At Budget 2020, the Government announced that it will remove the entitlement to use red diesel from April 2022, except in agriculture (as well as forestry, horticulture and pisciculture), rail and for non-commercial heating (including domestic heating). The precise definition of what constitutes a rail vehicle will be included in the legislation covering the tax changes. However, the Government’s intention is ‘that this will include diesel and diesel/electric hybrid locomotives and multiple units, as well as diesel shunters and specialist rail-mounted equipment, such as rail layers and ballast tampers’.
The Government is now consulting on whether it has overlooked any exceptional reasons why other sectors should be allowed to continue to use red diesel beyond April 2022. It also seeks views on the proposals for implementing the changes announced at Budget, and is also seeking further information about the current end uses of other rebated fuels, such as non-aviation kerosene and fuel oil.
The consultation notes that the Government has previously received feedback from developers of alternative fuels and technologies that they view the low cost of running a diesel engine with red diesel as a barrier to entry for greener alternatives, whether these are powered by electricity, hybrid technologies or liquefied petroleum gas. However, it goes on to state that ‘in the rail sector, the removal of the red diesel entitlement for passenger or freight journeys risks creating perverse environmental outcomes, namely transferring rail freight or passengers to more polluting lorries, coaches and cars if costs rise’.
To support the development of alternative energy sources the Government committed at Budget 2020 to at least doubling the size of the £500 million Energy Innovation Programme, accelerating the design and production of innovative clean energy technologies. The Government has previously been informed by users of red diesel that the cost of alternative cleaner technologies is a barrier to switching to non-diesel-powered vehicles and machinery, so this investment is intended to help bring cheaper alternatives to market sooner.
The Government is planning to review the entitlement for red diesel to be used in rail vehicles once alternatives become available that would avoid freight or passenger travel moving to more polluting road transport if costs were to rise.
Although we are pleased that rail vehicles are, for the present, exempt from the increase we are aware that other equipment used in rail freight may not be. For example, some handling equipment such as cranes, reach stackers and grabs may also use red diesel, and the change in taxation could therefore increase the cost of rail freight compared to road.
We are also aware that, for some types of equipment, alternatively fuelled products are not yet available on the market, and that there could be other challenges in switching within the time frame set out by Government. The impact of COVID19 on businesses ability to invest may also be important.
The RFG will be submitting a response and would appreciate any members sharing details of the impact the proposed changes are likely to have on their organisation.
We would particularly like to understand
- What types of equipment will be affected by this increase and what is the approximate scale of financial impact that you expect?
- Which impacts are captive to rail freight and therefore make modal shift to road more likely, and which affect all modes, but will increase the costs to customers / doing business?
- What alternative options there are to diesel for the affected equipment? Are they available now on the market? What barriers are there to deployment?
- Is the proposed investment in research sufficient, and what other barriers are there in bringing the necessary technology to the market?
- Do you expect alternatively fuelled technology to deliver a cost saving to your business compared to today and /or if red diesel relief is introduced?
- Isthe proposed definition of rail vehicle is wide enough and what might be excluded.
The consultation closes at 11:45pm on 1 October 2020, we would welcome members input and comments as far in advance as possible to help formulate our response but by 23rd Septmeber at the latest. Please contact email@example.com.