty
levels. But even irrespective of this, given that we look like
falling well short of the UK's 2010 target for reducing carbon
emissions, given the fact that the fuel duty escalator is still
listed as the Government's sixth-largest carbon saving measure
despite having been abolished seven years ago, and given the need
to begin a steeper trajectory of reductions highlighted by Stern,
there is surely a strong case for building on what instruments
are already available and which could achieve rapid results—ongoing,
real terms rises in fuel duty being one of the prime examples.
78. Aside from the change to fuel duty, itself very
modest, there was very little else regarding motoring in the environmental
section of the PBR. There were some limited announcements
on biofuels: for instance, the PBR confirmed that the 20 pence
per litre duty differential for biodiesel and bioethanol would
continue until 2008-09, and signalled the Government's expectation
that the Renewable Transport Fuels Obligation (RTFO) would increasingly
take over as the principal instrument for increasing biofuels
take-up after that. It also made a number of small announcements,
such as a reduction in duty for biofuels used in railway engines
(in a number of pilot programmes). It also announced the UK's
initiation of "a joint Task Force with Brazil, South Africa
and Mozambique to promote the development of a sustainable regional
biofuels industry in Southern Africa"; but did not say any
more about ensuring that imported biofuels come from sustainable
sources.
79. In the evidence we received concerning biofuels,
there were largely two main arguments. The first was typified
by Greenpeace, who sounded a strong warning as to the wider environmental
impacts of increased imports of biofuels:
We do not believe biofuels should be incentivised
or given a target under the Renewable Transport Fuels Obligation
until mechanisms are in place to prevent perverse outcomes of
biofuel promotion. EU promotion of biofuels is about providing
an income stream for farmers and reducing CO2 emissions. However,
inadequate implementation of climate and sustainability certification
would very likely lead to opening of a commodity international
trade in biofuels grown under 'lowest common denominator' standards,
encouraging the conversion of ancient forests in Indonesia or
savannah grasslands in Latin America. Greenpeace has written to
Rt. Hon. David Miliband together with FoE, RSPB and WWF to say
that we cannot support the proposed RTFO because it has inadequate
safeguards. Indeed without these safeguards, Greenpeace would
advocate a ban on imports from countries where forest and ancient
grassland habitat 'conversion' is taking place. We do not regard
it as appropriate for biofuels to be the subject of concessional
tax arrangements.[96]
The other argument concerned the fiscal support available
for high-blend biofuels in the UK, essentially the E85 fuel (85%
bioethanol, 15% petrol) which can be used in "Flex Fuel Vehicles"
(FFVs), which also have the option of using conventional petrol.
Somerset County Council outlined the issues here from their vantage
point as co-ordinating organisation of the Somerset Biofuel Project
and the UK co-ordinator of the EU-funded BioEthanol for Sustainable
Transport (BEST) Project—related programmes, "designed
to implement the use of bioethanol in road transport fuels to
reduce the emission of greenhouse gases and to improve security
of fuel supply." Their essential argument was that the fuel
duty derogation should be increased for E85, taking it to 33.1ppl,
in order to make it cost-competitive with ordinary petrol. This
argument was echoed by General Motors (GM), manufacturers of Saab
FFVs, who summarised the reason for the extra derogation as being
that (because bioethanol contains less energy than petrol) E85
provides around 25-30% less in terms of miles per gallon than
ordinary petrol. As they then argued:
If consumers are to be encouraged to drive higher
blend biofuel cars, we submit that there is a strong case for
increasing the fuel duty rebate when applied to higher blend biofuels
in order to offset the increased costs associated with running
the car on bioethanol E85. Sweden has put in place a fuel duty
rebate of around 30 pence per litre at the pump, keeping running
costs on E85 roughly equivalent to the cost of running the car
on petrol.[97]
GM also argued strongly that the Company Car Tax
and Vehicle Excise Duty regimes ought to be reformed to better
recognise the wider carbon lifecycle savings available from FFVs
which are able to run on high-blend biofuels. Both GM and Somerset
County Council argued for greater assistance to speed the growth
of a national E85 fuelling network, again pointing to the example
of Sweden.
80. Biofuels raise a number of complex and potentially
conflicting issues, notably concerning the relative environmental
impacts of different biofuels types and sources, which we have
not so far studied sufficiently closely to make detailed recommendations
to the Government. Notwithstanding this, we recognise the environmental
benefits of a properly sustainable and well-regulated expansion
in the use of high-blend biofuels such as E85. Under the current
fiscal regime, however, it is unlikely that the market for high-blend
biofuels will take off, due to its increased costs. The Treasury
should therefore increase the duty differential available to high-blend
biofuels in order to make them cost-competitive. Overall,
however, our over-riding concern regarding biofuels is
that in increasing the volume of biofuels imported into the UK,
the Government must ensure that these come from sustainable sources,
do not encourage deforestation of tropical rainforests to be replaced
with biofuel crops, and minimise the carbon inputs which go into
growing the crops and transporting and refining the resulting
fuel. On this point, given that a coalition of major environmental
organisations has such reservations that it is refusing to support
the Government's Renewable Transport Fuels Obligation—in
stark contrast, for instance, to their support for the Renewables
Obligation in energy generation—we cannot but be disquieted.
The Government must do more to implement a truly effective and
convincing international sustainability assurance scheme for biofuels.
We may look more closely at biofuels policy in its full complexity
in a future inquiry.
81. One further point relating to motoring which
we would highlight concerns Vehicle Excise Duty (VED) rates. PBR
2006 contained no announcements regarding VED. This is perhaps
not surprising given that significant reforms were made to VED
in the last Budget, mainly the creation of a new top band, Band
G, for the highest emitting cars (in terms of grammes of carbon
dioxide per kilometre, or g/km), and the reduction of VED rates
to £0 for the lowest emitting cars in Band A. On the other
hand, as we argued in our report last year into Reducing Carbon
Emissions from Transport, there remain significant weaknesses
in this VED regime. Notably, we observed that tax differentials
between higher and lower carbon cars must be made much wider if
they are to drive market transformation, and cited research by
the Sustainable Development Commission on the transformation that
might follow the increase of band differentials to £300 per
band. In particular, we concluded:
[…] the new Band G is ineffective—given
that it is so wide and represents so little of the purchase price
of the vehicles it covers—and needs to be substantially
raised in cost. As things stand […] the VED paid by the highest
emitting 4x4s and luxury saloons in Band G represents a lower
percentage of their sales price, and works out at half the cost
per gramme CO2 emitted, than lower emitting hatchbacks in Band
C. To take an extreme example, the VED on a Bentley Arnage V8
(495 g/km) works out at 0.1% of the sales price, and £0.42
per g/km, where for a Smart forfour diesel (121 g/km) the figures
are 0.9% and £0.89 respectively. If VED were designed effectively
to weight purchases towards lower carbon cars, we might expect
the charge per g/km to shift down markedly as it moves through
the bands. This is clearly not the case—other than for the
newly reformed Band B, which EST singled out for praise.[98]
82. Our recommendation, this time to the Treasury,
is that Vehicle Excise Duty ought to be reformed to widen the
differentials between each band. Band G in particular ought to
be raised substantially in cost. The Treasury should at least
publish its rationale for the VED differentials it adopts, in
terms of the overall impact on the new car market and on average
CO2 emissions per kilometre of new cars it seeks to
achieve, and also in terms of the VED charge as a proportion of
an average car's sales price and g/km for each VED band. The Treasury
should also examine whether differential rates of VAT can be charged
on new cars to benefit lower carbon models.
Waste
83. The PBR's main announcement on waste policy was
a confirmation that the Landfill Tax escalator would apply once
more at the rate of £3 per tonne, raising Landfill Tax to
£24 per tonne "as part of the Government's medium to
long-term aim of reaching a rate of £35 per tonne."
Overall, the PBR was extremely positive about the impacts of the
tax so far, commenting: "The landfill tax has been very successful:
overall quantities of waste recorded at landfill sites registered
for the tax fell from around 96 million tonnes in 1997-98 to around
72 million tonnes in 2005-06, a reduction of around 25 per cent."
Even so, the PBR stated that the Government "will also consider"
whether the standard rate of Landfill Tax needs to increase more
steeply from 2008 onwards, or indeed go beyond the £35 per
tonne level.[99]
84. While the evidence we received stressed the positive
contributions of Landfill Tax, there were several doubts expressed
as to the exact impact of the tax in itself, and several calls
for Landfill Tax to be raised much more steeply. The National
Industrial Symbiosis Programme (NISP) drew attention to some of
the indirect benefits of Landfill Tax, in the form of its own
work—helping firms limit their waste and find industrial
uses for waste products—which is funded out of the tax.
Peter Laybourne, Director of NISP, stated that: "In the 18
months since the project started it has diverted 1.13 million
tonnes of waste from landfill", as well as having reduced
"hazardous waste by 123,000 tonnes; brought CO2 down
by 1.33 million tonnes, [and] brought industrial water use down
by over 1.13 million tones".[100]
Nevertheless, NISP told us: "The amount of waste still being
sent to landfill is alarming and greater increases in landfill
tax are needed."[101]
Biffa Waste Services reinforced this point, arguing that while
amounts sent to landfill had indeed declined, the Landfill Tax
was still too low to be driving this directly, and that rather
the reduction in landfill was being at least partly driven by
other factors, not least grants to local authorities to pay for
household recycling boxes.[102]
85. While we welcome the ongoing decreases in
amounts of waste going to landfill, we remain unsure as to the
direct impact of the Landfill Tax at current levels in terms of
disincentivising landfill use. To aid Parliamentary scrutiny of
the workings of this tax, the Treasury should publish analysis
which clearly isolates and accounts for the direct disincentivising
impacts of Landfill Tax to date. The rate of Landfill Tax should
then be increased, steeply, to the level at which it imposes an
effective driver against landfill use in its own right.
86. We heard calls from Biffa and Green Alliance
for a much more coherent approach from the Government towards
waste, including an expanded form of Landfill Tax. Green Alliance,
for example, called for the reform of Landfill Tax to impose a
charge not just on landfill but on incineration; they argued that
this was particularly important in order to promote greater recycling,
rather than see an unthinking growth in incinerators simply as
the default alternative to landfill, as this became more expensive.[103]
Biffa, meanwhile, called for an overarching strategy from the
Government on energy from waste, including clear cost incentives
based on which alternative technologies would generate least greenhouse
gases.[104]
87. Without having studied these proposals in detail,
we are sympathetic to
the idea of a broader use of Landfill Tax, or other financial
instruments, to guide the development of waste disposal, in particular
to incentivise the organisation of waste so as to maximise the
material which is recycled, and maximise the energy that can be
gained from the rest while minimising the resulting emissions.
As a first step, the Treasury should consult on the introduction
of an Incineration Tax. We
may choose to look in much greater detail at the issues of maximising
the efficient and lowest emitting use of waste following the forthcoming
publication of Defra's waste strategy.
88. A further issue which we discussed with Green
Alliance, and then with the Financial Secretary, was the potential
for targeted taxes on selected resource-inefficient products,
to discourage their use. As Green Alliance described such taxes:
Ms Hill: There are a number of
possible models and mechanisms in use in different places all
of which bear scrutiny. VAT exemption is one, higher VAT for certain
products is another, and eco tax which allows a differentiation
between project types, for instance disposal and non-disposal
razors—some countries have levied disposable razors to the
point where it has become uneconomic to have them and they disappear
from the market—or a levy to fund greater recycling such
as those used on containers like Tetrapak. There are a number
of models but the overriding point is the need to use these kind
of instruments to single out what are better or worse products.
No product is wholly good and probably none is wholly bad but
there are things that we now want to discriminate between and
that is an obvious way of doing that.[105]
Prominent examples that have been implemented in
other countries in recent years include the Swedish tax on non-recyclable
batteries and the Irish tax on plastic bags. Perhaps most prominently,
Australia has in the last weeks announced plans to go even further
and ban outright the sales of conventional incandescent lightbulbs.[106]
89. It was the Irish tax on plastic bags which the
Financial Secretary focused on in his discussions on this issue
with us.
John Healey: Yes, but plastic bags
are less than one per cent of the waste stream. There have been
some perverse consequences of what they have done in Ireland.
It is not necessarily the right thing for us to be doing in the
UK, which is why we have not yet decided that it is the right
thing for us to do.[107]
Following this session, he sent us a written note,
setting out "what information and analysis we have on the
impact of that [tax] at the moment."[108]
This set out that the Irish Environment Department had estimated
that the tax had reduced use of supermarket plastic bags by 90%;
but that it may have been accompanied by a rise in the purchasing
of bin liners, with some anecdotal evidence of an increase in
shoplifting—"with some customers not using any sort
of bag, it is difficult to be sure that the goods have been paid
for".[109]
90. We are not especially convinced by the Treasury's
reasons for failing to introduce any taxes on environmentally
inefficient products, such as plastic bags, non-recyclable batteries,
and incandescent lightbulbs. There would be a double purpose to
such taxes: not only would they disincentivise the use of such
products in themselves in favour of more efficient alternatives,
but they would help to raise awareness generally as to the desirability
to shift whole arrays of purchasing decisions and other daily
habits in an environmentally friendly direction. Such taxes would
surely not harm the economy or provoke great popular opposition.
In cases such as this, the onus should be on the Treasury to provide
a convincing reason why not to introduce such taxes.
Energy
91. We did not focus in great detail on energy (taking
this to mean energy generation and household energy efficiency)
in this year's inquiry, partly through lack of time, but partly
through a relative lack of concrete initiatives in this year's
Report (see Figure 10). Indeed, our main verdict on
the PBR's new announcements on energy policy is that these were
welcome but only small steps in the right direction, and that
much swifter and bolder action is required. The new measures in
this PBR tended to be either well-defined but rather modest in
aim, or ambitious but rather vague or lacking in teeth. On Carbon
Capture and Storage, for instance, the main announcement
is of an intention to issue a tender for consultants to help the
Government assess whether to fund one demonstration project. As
for the headline announcement on household energy efficiency,
that all new homes are to become "zero carbon" by 2016,
we note that the PBR refers to this as an "ambition",
and that the building regulations which are to make it happen
will only be "progressively strengthened". Overall,
these measures do not represent the kind of radical acceleration
of policies and funding we would expect to see following the Stern
Review.
Figure 10 New announcements
in energy policy in the environmental chapter of PBR 2006
