UK tax climb-down "threatens climate targets"

Abolition of road fuel price escalator predicted to increase petrol, diesel, demand 11% by 2010

The UK government's decision to scrap a policy of automatic annual increases in tax duty on motor fuels has "wiped out" hopes of meeting a national carbon dioxide (CO2) reduction target and made it "unlikely" that Kyoto protocol commitments can be respected, an influential think-tank warned today.

Cambridge Econometrics forecasts that, without compensatory measures, UK carbon emissions will be 4m tonnes higher in 2010 than if the fuel price "escalator" had remained in place. Based on detailed modelling, the group predicts that fuel demand will be 11% higher than previously expected as a result of the policy change.

First introduced in 1993, the UK's fuel price escalator became a model for other EU countries as it shot the country towards the top of Europe's motor fuel retail price league. On taking power in 1997, the current Labour administration reinforced its support for the policy, increasing the annual increase in fuel prices from 5% to 6%.

By two years into the parliamentary cycle, however, transport issues had turned into a political hot potato, with lorry drivers taking direct action in protest at rising fuel prices and simmering discontent in rural areas with poor public transport alternatives to private cars. The policy was shelved in November, with future fuel tax decisions to be taken on a "budget by budget basis" (ENDS Daily 9 November 1999).

According to Cambridge Econometrics, the projected increase in fuel demand will "wipe out" any gains in carbon dioxide (CO2) emissions expected from a business energy tax and associated voluntary agreements due to be introduced in 2001 (ENDS Daily 22 December 1999).

Follow Up:
Cambridge Econometrics, tel: +44 1223 460 760.

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