Committee calls for renewed push on green taxation and climate change

The Treasury's drive to shift the burden of taxation from "goods" to environmental "bads" has stalled, according to the House of Commons Environmental Audit Committee.1 The MPs call for a "radical strategy" to tackle domestic energy efficiency and transport emissions - including a renewed emphasis on higher road fuel duty and greater incentives for cleaner vehicles.

The Committee warns that the Government's climate change strategy is "seriously off course" - and that "the policy instruments the Government has put in place have yet to make a significant impact on the UK carbon emissions trajectory."

The latest provisional forecasts from the Department of Trade and Industry suggest that emissions will fall to around 140mtC (million tonnes of carbon) by 2010 - some 8mtC more than the Government's target (ENDS Report 353, pp 39-40 ).

The Committee warns that "there are grounds for supposing that the shortfall might be more substantial than currently envisaged." It has "seen no evidence so far" of the promised "step-change" in energy efficiency - while there "is little chance" that the Government's renewables target will be met.

The Committee makes clear that the drift must be addressed in the "crucially important" series of reviews which are taking place this year and next - including a review of the climate change programme due by the end of 2004. It calls for "a more imaginative and radical strategy", including the use of fiscal instruments for transport and domestic energy efficiency.

A "central theme" of the the 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."

Specific recommendations include:

  • Green taxation: The Committee has warned on several occasions that the Treasury's green taxation policy is "in danger of stalling". The drift continued in the latest Budget, which contained "few significant new measures" (ENDS Report 350, pp 31-33 ).

    The Committee points to recent data from the Office for National Statistics which show that environmental taxes have recently fallen to the lowest level since 1993 as a proportion of total tax revenue (ENDS Report 354, p 15 ).

    The MPs call on the Treasury to "commit itself afresh to a strategic program of environmental tax reform, as the zeal so abundantly manifest in the 1997-2001 Parliament appears to have been lost."

  • Transport: The Committee notes that carbon emissions from transport "have moved spectacularly in the wrong direction" since 1990. Ministers have also admitted that the anticipated 5.6mtC saving from improved vehicle efficiency and the ten-year plan for transport will not now be achieved (ENDS Report 351, pp 10-11 ).

    The MPs are "disappointed" that the new White Paper on the future of transport "had nothing new to say on the practical steps the Department for Transport would take to tackle carbon emissions" (see pp 39-40 ).

    They note that it would take 10-15 years to introduce national road charging - and that "such a regime would be far more of a blunt instrument than the present system, where larger differentials in rates of fuel duties and vehicle excise duty can potentially be used to promote a shift to low-carbon vehicles".

    The Committee urges the Treasury to reverse its recent decision to drop the planned inflation-level rise in fuel duty because of the continuing uncertainty in the oil markets. It points out that the real costs of motoring have remained static since 1970. Moreover, the real cost of petrol fell by 11% between 2000 and 2002 while disposable incomes increased by 9% over the same period.

    "We appreciate that the shadow of the fuel protests of 2000 still hangs over the Government," the Committee says. But "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."

    The MPs also urge the Government to increase "radically" the differentials in vehicle excise duty in order to bring about a "significant behavioural shift towards the purchase of low-emission vehicles". They condemn Economic Secretary John Healey's "extraordinary" view that VED differentials are not designed to influence buying decisions.

  • Households: The Budget introduced measures on micro-CHP, ground source heat pumps and a landlord's energy saving allowance.

    However, the Committee is not convinced that these measures "would have any significant impact" - and complains that the Treasury "has made no attempt to forecast the carbon savings which might arise". It is "disappointing" that the Treasury has failed to introduce a more ambitious package, given that it consulted on possible fiscal measures in both 2002 and 2003.

    The MPs share concerns expressed by the Energy Saving Trust about the scale of the savings which might be delivered by the energy efficiency commitment on supply companies (ENDS Report 353, pp 50-51 ).

  • Industry: The Government's policies to improve industrial energy efficiency form a package centred around the climate change levy.

    One of the key instruments are enhanced capital allowances (ECAs) , under which some revenues from the levy are recycled to industry to promote investment in energy efficient equipment. Remarkably, the Carbon Trust told the Committee that the Inland Revenue did not monitor the uptake of the ECAs (ENDS Report 349, pp 29-31 ).

    However, the Trust confirmed that unpublished work that it had conducted with the Treasury suggested that a take-up of some £100 million per year. The Committee note that this is below the Treasury's earlier estimate of £140 million - and also expresses concern that "much of the efficiency savings would have resulted in any case from the introduction of the integrated pollution prevention and control (IPPC) regulations."

    The Committee is also "sceptical" of the figures quoted for emissions savings from climate change agreements (CCAs). Industry greatly overshot the targets in 2002, the first milestone year - although most of the savings were down to a huge fall in output from the steel industry (ENDS Report 339, pp 23-26 ).

    The MPs recommend that baseline figures and assessments of progress under CCAs should be independently audited, and call for greater transparency in reporting.