PCWG-P-03-023 The AA Motoring Trust: Incentives for a Low Carbon UK Car Fleet The move towards a Low Carbon cars in the UK is both feasible and very worthwhile: it will though need positive and effective incentives. The emphasis here must be on the positive purchasers must like what they see and try, rather than being denied what they want. It has been made clear that there s no prospect of government funding the Low Carbon process, other than by continuing the modest grants available via the PowerShift programme for specific types of technology such as gas and hybrid cars. Good progress has been made towards the ACEA 2008 target, but it appears that a lot of the easy gains have been made in the UK, mainly in shifting marginal voters to diesel. The vehicle manufacturers want stronger fiscal measures to direct the market, pointing out the need to make cars suitable for worldwide sales and the high costs involved in developing specialist technology. Making sub-100 gram/km cars is technically feasible, selling enough of them is another matter. Could the OEMs could start looking for opt-out clauses in the agreement if the operation becomes unattractive from a marketing point of view? This chart shows the move to diesel: Diesel % Market Share 45 35 30 25 20 15 10 5 0 W. Europe UK W. Europe Projected 1995 1996 1997 1998 1999 2000 2001 2003 2004 2005 2006 The move to diesel and smaller cars in general in the UK is reflected in the increased numbers of registrations in the lower CO2 VED groups: Low Carbon Incentives john stubbs November 2003 page 1 of 5
New Car Registrations by VED CO2 Band - SMMT figures 45 35 30 % 25 20 15 10 5 0 186 > 166-185 151-165 1997 1998 < 1 1999 2000 2001 < 1 151-165 166-185 186 > The above remarkable shift has brought the UK new car average CO2 down from 190 in 1997 to 174 in. To hit the 1 gram ACEA target in 2008 however, the UK should have been somewhere around 167 in. So, there s going to be a push for more drastic measures. The affect of the Variable VED has been greater that might have been expected, but is still not highly perceived. The MORI poll run by the DfT in March of this year asked 1085 car buyers about which motoring costs they felt important in choosing a car, this is the summary 65% Fuel Consumption 52% Insurance 31% Servicing 24% Fuel type 17% VED 9% Company car tax 9% others These results concur with those of the AA s NOP poll, which rated insurance first, then fuel costs, then servicing costs as the main expenses of owning a car again VED was way down the list. None of them identified the largest factor, depreciation. In fact, of course, to those individuals affected, company car tax will be a much greater expense than VED. Since the Variable VED and the CO2 related company car tax schemes were introduced from 2001/, there have been Low Carbon Incentives john stubbs November 2003 page 2 of 5
some radical changes in the pattern of company car registrations this chart shows the SMMT s data of private registrations against fleet and business cars: UK New Car Registrations - Company Cars Vs Private Purchase % Split 60 58 56 54 Private Company 52 48 46 44 42 1995 1996 1997 1998 1999 2000 2001 2003p This dramatic change in the trend, at a time when new car sales were at a peak, indicates that the market is very sensitive to such influences. Traditionally, the private market has been hard to influence, as established buying patterns are built into the social fabric. The company car owner however, is three times more likely to consider leasing over outright purchase than is the private purchaser, according to our NOP survey. This shows a greater willingness to change, as the financial considerations are higher up the agenda, and is consistent with company car plans shifting towards payment per mile for staff-owned cars. The move to more privately owned cars may not be beneficial to the low-carbon goal, as in general the cars will be kept longer and may not be so well serviced. A shift in the average car CO2 figure to 1 gm/km would mean a pattern as shown in this table, if using the same band structure: Tax Band CO2 grams/ km VED petrol % split Possible 2012 % split AAA < 100 65 0 10 AA 101-120 75 2 20 A 121-1 105 26 25 B 151-165 125 24 20 C 166-185 145 19 15 D > 185 165 29 10 Low Carbon Incentives john stubbs November 2003 page 3 of 5
This is again a dramatic shift only one third as many cars in the bands above what are now the medium size car groups. CONCLUSIONS: 1. The ACEA agreement is generally on target but the UK is behind the rest of Europe. 2. A quick fix will be to increase the market share of diesel engines, and the likelihood is that the UK will climb to nearer the EU average. This will significantly add to the incidence of misfuelling. 3. The vehicle manufacturers could be looking to government for incentives to help meet the agreement. 4. There has been a marked shift to more fuel-efficient cars in the UK. 5. There has been a 5% shift from company car ownership to private ownership over the past two years. 6. Increments in the band structure built into the company car tax scheme have increased the effective tax rate by around 6% since the new CO2 based scheme was introduced. PARAMETERS 1. Incentives must not be specific to any one technology they must relate to appropriate CO2 reduction targets. 2. Incentives should be equitable and transparent to the end user, no worse than revenue neutral, and polluter-pays. 3. While the concern at present is over tank to wheel emissions, incentives should not have adverse affects on overall well to wheel CO2 emissions. RECOMMENDATIONS The AA and the AAMT should: 1. Show the need for fiscal neutrality in devising low-carbon vehicle incentives. This may also have to be carried over into the field of personal taxation. 2. Support positive incentives such as free parking, exemption from congestion charge, purchase grants etc on new low-carbon and city cars. 3. Put more emphasis on developing sustainable energy sources such as biofuels as the preferred alternative fuels. 4. Use the AA magazine and PR to show the advantages of modern lighter, fuel-efficient cars. Low Carbon Incentives john stubbs November 2003 page 4 of 5
5. Show support for hybrid and mild-hybrid cars, new direct-injection diesels and such technology where appropriate. 6. Call for new technology such as hydrogen fuel cells for special purpose use, in particular buses, to be introduced as soon as possible. 7. Call for the ACEA agreement to be maintained and fully audited. 8. Make provision for the extra cost of handling increased numbers of misfuelled diesel cars. Low Carbon Incentives john stubbs November 2003 page 5 of 5