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HM Treasury Call for Evidence - Red Diesel

  1. Freight on Rail is pleased to respond to the call for evidence on red diesel.
     
  2. Freight on Rail, a partnership of the rail freight industry, the transport trade unions and Campaign for Better Transport, works to promote the economic, social and environmental benefits of rail freight to local, devolved and central Government.
     
  3. The case for rail freight being eligible for red diesel at the current or zero taxation
    Rail freight, has a key role in reducing freight’s adverse impacts on the economy and society, in terms of reducing road congestion, road infrastructure damage, road collisions, air pollution and CO2 emissions, recognised by the Government. For example, The DfT Rail Freight Strategy September 2016, spells out these socio-economic advantages:-
    135 - At the same time, we recognise the positive benefits of rail freight for the UK – including its environmental and air quality benefits relative to road freight and its impact on reducing road congestion. These benefits are not currently recognised in the track access charging regime.
     
    Air pollution
    Rail freight is part of the solution to reduce air pollution. Currently, 40,000 people die prematurely in the UK from diesel fumes wide-spread air quality violations, especially in cities like London, Sheffield, Nottingham and Manchester which are already exceeding their NOX emissions limits.
    Rail produces 90 per cent less PM10 particulates and up to 15 times less nitrogen dioxide emissions than HGVs for the equivalent journey. Highways England figures show that HGVs are producing around 50% of the nitrogen oxide pollution from road pollution on the strategic road network even though they only make up 5 per cent of road miles driven in the UK.

    HGVs account for around 21% of road transport NOx emissions while making up just 5% of vehicle miles – DfT Freight Carbon Review February 2017

    Climate change


    Freight is a big CO2 emitter

     
    • As rail freight produces 76% less CO2 emissions than the equivalent HGV journey, increasing rail freight is an important part of the DfT’s policy to reduce freight’s emissions and help the UK meet its legally binding Climate Change targets. Source DfT Rail Freight Strategy September 2016
       
    • HGVs contribute 17 per cent of surface access CO2 emissions, despite making up only 5 per cent of road vehicles whereas both passenger and freight rail together are less than 2 per cent. Source DfT Rail Freight Strategy September 2016
       
  4. Value of rail freight to UK PLC

    In 2015, rail freight was worth £1.6 billion to the UK economy each year in productivity gains. Each year over £30 billion worth of goods from groceries to high-end goods such as whiskies and luxury cars for export, are moved by rail 1. These figures exclude the benefits to British businesses of an efficient logistics chain or the wider benefits of supporting economic growth (particularly outside of London and the South-east).

    Congestion benefits
     
    • Road congestion is claimed to cost businesses £17 billion per annum.
      FTA 2015

       
    • An average freight train can remove 70 HGVs journeys from our roads
      - Value of Freight July 2013 Network Rail
       
    • The largest freight trains in the UK can remove up to 160 HGV journeys from our roads
       -  Value of Freight July 2013 Network Rail
       
    • One train can carry enough materials to build 30 houses
      Mineral Products Association November 2016
       
    • DfT estimates the cost of congestion being £0.99 per lorry miles on the most congested roads.
       
    • Government figures show that nationally almost 29 per cent of lorries are driving around
      completely empty and overall HGVs are around 50% loaded – Source DfT empty running figures & Centre for Sustainable Road Freight (CSRF) report December 2014
       
    • Road infrastructure costs of HGVs
      The standard industry workhorse, the 16.5 metre 44 tonne truck, is up to 138,000 times more damaging to road surfaces than a Ford Focus, based on the 4th power law. Therefore some of the heaviest road repair costs are therefore almost exclusively attributable to the heaviest vehicles
       
  5. Rail freight has to compete with HGVs despite the market distortion
    Rail freight has to compete with HGVs on price despite the fact that HGVs only internalise around 30% of the costs they impose on society. Heavy goods vehicles (HGVs) receive a £6.5bn subsidy each year in terms of the congestion and road infrastructure damage, increased road crashes, air and CO2 emissions they impose on taxpayers. HGVs are five times more likely than cars to be involved in fatal accidents on local roads and pay almost nothing for their contributions to air pollution.

    It is therefore crucial that the government recognises HGV costs in its discussions about rail freight costs because rail freight has to compete directly with road.

    http://www.bettertransport.org.uk/media/25-february-2015-dangerous-dirty-and-damaging-new-research-reveals-impact-hgvs
     
    These conclusions are in line with two other separate reports.  MDS Transmodal study in 2007 found a very similar amount of underpayment: £6billion. Transport & Environment research issued in April 2016 found that HGVs were only paying 30% of their external costs.
     
    We believe that the scale of subsidy to road makes a compelling case for supporting sustainable freight modes, which impose much lower costs on society and the economy, equivalently. Red diesel is a mechanism which compensates rail freight.
     
  6. Rail freight pays less fuel tax but it pays freight access charges for every tonne-km moved which road freight does not incur. Therefore it is not gaining an advantage through red diesel use.
     
  7. Rail freight sector pays track access charges to Network Rail which are reviewed every five years so it is currently facing considerable uncertainty on what charges will be payable from 2019 as the ORR is currently reviewing charges.
     
    Fuel duty for HGVs has been frozen since 2011 whereas access charges have increased by more than 20% RPI over the sample period.
     
    It should be noted that this chart excludes the change in track access charges as a result of the Periodic Review 2013, which was implemented from April 2014. By the end of Control Period 5 the resulting overall increase in track access charges paid will be a further 15%.

     
    Chart 4: RPI on track access charges versus change in fuel duty

    Chart 4: RPI on track access charges versus change in fuel duty

    Source: Office for National Statistics and Network Rail

     
  8. Electrification
    We would like to see further electrification of the rail network which would help the Government meet its sustainability targets and in particular reduce air pollution. It would encourage more use of electric traction by the rail freight industry as long as there are diversionary routes. Locomotives have a long longer life cycle of around 30 years whereas  HGVs are around 5 years so the industry has to make long-term investment decision based on Government policy at the time.
     
  9. Rail freight efficiency
    Operators have replaced older locomotives with class 70s and 68s. DRS has invested in a fleet of 10 class 88 dual electric and diesel locomotives which can go anywhere on the rail network.
    Retrofitting of start-stop technology has been adopted on class 66 locomotives to reduce fuel usage.
     
  10. End tax loophole on refrigerated lorry units.

    Campaign for Better Transport urges the Government to end a “tax loophole” which allows refrigerated lorries to use cheaper ‘red diesel’, other fleet operators use it to run unregulated secondary engines which power their refrigeration units.
    Continuing to charge less for the fuel for these units will undermine efforts to clean up cities’ air quality by removing any incentive to move to cleaner fuel types. By hardly taxing diesel used for refrigeration units the Government is providing a perverse incentive for supermarkets and other companies to carry on using diesel, when instead they should be adopting alternative cleaner technologies. The current tax arrangements actually encourage the use of diesel refrigeration engines continuing to exist on supermarket lorries. Transport refrigeration units emit up to 93 times more NOx and 165 times more PM than the standards Euro 6 diesel car.

Conclusion
 

We believe that there is a strong case for eliminating tax on red diesel used by the rail industry on economic, safety and environmental grounds. A zero rate red diesel would support an increase in rail freight and this would bring increased overall net benefits to the UK, in terms of reducing CO2, NO2 and particulate emissions and reduce road congestion, road infrastructure damage and road collisions.

Any increase in the red diesel taxation for rail freight should result in trainloads of freight returning to the congested road network.
 

1. https://www.raildeliverygroup.com/files/Publications/2015-02_freight_britain.pdf

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