Friday , November 22 2019
Home / The Barrel Blog / UK needs fuel tax reform to pave way for mass EV adoption

UK needs fuel tax reform to pave way for mass EV adoption

Summary:
The UK wants to be a world leader in the fight against climate change. Committing to reduce greenhouse gas emissions to almost zero by 2050 is an admirable but expensive and difficult goal to achieve. Counter-intuitively, cutting taxes on fossil fuels now may be a better place to start than continuing to milk dry the majority of road users until they are forced into electric cars. One idea could be to abolish fuel duty all together and instead levy a single charge for vehicle road use, which would treat all motorists equally based on their type of transport. This could be structured as an annual payment that would replace the existing system of road tax and fuel duty. It would also limit the government’s exposure to a catastrophic loss of revenue if consumers switch to electric vehicles

Topics:
Andrew Critchlow considers the following as important: , , , , ,

This could be interesting, too:

Kristian Tialios writes More and more West Texas crude heading Down Under

Andrew Moran writes US Crude Rises As Weekly Supply Build Falls Short of Estimates

Paul Bartholomew and Clement Choo writes Around the tracks: Auto sales, coil prices unlikely to gain traction before 2020

Vladimir Vyun writes Video: Weekly Commodity Forecast – Gold, Platinum, Palladium Silver, Crude Oil for 18–22 November 2019

The UK wants to be a world leader in the fight against climate change.

Committing to reduce greenhouse gas emissions to almost zero by 2050 is an admirable but expensive and difficult goal to achieve.

Counter-intuitively, cutting taxes on fossil fuels now may be a better place to start than continuing to milk dry the majority of road users until they are forced into electric cars.

One idea could be to abolish fuel duty all together and instead levy a single charge for vehicle road use, which would treat all motorists equally based on their type of transport. This could be structured as an annual payment that would replace the existing system of road tax and fuel duty. It would also limit the government’s exposure to a catastrophic loss of revenue if consumers switch to electric vehicles quicker than expected.

Addicted to fuel tax

The problem is motorists have become a cash cow for successive governments. Fuel duties, excluding value added tax alone raked in just over £28 billion ($35.7 billion) last year, which is equal to £1,000 for each household, according to the Office of Budget Responsibility. Combined with road tax, the figure rises to almost £35 billion.

Fuel sales were enough to pay for almost the entire budget for social care and the Policy Exchange think-tank forecasts the government will net £170 billion by 2030 from motorists filling up.

Despite a freeze on these taxes since 2011, the UK remains one of the most expensive countries in Europe’s big four economies to fill up a car.

According to OPEC, in 2017 taxes accounted for almost 65% of every litre of fuel sold at the pumps to consumers in Britain, compared with 58% in Germany and 22% in the US. On average, the price of crude only accounts for just over a quarter of the total cost of fuel sold in the Group of Seven most advanced industrialized economies.

By any measure, Britain’s motorists and road transport businesses are getting a raw deal. Fuel duties are now considered to a sin tax like those aimed at smokers, or beer drinkers. The problem with such taxes is that they are economically inefficient mainly because they tend to hit hardest those who are least able to pay.

Nor have high UK fuel taxes so far been a particularly effective tool in getting motorists to switch to low-emission alternatives powered by electricity. Electric vehicle penetration in Britain is about the same as China, according to the International Energy Agency.

Norway, with its small population of just over 5 million people, is the exception. The Scandinavian hydrocarbon-dependent nation has doled out big subsidies while taxing conventional vehicle fuel to oblivion so it can now boast of leading the world in electric transport. At the same time, Norway’s exports of oil account for about 2% of the world’s consumption, which helps pay for its greenwashing.

Britain is not so fortunate, and must look to other ways to balance climate change policies with the harsh realities of public finances.

The entirely unsatisfactory situation in the UK is unlikely to change with the selection of a new prime minister. All the candidates participating recent televised debates were keen to buff up their green credentials for fear of aggravating the braying hordes of Extinction Rebellion activists on the streets.

Postponing the inevitable

If the cost of Brexit rises and economic growth slows it is more likely that the eventual winner will be forced to raise fuel duties to help pay for their climate change pledges.

However, these fossil-fuel derived revenues will eventually have to be replaced as the internal combustion engine is gradually superseded by the battery-powered electric motor and ultra-low emission alternatives, which currently receive generous subsidies.

National Grid expects the number of EVs in the UK could rise to 36 million by 2040, up from 50,000 sold in 2017.

What is required is root and branch reform of how all road-based transport including electric vehicles and fuel will be taxed. However, policymakers would rather avoid the politically toxic subject. A 70-page report on EV transition published late last year by the Business, Energy and Industrial Strategy Committee made just one reference to the loss of fuel duty revenue to the public purse – and that was limited to saying a review would be needed.

Introduced alongside a more comprehensive scrappage scheme for old vehicles, putting more cash into the pockets of average consumers could accelerate the transition to zero emissions transport.

Transferring fuel taxes and duties onto a single levy for road usage and transport emissions with no exceptions could be a fairer new green deal for all motorists.

The post UK needs fuel tax reform to pave way for mass EV adoption appeared first on Platts Insight.

Leave a Reply

Your email address will not be published. Required fields are marked *