The price is not right

Inconsistent, confusing and unfair.

This is how the Society of Motor Manufactures and Traders (SMMT) and the Royal Automobile Club Foundation (RAC Foundation) are today describing government’s approach to pricing carbon emissions in their joint report ‘Carbon Prices: The Right Charge for Motorists?’*

The government has already set a Shadow Price of Carbon that defines the environmental cost to the planet of CO₂ emissions.

Yet drivers are paying many times that through fuel duty and vehicle excise duty (road tax). At the same time the cost of CO₂ emissions for big business on the open market through the European Trading Scheme (ETS) is just £9 per tonne.

Professor Stephen Glaister of the RAC Foundation said, “The picture is utterly chaotic. The Government has to fully and clearly explain to confused motorists just how much of what they pay in duty is actually a green tax. It then has to explain what is done with the money to help save the planet. In the national accounts – the Blue Book -the Government claims all fuel duty and road tax are environmental charges. Yet that means drivers pay many, many times their fair share towards the cost of mitigating climate change. And that cannot be right.”

“If on the other hand – as is widely accepted – a large proportion of the tax raised from motorists goes into other areas of Government spending, then exactly what proportion is spent covering CO₂ emissions? Much greater transparency is needed on what the charges truly represent. Nor must climate change be used as a convenient excuse to load motorists with further fuel taxes.”

“Without a uniform price for carbon how is anyone going to be able to set a meaningful carbon budget? The current cost of carbon varies enormously, which makes it very difficult for businesses and consumers to plan and understand the true costs of their actions.”

SMMT chief executive Paul Everitt said, “Car companies are taking ever greater strides in reducing the environmental impact of their products. Average new car CO₂ emissions fell by their biggest ever margin in 2008 and the choice of low-carbon models on the UK market is growing. Motorists are increasingly choosing the lowest-emitting car for their needs and this should be supported by a consistent and transparent tax regime. “

The RAC Foundation and SMMT believe that if the correct carbon value is used in Government policies, the overall cost to individuals and business of reaching the 80% reduction of emissions compared to 1990 levels by 2050 will be lower.

Professor Stephen Glaister continued, “Motorists, like every other sector, have a role to play, but the burden placed on them must not be disproportionate. The Climate Change Committee focus on encouraging more fuel-efficient vehicles and eco-driving should be applauded as these are the least costly options to take in the short to medium term. Current motoring policy on fuel duty, VAT and local authority schemes needs to catch up with this thinking on the cost of carbon.”