My Lords, like the noble Baroness, I too am a member of the Environment and Climate Change Committee doing a study of this. Unfortunately, I was unable to benefit from the huge wisdom of young people at the school she attended. Had I been there, I would have mentioned that, since we export over 80% of the cars produced in this country, the mandate for sales in this country and the phase-out date has very little effect on British manufacturers. They have to abide by the rules in their export markets. Meanwhile, 85% of the cars we consume are produced abroad.
I want to ask the Minister whether I understand properly how this system will work. Take a year when we are half way through, when the zero-emissions mandate requires any manufacturer’s sales to be at least 50% electric vehicles and no more than 50% combustion engines. Supposing that a manufacturer finds, in the course of a year, that his sales of electric vehicles fall short and the ratio turns out to be 40:60, am I correct that the manufacturer will have to pay a £15,000 fine on all 20 extra vehicles—the difference between 40 and 60—per 100 that are combustion engine? If so, my arithmetic shows that he will effectively have a penalty of £5,000 for every combustion-engine vehicle he has sold. That is a very serious penalty. I do not think people realise quite how serious it is. I am not sure whether the Government have thought through the reaction there would be from motorists if that turns out to be the case, especially as the people who tend to buy combustion-engine vehicles rather than electric vehicles are those who cannot afford expensive vehicles—because electric vehicles tend to be more expensive. They would find themselves paying that fine on usually cheaper, smaller vehicles—to the benefit of the richer purchasers of larger, more expensive, electric vehicles. Am I correct that this is how the system works?
The Minister may say that if manufacturers have excess sales of electric vehicles from previous years they can offset those, and can go out and buy permits from other manufacturers that are, perhaps, only selling electric vehicles. Who will be the manufacturers only selling electric vehicles? They will, by and large, be Chinese manufacturers exporting their vehicles to us. A manufacturer producing only electric vehicles and importing them into this country from China will be able to sell its permits on 50% of the vehicles it sells. It can get £15,000 for each of them and enjoy a subsidy equivalent to £7,500 for every vehicle it sells. Whizzo for the Chinese manufacturers—that far exceeds the effect of the 10% tariff they will have to pay on the vehicles. Am I correct too that we have invented a system that could really subsidise the import of Chinese electric vehicles?
Then I want to ask whether this will all be worth while. If it will reduce emissions, of which I am all in favour, then great. Questions have been raised about the inbuilt emissions of electric vehicles, which are heavier and more expensive than vehicles with internal combustion engines. I do not want to deal with that point. I want to deal with the fact that electric vehicles save emissions only if they use electricity produced from renewables or non-fossil fuel sources. More than 40% of the electricity we produced in this country last year came from fossil fuels. More importantly, 100% of the marginal electricity comes from fossil fuels. If we increase the demand for electricity by switching from fossil fuel powered cars to electric powered cars, the marginal electricity supplied to them will come entirely from fossil fuels, because you can increase the supply of electricity only from fossil fuels. You cannot summon the sun or hail up extra wind but you can increase the supply of electricity from gas-fuelled power plants. We probably will not actually reduce emissions until we have made all our electricity and have spare capacity from renewables or non-fossil fuel power sources. That is not planned to be achieved until 2035, which makes the phase-out date actually have some logic—at least it ties in with something else.
My noble friend the Minister read out a figure about the expected emissions savings. Does that assume that only 40% of the electricity will come from CO2-producing fossil fuels or that 100% of it will? I suspect it is the former, whereas logically it could be the latter. I do not propose to divide the House on this issue, and I rather suspect I would not win if I did, but we should have honest answers to serious questions and not treat this whole issue as if it is a matter of virtue signalling.
My Lords, I will leave it to the Minister to respond to those points. I am confident that he will be able to satisfy the noble Lord, Lord Lilley, but I cannot resist pointing out that it is a case not of summoning up more sun or wind but of capturing more sun and wind through solar panels and wind energy.
Sorry, can I explain that to the noble Baroness? I am very grateful to her for giving way. At present, we use 100% of the electricity generated by wind or sun and it still provides less than 60% of the electricity, so if we increased the demand we would have to persuade the sun to shine at night or the wind to blow on calm days to create extra electricity from them now.
Of course that is not the only option. The other option is to build more solar panels and more wind farms, and I am delighted to see that there is a gradual rolling out of those facilities across the country. The noble Lord is entirely right that as we build more we will use it all, as we should.
I have no doubt about the need for this legislation, because the UK transport sector is responsible for the largest share of domestic greenhouse gas production and has seen relatively little reduction in the amount it produces since 1990, in contrast with other sectors. Cars and vans alone create 18% of the UK’s total domestic greenhouse gas emissions. There are also, of course, strong health reasons to support this legislation, because air pollution in particularly densely trafficked areas is a cause of lung and heart disease, and even has links to dementia.
So the Government’s recent U-turn on their rhetoric about the date for phasing out the combustion engine was at least confusing and at worst reprehensible, because it has slowed down the transition to zero-emission vehicles and has had a negative impact on manufacturers and their investment. They have told me about their concern. The problem is that the media have obediently repeated that change in rhetoric and it has caused confusion.
I strongly welcome the principles of this order; it implements the ZEV mandate, with yearly targets for cars and vans which must be zero-emission. This applies only to new vehicles, so it is important to point out that, as a policy, it has a long tail, because there will of course be people buying second-hand, third-hand or fourth-hand vehicles, and those sales will continue for decades.
The policy introduces—and I admire the Government’s response on this—a series of what I regard as cunning schemes to incentivise manufacturers to produce more ZEVs, by penalising those that fall short. There are plenty of sticks involved in this policy, but where are the carrots? This is a macro mechanism to steer manufacturers in the right direction, and I know that they welcome that, but consumers, many of whom are now confused by government rhetoric, need carrots to encourage them to buy electric vehicles.
I have some questions. The first is very precise. The van targets are lower than those for cars—70% sales by 2030 as opposed to 80% for cars. I simply ask the Minister why. Light vans have the same technology as cars and often, as a class of vehicle, tend to do more miles than domestic family cars, so their potential contribution to climate change is higher.
Secondly, members of ChargeUK, the charge point operator industry body, are concerned about the impact of the change in government rhetoric on investment in the charge point sector. Of course, there are also serious constraints on grid capacity in some areas, which is affecting the rollout of charge points. I want to raise with the Minister the disparity between one set of areas and another in the number of charge points per electric vehicle owned. There are some places in Britain where there is one charge point for every three EVs, whereas other areas in Essex, Hertfordshire and Lincolnshire—not every area in those counties but some local authorities—have over 50 electric vehicles per public charge point. That is not practical in the long term. Rural areas are a particular problem; that will not surprise anyone.
There are some understandable reasons why some types of vehicle are exempt from the schemes the Government are introducing, and I understand in respect of small-volume manufacturers. I also understand why wheelchair-accessible vehicles are exempt, but I will just press the Minister on this issue. This is the kind of exemption that could become a loophole. Do the Government have a good, tight definition of what they mean by wheelchair-accessible vehicles?
I am glad to see the Government working with the devolved Administrations on this policy in Scotland and Wales, but of course, as the noble Lord pointed out, Northern Ireland cannot have these regulations applying to it and has a separate scheme. What liaison has there been between the Republic of Ireland Government and the UK Government on the way in which the Northern Ireland scheme will operate?
I shall explain my reasoning. I am concerned in case the scheme that will operate in Northern Ireland would put retailers, sellers and manufacturers of cars in that place at a disadvantage with those selling in the Republic, and I am very concerned that British manufacturers and British auto traders are given the best possible opportunity.
Predicted sales of electric vehicles were recently revised downwards as a result of the Government’s change of policy. What is the Government’s official estimate of the impact on sales of EVs of the change of date?
The Government have retained plans, albeit delayed, but their ambitions are being impeded almost on a daily basis by media coverage, some of it wildly inaccurate, about electric vehicles. How are the Government planning to combat this misinformation, which is having a bad effect on automotive industry sales and is of concern to those manufacturers?
There has been a trend over many years towards heavier and larger vehicles on our roads. Electric vehicles do not do anything to reduce this issue. Heavier vehicles have an impact on road surfaces and congestion. What plans do the Government have to incentivise and encourage people to buy smaller and lighter vehicles? It has a real impact on the cost to local authorities, for example, of road repairs. They could, for example, use this scheme to award additional credits under the ZEV mandate to sales of lighter vehicles. Can the Minister tell us what the Government plan to do about heavier vans and HGVs?
Finally, this is all connected with the period up to 2030. Up to 2030, the regulations include CO2 from vehicles that are not zero-emission. Will the Minister explain what happens after 2030?
I realise there are a lot of questions there. I am sure the Minister will not be able to answer all of them here, but I would be grateful if he could in due course write to me about those issues that he is not able to answer now.
My Lords, the global shift towards zero-emission vehicles presents opportunities and challenges here in the UK. The automotive industry will be at the forefront of each of them, and it will need the support and engagement of the Government to address the challenges and maximise the opportunities. I am therefore pleased that Ministers are turning their attention to new incentive schemes to encourage the production and sale of new ZEVs, and we will not oppose this instrument.
The commitment to ending new sales of ZEVs by 2035 is fast approaching and schemes such as this will play a vital part. Nevertheless, I hope the Minister can provide clarity on a couple of points. First, given that the UK is no longer part of the EU new car and van emissions regulatory framework, how does this compare with similar systems internationally? Secondly, will the Minister explain how many special-purpose vehicles will be exempt?
In the consultation section of the Explanatory Memorandum there is a reference to the Climate Change Committee’s contribution. I am a great fan of that committee and, although this is not personal, the quality of the Government’s decision-making over the recent past leaves me with some discomfort in taking their statements for granted. The Climate Change Committee, under the leadership of the noble Lord, Lord Deben, has established an excellent reputation for carefully thought-out positions, and I therefore wonder why the letter referred to in paragraph 10.2 has not been responded to. There is every possibility, given the volume of paperwork on this, that it has been and I have missed it. Has it been responded to? If not, why not? If it was, why is that not in the EM?
The letter is important. As a generality it is quite supportive, but it makes two important points. Since it is better than my speech, I will read from it. The first point is this:
“The mandate will provide clarity for manufacturers, businesses and motorists on the direction of the UK market and the rate of change required. To build on this and demonstrate consistency to the market, we recommend that your department”— that is, the Department for Transport—
“also sets targets for the period from 2030-2035, making sure these are ambitious enough to minimise the impact of continuing petrol and diesel vehicle sales on UK emissions”.
A theme that has come from the industry over the last decade is that it wants consistency, as far into the future as possible. The committee makes the good point that the period needs to be stuck on to the end of this instrument somehow so that the industry can plan right through that period.
The committee’s second point is this:
“Another critical element of the proposed legislation are the efficiency standards for new petrol, diesel and hybrid vehicles which will continue to be sold until 2035. Typical new cars remain on the road for around 14 years. Therefore, ICE and hybrid vehicles that continue to be sold alongside the mandate will continue producing emissions for a considerable period. We are concerned that the regulations proposed for this portion of the market, which would require that the average emissions of each manufacturer’s new non-zero-emission car and van sales remain constant at 2021 levels each year, are insufficiently ambitious to deliver the emissions savings required to meet the UK’s Nationally Determined Contribution to the UNFCCC”—
I looked that up, and it is the United Nations Framework Convention on Climate Change—
“and the Sixth Carbon Budget. Our calculations”— and I have faith in the committee’s calculations—
“show that this policy of maintaining flat emissions intensities will reduce emissions savings by around 3 MtCO
I hope the Government will reconsider this element, because I find both arguments convincing and significant.
Lord Davies of Gower:
My Lords, I thank all noble Lords for their consideration of this draft Order in Council. I will now respond to the specific points raised where I can, but I assure noble Lords that, where I miss any points raised, I will endeavour to ensure they are answered in writing.
The order creates four trading schemes: the car registration trading scheme, known as CRTS, the car carbon dioxide emissions trading scheme, knowns as CCTS, and equivalents for vans known as VRTS and VCTS. The car schemes, CRTS and CCTS, may interact with one another but not with the van schemes. The van schemes, VRTS and VCTS, may interact with one another but not with the car schemes. The CRTS and VRTS schemes apply the ZEV targets and the CCTS and VCTS schemes apply the carbon dioxide targets. This structure enables manufacturers to pursue multiple routes to compliance with their ZEV and carbon dioxide emissions targets.
Compliance in the trading schemes is tracked using units called allowances and credits. Each of the four trading schemes has its own allowance, and the two trading schemes that enforce the ZEV targets have their own credit. One credit is worth one allowance in the respective trading scheme.
Each year, the administrator of the trading schemes will allocate manufacturers enough allowances in each trading scheme, based on their in-year sales so that, if they meet their targets, they will require no allowances in addition and will be able to sell the excess to other manufacturers, bank it for future use or convert it for use in another scheme. Manufacturers who sell zero-emission special-purpose and wheelchair-accessible vehicles will receive bonus credits in the relevant scheme, as will manufacturers who sell zero-emission vehicles to car clubs.
The instrument provides a range of tools that facilitate different zero-emission vehicle transition strategies. Manufacturers who overcomply with their ZEV targets may bank that overcompliance for use in later years, convert it into compliance for the carbon dioxide targets at an exchange rate or sell it to other manufacturers. Manufacturers whose sales alone are not enough to meet the ZEV targets may borrow from their own future compliance at an interest rate of 3.5%, convert compliance from the carbon dioxide targets at an exchange rate or buy from other manufacturers.
Borrowing and conversion from carbon dioxide targets to ZEV targets are only allowed for the first three years of the schemes, expiring in 2026, and are capped proportionally to a manufacturer’s total car registrations or van registrations. This approach allows manufacturers to choose a path that makes sense for their business without increasing overall carbon dioxide emissions.
Vehicle manufacturers may trade freely among themselves. The only requirements are a short notification to the administrator of the trading schemes and enough units of compliance to fulfil the transaction. The price of trading units of compliance is determined by the market; however, there is effectively a cap on the maximum price per unit due to the final compliance payments to government required if a manufacturer does not meet their target. These are set at £15,000 per car in all years, £9,000 per van in 2024 and £18,000 per van from 2025, and, for the carbon dioxide emissions schemes, £86 per gram of carbon dioxide over the target multiplied by the number of non-zero emission vehicles sold.
The Secretary of State for Transport is responsible for the administration of the schemes for the UK. A specialist team in the Department for Transport is working with devolved Administrations and vehicle manufacturers to prepare for scheme commencement, with the vast majority of administrative obligations on manufacturers not falling before summer 2025. Draft guidance has been circulated to vehicle manufacturers as part of a collaborative process to ensure that they have the documentation they need to support this change. Officials are in regular contact with vehicle manufacturers and will continue to engage closely throughout implementation and operation.
On the point raised by my noble friend Lord Lilley on the environmental impact of zero-emission vehicle manufacturers, a battery electric vehicle, the most common type of zero-emission vehicle, produces only a third of the lifecycle emissions of an equivalent petrol car. They can make the best use of the UK’s renewable energy, which already represents around 40% of UK electricity generation and is set to rise to 100% by 2035.
If, after having the opportunity to make use of banking, borrowing, conversions, derogations, pooling and trading, a manufacturer has not met its target it will be required to make a payment. This is set at £15,000 per car for all years, as I said, and £9,000 per van in 2024, rising to £18,000 from 2025 onwards. The payment for missing the carbon dioxide target will be £86 multiplied by the number of non-zero-emission vehicles registered. These amounts are comparable to comparator schemes in the EU, California and Canada. The payment levels reflect the difference in emissions between a new zero-emission and new non-zero-emission vehicle and will serve as an effective incentive to meet targets.
Further to my answer to my noble friend Lord Lilley on the renewable energy mix and the grid, since 2010 renewables have gone from less than 7% of our electricity supply to 48% in the first quarter of this year. The UK will phase out coal from power generation in 2024 and is accelerating the growth of renewables, such as wind and solar, to meet our net-zero target and decarbonise our electricity system by 2035. We have seen £198 billion of investment into low-carbon energy since 2010 and our global leadership is set to attract another £100 billion by 2030. The very technical points that my noble friend raised perhaps deserve a more technical response than I can provide at the Dispatch Box this evening. On that basis, I will make sure that he gets a fulsome response in writing to his points.
The order contains robust provisions that will enable the Secretary of State for Transport to take action where necessary. There are four enforcement powers: to require information, to question an officer of a company and, as a last resort, to obtain a warrant and enter premises, where the final power—to seize documents—may be used. These powers would be used as a last resort only where all other forms of formal and informal engagement with the manufacturer concerned had been unsuccessful in resolving concerns.
As a result of the trajectory and flexibilities on offer, manufacturers will be able to comply with the requirements of the legislation in 2024 without selling any more ZEVs than they had planned to. Manufacturer commitments to transition to ZEVs by 2030 already amount to more than 67% of the UK car market, with manufacturers such as Ford, Stellantis and Nissan all committed to selling 100% zero-emission new cars and vans by 2030, and all major manufacturers committed to being fully ZEV by 2035. On the point raised by the noble Baroness, Lady Young of Old Scone, when the 2030 end-of-sale date was announced in December 2020, there appeared to be a clear difference in the carbon dioxide emissions performance between some hybrid and plug-in hybrid technologies and normal petrol and diesel cars.
On the point raised by the noble Baroness, Lady Randerson, on wheelchair-accessible vehicles, the Government recognise how important these vehicles are to their users as a vital lifeline that provides freedom and dignity. That is why the order exempts new non-zero-emission wheelchair-accessible vehicles from the requirements. This means that users who continue to need petrol, diesel or hybrid models can continue to access them. The order also applies a bonus credit for any zero-emission wheelchair-accessible vehicles that are registered, recognising the additional manufacturing and value that such a vehicle represents.
The noble Baroness, Lady Randerson, also asked about Northern Ireland regulations. The regulations that apply to Northern Ireland are a scaled-down version of the existing regulations that currently apply UK-wide and will end in Great Britain with the commencement of this order. In broad terms, manufacturers are set individual targets for their average emissions across all the cars or vans that they sell.
I think it was my noble friend Lord Lilley and the noble Baroness, Lady Randerson, who talked about charge-point disparity. On deploying those charge points and geographical disparity, the Government and industry have already supported the installation of over 49,200 publicly available charging devices. The number of local public charge points needed will vary by area and over time, depending on the types of charge point installed, travel patterns and consumer preferences. Setting binding targets at this stage would risk stifling innovative approaches and could lead to the installation of charge points in the wrong place at the wrong time. The Government’s local electric vehicle fund provides over £381 million of funding to all local authorities in England to ensure good coverage of charge points. The funding was allocated to local authorities using a number of set variables, including charge points by population and the level of rurality. The inclusion of the rurality variable means that local authorities in rural areas were allocated additional funding, compared to urban areas.
The noble Baroness, Lady Randerson, mentioned the impact on sales. We consulted on whether we should incentivise certain specifications of vehicles, and responses were overwhelmingly in favour of a simple one vehicle, one credit allowance scheme. Otherwise, we shall keep this under review. In response to the noble Lord, Lord Tunnicliffe, and the Climate Change Committee, the letter was responded to by Minister Norman during his time at the Department for Transport. We can commit to sending the letter to the noble Lord.
As I have outlined, this legislation sets out a clear pathway for the decarbonisation of new cars and vans. It will allow industry and households to plan confidently for the future. The order will establish the strongest targets of their kind in any country globally and will be a crucial catalyst for new investment, new jobs and new technology, which will drive the transition of our economy to net zero.
I hope I have answered some of the questions. I will certainly go through Hansard and see what is outstanding and write to noble Lords. I commend the order to the House.