Clause 7
Finance (No. 2) Bill
5:45 pm
Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth and Camborne, Liberal Democrat)
I begin by commending the Financial Secretary for the clause’s welcome measures to encourage more environmentally friendly vehicle use. I hope that the introduction of greater certainty to the duty differentials on biofuels will make a difference and will encourage more people to make the necessary conversions.
However, I would appreciate it if the Financial Secretary provided clarification on the definition of biodiesel. Any confusion about the definition could hinder the development of the market. I understand that biodiesel must be “of diesel quality,” which means:
“It must be a liquid—not gaseous at a temperature of 15° C and under a pressure of 1013.25 millibars; and
It must be made from biomass or waste cooking oil;
The total ester content must not be less than 96.5 per cent. by weight; and
The sulphur content must not exceed 0.005 per cent. by weight or be nil.”
According to the Hydrocarbon Oil Duties Act 1979, “diesel quality” means that when blended with ordinary diesel, biodiesel will run an engine that would normally run on diesel. Biodiesel does not have to be used exclusively in the fuel tank, although that is possible.
I understand that vegetable oil is not perfect for cars. In order to make it suitable for car use, the oil must be modified in some ways. One way to do so is through transesterification, which involves cleaning the vegetable oil so that it can be used in a diesel engine. That uses a great deal of energy and some methanol, and leaves glycerine as a by-product that must be disposed of. It is also possible to add certain things to vegetable oil to make it usable. On the other hand, it is possible to make changes to the car so that it can accept vegetable oil as it is.
Does adding chemicals make vegetable oil of diesel quality? If the car is modified, does that make unmodified vegetable oil of diesel quality? There is clearly an element of confusion that could lead to perverse tax incentives for people to use changed vegetable oil, which has to go through a damaging process that could harm the environment, while those who go to the expense of modifying their engines or using additives might have no similar incentives. If such incentives exist, does the Treasury intend to make them clear?
I turn to the deferred increase in hydrocarbon fuel duty rates. I understand that the increase will not take place until 1 September 2006. When the re-valorisation kicks in, it will represent an increase in line with inflation. It will not be a real rise but will prevent a real-terms fall. That is welcome; since 2000, when fuel duty began to decline in real terms, the rate of increase in greenhouse gases has doubled. The take of green taxation as a percentage of national income has also fallen during that time. In 1999, green taxes represented 3.6 per cent. of national income; that has now fallen to 3 per cent. Fuel duty accounts for two thirds of the total take of green taxation, so the rise will help to counter the decline.
However, a question similar to those raised during our discussions of other measures on vehicles arises: what changes will the clause make to behaviour? What other measures is the Department considering to fulfil its environmental obligations? The proposals are okay as far as they go, but is the Treasury considering longer-term ways of producing changes that will impact on behaviour, pollution and the environment?
The changes in the clause will not achieve that; neither will the changes proposed for vehicle excise duty. What meetings has the Treasury had with the Department for Transport, which is considering proposals for road-user charging—a real way of making the polluter pay and relating vehicle use and the impact that it has on behaviour?