Tuesday 16 July 2019

Fleets may face new taxes if alternative fuels take off

Decarbonising the freight transport industry may not just mean operators having to invest in unproven vehicles that they cannot afford: they could also be hit by road-pricing as the Treasury seeks a new revenue stream to replace fuel duty.

That was one of the messages from a debate on road transport and the environment, held at the Microlise Transport Conference in Coventry in May.

The debate saw a surprising amount of common ground emerge between panellists Richard Burnett, chief executive of the Road Haulage Association; Martin Flach, formerly alternative fuels director at Iveco and now an independent consultant; Graham Lackey, group managing director of haulier Brit European; and Dominic Phinn, business engagement coordinator for clean air at environmental pressure group Client Earth.

Phinn explained that Client Earth’s action in taking the UK government to court had come after air quality in parts of certain cities repeatedly breached limits set by the EU’s ambient air directive. Diesel fumes had been the main source of offending pollutants, but he said there was insufficient structure or clarity for businesses to be able to switch to alternative power sources, even though technical solutions were becoming available.

Burnett responded that trucks were an easy target, and there was conflicting evidence on the impact of air quality on health. There was little attention paid to pollution sources other than traffic, and trucks made up only a tiny proportion of urban traffic.

Road haulage was a fragmented industry, and while some large fleets could invest in alternative-fuel trucks, smaller enterprises would struggle.

Flach highlighted widespread confusion among legislators and campaigners about the separate issues of global warming and local air quality.

“A vehicle on the motorway needs to have low carbon dioxide (CO2), while one in town needs low nitrogen oxides (NOx) and particulate matter (PM) – yet the London charging regime rewards low CO2,” he said, highlighting the dangers of delegating powers to local authorities that might not have a full grasp of the science.

Lackey conceded that, while the industry was an easy target, that didn’t mean that it shouldn’t take steps to clean up its act. But it was being effectively prevented from doing so by a lack of clarity and joined-up thinking from government.

“Operators are on tight margins and we need to make money,” he pointed out. “Customers won’t pay extra to fund a ‘green’ vehicle. If you have specialist vehicles, you may be on a 10-year replacement cycle.”

Phinn condemned the current localised approach to air quality: “Client Earth challenged national government and DEFRA. DEFRA passed the buck to local authorities. Of course, local conditions must be taken into account but we need national standards: signage and payment systems for a start. Currently there’s a mishmash across the country,” he said.

“The auto manufacturers who created this problem are not being held to account. They should be made to help fund cleaner vehicles.”

He highlighted how investment in new vehicles was more effective than DEFRA’s preferred route of charging ‘dirty’ ones. The city of Nottingham had proved air standards could be met by switching some of its own vehicles to zero emissions, rather than tolling.

Burnett highlighted the unforeseen consequences of tolling: “Ninety-one per cent of everything is delivered by truck, and a £100 a day is a massive charge if a truck only makes £60 a week.

“Over half the UK’s truck fleet is still not Euro 6 and potentially would have to pay,” he said, with the implication being that these costs would have to be passed on.

“We have tried direct discussions with ministers, but they have turned their back on the issue.

“Leeds wants to give operators grants for retrofit kits, but they don’t exist for trucks. A no-deal Brexit would see a 22 per cent tariff on new trucks, which will make replacement even more difficult.”

Flach agreed that air quality in cities needed addressing, but laid the blame at the feet of government, which had encouraged the take-up of diesel cars.

“That made things worse, and now they are trying to play catch-up,’ he declared.

The situation in the van market was even worse than for trucks as Euro 6 vans had only appeared in 2016. “There are hardly any,” he pointed out.

Burnett feared there was a big issue in the used market in trying to dispose of Euro 5 trucks. Flach added that African markets, traditionally a route for disposal of older UK trucks, was now under attack from low-cost Chinese manufacturers.

Lackey warned that the next 20 years would see the most massive changes in the industry.

“Previously you could buy a diesel tractor and confidently estimate what it would be worth in three, five or eight years and account for it accordingly,” he said.

“But in the future we will have diversified technology for different jobs. Electric trucks are likely to need less maintenance than diesel, so consequently manufacturers will compensate for reduced service income by loading the purchase price: instead of paying £80k for a diesel truck, you’ll pay £120k for an electric.”

Flach observed that while truck manufacturers plugged total cost of ownership, many operators were more concerned with the capital cost of equipment.

“Operators need to be able to fund the extra up-front cost: there’s no point in saving money on fuel if the capital cost has put you out of business.”

He said operators would have to move away from a one technology does it all approach, where a mixture of 3.5, 7.5, 18, and 26-tonne vehicles and 6×2 artics, all using diesel engines, did all transport tasks.

“It will eventually be a case of zero-emissions vehicles in cities, and some form of fuel on motorways. Vehicles that do both will need to run on fuel on motorways, and switch to zero emissions on entering cities.”

Lackey has 34 gas trucks on his fleet, but remains unconvinced of the government’s will to support the technology.

“Gas is a stepping-stone, but there’s not currently enough gas stations, so take-up has stalled. The government’s stated objective of cutting the domestic gas grid does not instil confidence, and I’m not convinced there will ever be enough biogas.

“Currently, the safe option is Euro 6, and the best way to decarbonise is to go for longer and heavier vehicles, which mean fewer movements overall. Fifty tonnes could take 10 per cent of trucks off the road. It would help the driver shortage, too.”

Phinn said the government had “Lots of ambition, but there was little action.”

He pointed out how travel and transport patterns were changing: “Home delivery is replacing driving to the shops, but which is better from an air quality point of view?”

Flach was concerned that further regulation of vans between 2.5 and 3.5 tonnes might lead to more vehicles on the road as operators downsized to avoid regulation, as had already happened with 7.5-tonners, which had been replaced on many operations by larger numbers of 3.5-tonne vans.

“You need two 2.5-tonners to carry the same load as one 3.5-tonner,” he pointed out. “It can only make emissions worse.”

Burnett said that everyone needed to accept it would take time for the industry to change. “And we have to convince government that the devolved approach to air quality isn’t going to work.”

Flach called for targets to be realistic and attainable. “Zero carbon by 2025 is impossible. Even if the technology was available the vehicles couldn’t be built quickly enough. MAN has built 10 electric 26-tonners: we’d need to build 50,000 a year.”

Fuel duty was a blunt instrument in incentivising the move to cleaner vehicles, he asserted, as it would have relatively minor impacts on urban operations. “Differentiated road pricing might be more effective.”

Burnett picked up the point: “Fuel duty is the wrong way to go. Increased fuel duty has a detrimental effect on the whole economy.”

Phinn cautioned that the Treasury would notice the fall in revenue from fuel duty as uptake of electrics increased. “Fuel duty is currently worth £27 billion to the government,” he pointed out.

But operators would need help in closing the cost gap between clean and dirty vehicles, with taxation playing a key role.

Currently grants for heavy electric vehicles were capped at £20,000. “This is not a factor in the purchase of a £300,000 26-tonne electric truck,” he suggested. “A 20 per cent grant would be a better incentive.”

“There are only so many ways to balance the books,” said Burnett. “It may well come back to road-user charging to fill the hole in revenue left by the switch from fossil fuel.”

Flach said he was pleased that the differential between diesel duty and gas as a road fuel had been frozen in the last budget, but queried why vehicle excise duty was the same for gas and diesel trucks.

Phinn said there was huge willingness to change in the industry, but small companies could not afford to, and they were further handicapped by lack of regulatory certainty.

“We really have a gripe with the automotive sector for causing this,” he said.

Lackey pointed out that as boss of an SME there was little he, and others like him, could really do.

“Truck manufacturers operate on a global scale; the UK is on the periphery.”

“The industry is doing all it can,” asserted Burnett, “but it has been screwed down by its clients. There’s not a lot left to give. The big 3PLs cream a lot of profit off the top and then cascade work down to small regional operators. We work within the commercial constraints of the market.”

Flach said that while some of the big players were working on alternatives, others were just paying lip-service: “but some smaller operators are actually doing it.

“Converting to gas can be done if the infrastructure is there; you don’t have to be DHL to do something.”

Summing up, Flach said the industry needed zero-emissions technology, which Burnett wanted more financial support for the transition. Lackey reiterated his call for longer, heavier trucks, while Phinn called for greater regulatory certainly. So the debate ended with a surprising degree of agreement that while the industry was doing what it could, it was handicapped by incoherent political policies and faced with the prospect of yet more taxation.

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