Choice of fuel
Within the general strategy of increasing the price of motor fuel to encourage economy in its use, there should continue to be differentials to encourage use of those fuels which are less damaging to the environment. Thus a differential was introduced in the 1995 Budget to make super unleaded petrol, which has a higher aromatics content, less attractive than unleaded. We consider conventional diesel should carry a higher tax per litre than petrol but with a significant differential in favour of cleaner forms of diesel (2.65).
Since 1994 diesel has been taxed at the same amount per litre as unleaded petrol on the ground that it has 'no perceived overall environmental benefits over unleaded'. As diesel is denser than petrol, however, that represents a lower rate of tax on its energy content (2.64).
We welcome the differential in favour of ultra-low sulphur diesel (maximum sulphur content of 50 ppm) announced in the autumn 1996 Budget.... We consider, however, that the difference in duties between this fuel and conventional diesel should be greater than the 1 pence/litre proposed, and are disappointed that the July 1997 Budget did not widen the differential (2.31).
There would be environmental advantages in replacing diesel with compressed natural gas (CNG), which is predominantly methane, or liquefied petroleum gas (LPG) in heavy vehicles that make frequent stops in urban areas (2.69).
- The Government will continue to encourage the use of more environmentally friendly fuels. A key to increased use will be industry responding to the Government's lead by much more widespread provision at filling stations.
- The Government fully appreciates both the benefits and potential disadvantages of the use of diesel as a road fuel. Diesel clearly has advantages in terms of emissions of carbon dioxide, but its use could have a negative impact on air quality objectives. This is particularly so for conventional diesel, but is less so with the newer cleaner 'city' diesels which are filtering into the market. At the last Budget, the Chancellor announced the intention to alter the structure of duties on road fuels, over time, to achieve two broad objectives. First, to move towards a fairer treatment of diesel and petrol, when calculated on an energy or carbon basis. This means that the tax on a litre of diesel should be higher than that on petrol, to reflect the higher levels of carbon and energy in a litre of diesel. This also recognises the adverse effect that diesel has on local air quality. The duty on a litre of diesel is now one penny more than on petrol. Future Budgets will increase this differential. Second, to encourage diesel users to switch to ultra-low sulphur diesel. The difference in duty levels on a litre of ordinary and ultra low sulphur diesel was doubled to 2p per litre in the last Budget, and the Government expects to widen this by a further penny in the next Budget. EC stage III and IV legislation will clearly help to improve the emissions of local air pollutants from all new vehicles.
- The specification for Ultra Low Sulphur Diesel has been tightened to confine it to the cleanest diesel fuels. The Government's aim is to reduce emissions of particulates and nitrogen oxides from existing vehicles, and over time to encourage the use of cleaner diesel technology. This is an essential element in the strategy to improve air quality, particularly in urban areas.
- The Government agrees with the Royal Commission about the benefits of gas as a road fuel. Duty on road fuel gases was frozen in the March Budget, following significant reductions in previous Budgets, reflecting the fact that they produce much lower emissions, especially of particulates, than diesel. In doing so the differential between these fuels and diesel has been widened, and there is a commitment to at least maintaining the differential that existed in July 1997 in order to provide incentives and certainty for potential investors in these new technologies and cleaner fuels. In addition, from April 1999, the cost of conversion of company cars to gas power will no longer be included in the tax calculation of employee benefits.
- These measures are in line with the statement in the July 1997 Budget that the Government will explore the scope for using the tax system to deliver environmental objectives - as one instrument, in combination with others like regulation and voluntary action.
Published 23 December 1998
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