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Vehicles emissions as a global warming concern

This paper outlines the main problems associated with vehicles emissions as a global warming concern. What has the UK government done to reduce the amount of vehicles on the road and how do their policies hold opposing views?

Identification of the problem

Since 1960s, the number of vehicles has grown significantly; requiring effective policies to control the amount they emit. Vehicle usage contributes to global warming on an environmental, global and economical scale. Greenhouse gases causes disruptions to weather conditions by increasing temperatures leading to melting of polar icecaps, rising sea levels, extinction and displacement of approximately 200million people. Global output is affected by 3% leading to a 20% fall in consumption and 1% total GDP. If action is not taken then “global GDP will fall below 5%pa, however by reducing greenhouse gas emission the cost could just be 1% GDP pa.

Due to these setbacks, the Stern article stated the worst impacts of climate change can be substantially reduced if greenhouse gas levels can be stabilised between 450 and 550ppm [4] CO₂ equivalent. However although current levels are below the figure stated at 430ppm CO₂e, there is an annual increase of 2ppm. If nations are to meet the required stabilisation levels, emissions need to be reduced by 80% below the current level. There are many ways in which nations could achieve this, the stern review stated three: (1) pricing carbon (2) innovation and deployment of low carbon technologies (3) remove barriers to energy efficiencies.

With increasing population rates vehicle usage is growing, posing great difficulties in tackling the climate change today. Recently estimates show the transport sector will increase total greenhouse gas emission [5] by 23% before 2020. Environmentalists are pressuring governments to reduce emissions to a “socially acceptable” level by enforcing polices that deter this type of activity or rather reduce the level.

Statistical analysis

The most common form of greenhouse gas is carbon dioxide. This is produced by burning fossil fuels in order to power cars. Vehicles produce 2 types of pollution (1) primary pollution; directly releasing gases into atmosphere (2) secondary pollution; pollutants causing chemical reactions. These chemicals can remain in the atmosphere for more than 100years essentially causing problems to the earth’s cycle. Transportation is the third largest sector to produce emissions at 14% [6] . That is on average 19.2% of carbon dioxide. These problems are human related and is important for governments to study and manage the amount emitted to prevent irreversible damages in the future.

The UK has contributed greatly to the effects of greenhouse gases since the 1990s by emitting 2% of carbon dioxide worldwide calculated to be between 22 to 25 million tons equivalent per year. The government needed to take action after the IPCC [7] had gathered evidence suggesting the dangers on climate change.

UK’s transport sector is one of the largest polluting sources. According to an article [8] , 27m out of 33m vehicles are cars accounting to 22% of total global car emissions (CO₂). In 2002 vehicles emitted 86m tons due to an increase in world population of 6billion [9] , where 62m tons were produced from household vehicles.

Figure 1: Environmental Accounts

Figure 1 provides evidence of increasing vehicle use as emissions increased from 111.2 million tons to 125.3 million tons, a rise of 4% of total UK emissions.

The growing consumption of energy had caused the rise in temperatures pa to increase from 0.3oC (1990) to 0.6oC (present). According to IPCC the change was due to “a discernible human influence” [10] . In 1997, UK joined the Kyoto protocol, an environmental treaty, to reduce greenhouse gas emissions to a sustainable level. The criterion was to cut emissions to 5.2% below their 1990 level between 2008 & 2012. However UK had to reduce their emissions by 12.5%. In 2005 emissions raised to 84% making climate change a major concern, prompting a further commitment of 20% reduction by 2010. They implemented a number of strict policies in order to reach their target which will be discussed later.

Figure 2: Calculating emissions during 1900s – 2004

Figure 2 shows UK is emitting CO₂ at a sustainable level and is lower than the US and not much higher than developing countries. This indicates that UK must be implementing effective legislations. However the question arises, how are the different policies are changing transport sector and consumer behaviour?

Policy measures in UK

Fuel taxation and duty

Conservative party introduced the fuel taxation and duty in 1990 otherwise known as the “fuel price escalator”. This was a tax on fuel to reduce emissions as well generating revenues. Previously, fuel prices were the cheapest in Europe; however the escalator forced prices to rise significantly since 1993. This was unfavourable amongst the public and in 2000 the escalator was scraped by Gordon Brown who decided that future increases would be on the basis of “budgetary process”.

Figure 3: petrol prices during 1990 – 2005Figure 3 [11] shows that in 2000 prices reached its peak where diesel cost 84.6p/litre and unleaded 84.7p/litre. The abandonment of the escalator did see prices decline. But not for long as prices rose again to 86.4p/litre for diesel and 84.2p/litre for unleaded in 2004. This angered the public who blocked refineries in September 2000 demanding the government to slash fuel duty. The UK government argued that increases were due to the rising cost of oil and not taxation.

The economic and environmental argument of imposing this policy is to generate revenues and alter people’s behaviours (negative externalities). Firstly, fuel taxation raised around £25bn during 2006-07 which constituted greatly to the total revenue. These figures are higher since fuel is taxed twice as VAT is added on top of the duty at 17.5%, recently increased to 20%.

Secondly, the government want to alter people’s behaviour as vehicle usage causes social costs which exceed private costs. For example the driver does not bear the environmental costs i.e. pollution, road damage and congestion. Therefore, the cost to society is higher than costs to the motorist i.e. maintenance. Thereby, enforcing a duty makes the individual pay for these damages.

Figure 4: Graph showing social costs and private costsFigure 4 illustrates benefits decreasing for every mile driven as the cost of driving per mile increases thus it slopes downwards (Q1-Q2). Private costs are costs to the driver for each mile driven and are lower due to wear and tear on the vehicle whereas the social cost is higher due to the points mentioned earlier. The gap between the two represents the “externalities”. The price would increase to p2 to pay the difference thus governments are “internalising” the externalities. This deters motorists travelling more miles thereby reducing CO₂ levels.

In reality it’s difficult to measure the difference between private and social cost which makes it difficult for the government to impose an “optimal” tax as they do not have full knowledge of all private and social costs.

Congestion pricing

Congestion pricing was introduced in February 2003, aiming to reduce congestion in busy city centres during peak hours. The economic costs of congestion are increased pollution, rise in fuel prices and loss of time. Thus motorists were charged £5 per day to drive in central London; recently risen to £8 per day and has extended to west London. The policy has worked to some extent with 18% reduction in traffic, 30% reduction in congestion and an increase of 29,000 bus passengers. However the predicted revenue generated from this scheme is well below projection which has meant there is less revenue to improve public transport. There are two main benefits from congestion pricing. The first is congestion charge enhances road safety by reducing accidents and the second is reduced emissions of pollutants and greenhouse gases. These ultimately reduce fuel consumption. Clustered (urban areas) emissions causes more damage to the environment than dispersed (rural areas) emissions. The establishment of congestion charge reduced traffic which ultimately caused less damage to the environment.

Vehicle excise duty (VED)

VED is a yearly environmentally related tax imposed on individuals that own a vehicle. It brought revenues of £4.2m in 2001. Drivers are given a “tax disc” which must be displayed clearly on the vehicle, failure to do so leads to a £1000 fine. The tax paid varies according to the size of the vehicle and engine. During the 1900s, the duty was charged at a flat rate of £10 a year. This system continued until 1st March 2001, whereby a new system was in placed called the “emission based banding”. This means that the tax depends on the amount CO₂ produced and the type of vehicle i.e. the more CO₂ produced the higher the tax rate. The idea was to make owners aware of the environmental impact & encouraging consumers to invest in small efficient cars.

Critics of this policy argue that it is following the same goal as fuel duties, where increasing fuel duties will lead to a greater reduction in vehicle use than VED. This is because VED does not deter motorists from driving but rather substituting away from inefficient cars to more efficient vehicles. However supporters argue that it does reflect costs which fuel duties do not for example road damage etc, since the government can inject the revenue raised back into road and transport systems. It is also effective since motorists need to make sure their MOT and Insurance is done before receiving the tax disc and thereby ensuring vehicle safety.

Biodiesel

Biodiesels are currently the number one option in replacing fossil fuels as the world’s main transport fuel. They are environmentally friendly alternatives to traditional petroleum – based fuels. It’s made from renewable resources such as animal fats or vegetable oils and every tone of “eco-friendly” biodiesel burnt releases three tons less carbon dioxide into the atmosphere. Estimates from 1999 stated that recoverable oil reserves are between 1-1.6bn barrels, however fossil oil is being used up at over 70m barrels a day, rising fast and there are an estimated 475m fossil fuelled vehicles today and raising at about 2%pa [12] , so the need for an alternative source is immense. Therefore UK government is following up the production and consumption of transport biofuels. In 5 years time the UK plan to produce and supply bio ethanol and biodiesel which are used for transport. RTFO [13] was introduced in 2008 as a support mechanism to encourage companies to invest since the government recognises that this type of fuel is not competitive in the market. The limitations lies in the production process since there are not enough land to grow vegetables. Moreover with increase in demand for vehicles means increase in demand for this type of fuel, so does this mean UK have to give up some land that would be otherwise used for food to produce vegetable oil?

Carrot and stick approach

It is easier to use point of production over point of user control, as there are far less manufacturers than users. The UK set big targets to reduce emissions and went further than warranted by the Kyoto protocol; they committed to reduce CO₂ emissions by 60% 2050 [14] . To meet the target the government in 2006 announced the reform of VED and used the carrot and stick approach by reducing the rate to zero for cars with the lowest carbon emissions. They introduced a new top band for the highest polluting cars (feebates). Also they introduced a RTFO on fuel suppliers to ensure 5% of fuel sold by 2010 is from biodiesel. This was a target that the government pledged to consult on increasing in the energy review. However the major problem of targeting the manufactures is that policies will only affect new vehicles and since they replace old vehicles very slowly the results of reducing emissions would be slow. Therefore it’s more viable for the government to target users as reductions in emissions would be more imminent and effective.

Road pricing

Governments considered road pricing as oppose to congestion charge since resources will be allocated efficiently by lowering the welfare loss. It implies that those who travel less during congested times in less congested areas (rural areas) would benefit from lower motoring costs overall and vice versa. This would be a fairer way to charge motorist as it would mean motorists are paying more towards the damage caused for the extra mile travelled.

Previously the implementation for such a policy was inadequate. However with advanced technologies car users can be charged electronically through a GPS box fitted in every car recording the amount of miles travelled. The information is then sent to the official road pricing computer which calculates the miles driven in a month and produces a monthly bill.

Economic theory assumes that road pricing only covers the costs imposed on society for every trip taken. This is where marginal social costs (MSC) equal marginal social benefits (MSB). The MSC in terms of vehicle use is (1) damaged roads (2) Accident externalities; increase in vehicle usage increases the probability of accidents [15] , (3) Environmental costs and (4) Congestion costs; increase in journey time.

Flowing traffic (Q) illustrates that the cost of additional traffic (MSC) is equal to demand on extra vehicles (MPC). But the user will only take into account their private costs at A and as a result will drive at point (Q), thus they will not take into account the optimal marginal social cost for the new driver. The most optimal solution would be at point B/Q1 by imposing a road price. If drivers were not charged then they will travel for longer at P. ABC represents the welfare loss since social gain is lower due to excessive traffic congestion.

Figure 5: Graph showing marginal social costs against marginal private costs

In 2005 UK considered imposing a “pay as you go” system where motorists would have been charged £1.34 per mile. This policy received blunt opposition from the public and demanded that the government should “concentrate on improving our roads to reduce congestion” [16] . The implementation of tolls is expensive and new technologies still have to be improved for this to be effective.

Conclusion

After engaging numerous policies in an attempt to cut greenhouses gas emission, has the UK succeeded in reaching its 12.5% Kyoto protocol target? The Department of Energy and Climate Change announced that UK surpassed its target and were 19.4% below their 1990 levels, however failed to meet the 20% goal in 2010. The reason for the failure is because the government are not quick enough to implement drastic measures that would alter the behaviour of vehicle usage. The policies at the moment will only see slow progress in change. The issue with drastic policies runs the risks of not getting re-elected as seen in the 1990s where the Conservative party became unfavourable amongst the public for the introduction of the escalator. Moreover it is difficult for the government to change the culture of driving through its fiscal policies. It is evident that motorists will not stop driving since taxes and road pricing only reduced vehicles a small %. Therefore governments need to make efficient alternatives if they want to further reduce emissions. For example bring trains under public ownership to bring prices down coupled with better service. Invest money into UK transport services with particular focus locally i.e. walking, cycling and bus travel and development of cleaner vehicles such as hybrids and hydrogen fuelled cars. All these recommendations joined with road pricing will see UK enter a new era of energy efficient economy, one that “demonstrates year-on-year reductions that set an example in the world community." [17] 

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