Memorandum submitted by General Motors
THE TAX
AND INCENTIVE
REGIME FOR
BIOFUELS
Introduction
General Motors in the UK encompasses the Vauxhall,
Saab and Chevrolet mainstream car brands, with sales making up
around 15% of total car and light commercial vehicle sales in
this country.
General Motors employs around 2,200 people at
its GMM Ellesmere port plant, where we manufacture the Vauxhall
five-door Astra and Astravan. The company also employs 1,850 people
at its GMM Luton plant, producing the Vauxhall Vivaro light commercial
vehicle. Throughout the UK, General Motors directly employs around
5,500 people, and a further 12,000 indirectly through our extensive
network of dealerships.
With respect to implementing the company's global
alternative fuels and advance propulsion strategy, General Motors'
short-term focus in the UK is on continuing to make further refinements
to the internal combustion engine and the promotion of biofuels,
in low and high blends.
The Saab 9-5 BioPower, produced by General Motors,
is a vehicle capable of running on either a blend of 85% eco-friendly
renewable bioethanol and 15% petrol (called E85), or on pure petrol,
without any adjustment required by the driver.
When running on E85, carbon dioxide emissions
from the Saab 9-5 BioPower are typically 50-70% cleaner than when
running on petrol. The benefit of bioethanol is that, unlike fossil
fuels, it does not add to global CO2 levels because it is actually
"recycling" CO2 already present in the atmosphere. This
is because CO2 is removed from the atmosphere through photosynthesis
when crops for conversion are grown. It is then returned to the
atmosphere during combustion when driving the car. In technical
terminology, this means that the CO2 savings associated with running
a car on E85 are calculated on a "well-to-wheel",[21]
rather than a "tank-to-wheel"[22]
basis.
Saab is an important part of General Motors'
product portfolio. GM already has more than two million E85 vehicles
on the road in the United States. In Sweden, the Saab 9-5 BioPower
is the country's best-selling environmentally-friendly vehicle.
The car was launched in the UK in March 2006.
Incentives to encourage take-up of biofuels
We believe that incentive structures to promote
new fuel technologies must be based upon performance, must be
consistently applied and should not hinder future fuel technology
developments. Consistent with this approach is the scope for stimulating
new markets for renewable fuels. We recognise the potential offered
by second generation biofuels and believe that their development
should be fully supported and appropriately incentivised. However,
current generation high blend biofuels are available now, offer
immediate CO2 savings and help engage the consumer in the role
that biofuels and renewables can play.
The current Renewable Transport Fuel Obligation
(RTFO) will not in itself have much effect in stimulating the
market for vehicles capable of running on much higher blend biofuels.
An increased RTFO will provide a boost to this market in the longer
term but we believe that there is a need for additional consumer-orientated
fiscal incentives to be introduced now.
The advantages of high blend biofuels are two-fold.
Firstly, the environmental gain is greater than that provided
by biofuels in low blends. Secondly, they can encourage a far
more visible commitment by consumers to tackling climate change.
As the government often says, climate change requires a change
in individual consumer behaviour. Low blend biofuels are effectively
invisible to the user, whereas high blends requiring a specific
vehicle type allow business and consumers to make a visible commitment
to environmental enhancement.
To encourage behavioural change, we believe
that:
(i) the fuel duty rebate applied to bioethanol
E85 should be increased and prolonged;
(ii) there should be a specific discount
from company car tax in respect of high blend biofuel cars;
(iii) there should be a revision to vehicle
excise duty in order to reflect more fully the substantial environmental
benefits of these cars; and
(iv) incentives need to be maintained and
expanded upon to encourage the installation of biofuel refuelling
infrastructure.
We expand upon these points in the following
paragraphs.
The use of biofuels "recycles" CO2
already present in the atmosphere. When biofuels are combusted,
the vehicle releases carbon previously absorbed by the crops grown
for conversion. Taking account of CO2 emissions produced by shipping
of the refined fuel, growing methods, and manufacturing processes,
biofuels can contribute substantial reductions in overall CO2,
calculated on a "field to wheel" basis. The level of
CO2 impact will vary depending on the feedstock and production
processes used but it is clear that high blend biofuels can make
a substantial contribution to reducing CO2 emissions from road
transport.
However, it is estimated that, when running
on bioethanol E85, the range of flexfuel vehicles is typically
reduced by 25-30% compared to when they are running on petrol.
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.
This rebate is also currently fixed until 2011.
The mechanism for calculating the charge to
income tax arising from the provision of a company car encourages
employees to choose cars which emit less CO2 from the tailpipe.
Further measures in this respect are to be introduced with effect
from 6 April 2008. Specific percentage reductions are given for
the use of electric, hybrid electric, gas and dual fuel cars.
However, the mechanism currently gives no recognition to the significant
"well/field-to-wheel" reductions in CO2 emissions which
are associated with running a car on high blend biofuel. There
is indeed an income tax disincentive to choosing a car powered
by high blend biofuel as compared to a conventionally fuelled
car with lower tailpipe emissions. We welcome the Chancellor's
announcement in his Pre-Budget Report to consult on possible incentives
to encourage drivers who have company cars to choose more environmentally-friendly
vehicles, and submit that there should be a specific discount
from company car tax for drivers opting to drive a high blend
biofuel car.
A similar disincentive to take-up of high blend
biofuel cars is currently in place due to the current system of
vehicle excise duty which is also based on tailpipe emissions.
Alternatively fuelled cars such as the Saab 9-5 BioPower and Ford
Focus FFV are only eligible for a VED discount of just £10
per annum. The system of vehicle excise duty should be revised
to reflect more fully the "well/field to wheel" CO2
benefits of buying a biofuel car.
We also note that the Government's preferred
option for modernising tax relief for business expenditure on
cars, as set out in the Treasury's March 2006 consultation document,
is to introduce a single new car pool but with a range of first
year capital allowances depending on a car's CO2 emissions. If
this option is pursued, it could potentially influence business
car purchasing decisions and it is important therefore that the
comments made in the preceding paragraphs are taken into account
in implementing any CO2 banding structure for this purpose, in
order that the environmental benefits of increasing business purchases
of Flex Fuel Vehicles for fleet use can be realised.
Finally, the installation of E85 pumps is currently
assisted by a grant scheme administered by the Energy Saving Trust
and funded by the Department of Transport, which provides 30%
government funding towards the cost of installing alternative
refuelling infrastructure. It is important that such incentives
are maintained and expanded in order to encourage the wider installation
of biofuel refuelling infrastructure.
January 2007
21 "Well-to-wheel" emissions: Emissions
calculated on the basis of the full life-cycle of the fuel, from
production to combustion. Back
22
"Tank-to-wheel" emissions: Calculated purely on the
basis of emissions at the tailpipe-ie when the fuel is combusted. Back
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