Road fuel gas industry at the crossroads

The road fuel gas industry is urging the Chancellor to confirm a long-term support package, including continued low rates of fuel duty, in his pre-Budget report. It points to a European testing programme which shows that cars using liquefied petroleum gas (LPG) offer environmental benefits over petrol and diesel vehicles - but critics maintain that subsidy would be better spent on other alternative fuels.

The Government has been backing the uptake of road fuel gases since 1995, when it first reduced fuel duty on LPG and compressed natural gas (CNG). In 2001, the Chancellor increased the duty differential and promised that there would be no increase in real terms until 2004 at the earliest (ENDS Report 314, pp 21-23 ).

Further incentives for gas vehicles have come from the Energy Saving Trust, which offers grants to partly offset the costs of converting vehicles, and the offer of exemption from the London congestion charge.

The package has led to a significant boost in the market for LPG vehicles. The number of bi-fuelled petrol-LPG vehicles on the road has risen five-fold since 2000, and passed the 100,000 mark this summer. They are served by about 1,300 public LPG refuelling stations, with a further 1,000 refuelling points for fleet vehicles.

CNG has made slower progress. Only some 500 vehicles, mostly heavy duty vehicles such as buses and urban delivery lorries, use the fuel (ENDS Report 333, pp 33-34 ).

However, the industry is looking nervously towards December's pre-Budget report, when the Chancellor is expected to set out the conclusions of a review of the tax regime for road fuel gases (ENDS Report 341, p 48 ). Earlier Budgets have justified the tax differential on the basis of unquantified reductions in emissions of nitrogen oxides and CO2 - but the improving performance of conventional vehicles has eroded much of the advantage enjoyed by gas fuels.

The industry's lobbying efforts came to a head at an LPG Association conference in November. "The market is at a crossroads," said Howard Kerr, managing director of LPG supplier Calor Gas. "The uncertainty over the last year caused by the review is proving to be a major obstacle to the continued development of the market - total sales of LPG have stalled, and the growth in refuelling sites has slowed right down."

Ian Blinder of Vauxhall, the leading supplier of new LPG cars to the UK market, also warned that "the market is slowing down dramatically, and is on the verge of stalling."

The LPGA is using preliminary results from a €400,000 European emissions testing programme to support its case. The programme, backed by several governments and six companies including Shell, BP and Total, compared emissions from 20 cars and six vans. Where possible, models available in petrol, diesel and bi-fuel LPG versions were used - although some critics have complained that other alternatives such as biofuels were not tested.

The results confirm that LPG still offers a significant improvement over diesel in terms of NOx emissions, particularly on the "Artemis" test cycle which is claimed to offer a better reflection of "real world" driving conditions (see table). However, a mixture of Euro III and Euro IV vehicles was used in the test - and the gap will close significantly from the start of 2005, when new Euro IV emission standards come into force.

Results for particulate emissions are still being finalised in order to evaluate the impact on particle size distribution. However, Shell's Hans Verhoeven said that LPG vehicles again had significantly lower emissions.

The LPGA also claims that the results "dispel the myth" that diesel has a CO2 advantage over LPG. The two fuels emerge as broadly comparable on a "well to wheel" basis.

The industry is now calling on the Government to commit to maintaining the existing duty differential and grants regime to 2009. In return, it would agree clear targets to improve the quality of vehicle conversions, as well as improving fuel supply and availability of vehicles.

Calor's Howard Kerr stressed that the market is far from mature, and that LPG fuels only 0.3% of the vehicle fleet. "What the Government does now is critical not only for LPG but for the future of other alternative fuels," he said. "It would send very negative signals if the Government removes support substantially in the short term."

Another carrot being offered by manufacturers such as Vauxhall and Ford is the prospect of improved environmental performance by a new generation of monofuel LPG vehicles. Vauxhall's Ian Blinder told the conference that "so far we've just been taking petrol engines and tinkering with them" - whereas producing dedicated LPG vehicles could reduce CO2 emissions by 15-20%.

"We're evaluating the feasibility of monofuel technology, but it would take three years to come to market and take an investment of £10 million," Mr Blinder said. However, a significant extension of the refuelling infrastructure would be needed to support a monofuelled fleet.

A similar message was offered by Declan Collier of Exxon Mobil, a leading CNG supplier. "We're working with two vehicle suppliers to bring a range of dedicated heavy duty vehicles to the market next year," he said. "We're ready to invest provided we don't have the rug pulled from under our feet."

However, Julie Foley of the Institute of Public Policy Research commented that "in the context of what's offered by biofuels, even monofuel LPG vehicles don't offer significant benefits. The industry is currently receiving a tax break of £50-60 million per year - and to expect all cleaner fuels to get a big whack when the Treasury is strapped for cash on transport is simply cloud cuckoo land."

  • The Energy Saving Trust's grant programmes for cleaner vehicles are on hold until next April, as all of this year's £20 million budget has been allocated due to an upturn in applications. In November, the Department for Transport turned down the Trust's application for extra funding. The LPG Association and vehicle manufacturers expressed concern that the "stop-go" funding would hinder the development of the market.

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