Future of Fuel Taxation

Background and Challenge

Zemo Partnership’s recent study on Market opportunities to decarbonise HDVs using high blend renewable fuels identified a range of interventions to increase the adoption of renewable fuels in commercial vehicle fleets. One of the measures proposed was a reform of fuel duty to reflect the carbon intensity of road transport fuels.

Zemo Partnership will review scenarios for reforming fuel duty as a ‘carbon tax’ and examine the strengths and weakness of such an intervention with industry stakeholders. As part of the study, the loss of fuel duty revenue from 2020 to 2050 due to the electrification of UK vehicle parc, will be explored. The work will examine potential revenue streams resulting from a carbon-based fuel duty policy on the remaining volume of road transport fuel. This will take into consideration different scenarios for high blend renewable fuel uptake in LDVs and HDVs, along with associated cumulative GHG emission savings.

The aim of the study is to provide a useful ‘think piece’ on the future of fuel taxation for government.

Objectives

  • To identify what a graduated ‘carbon based’ fuel duty reform could look like, taking into account the GHG emission performance of the fossil and renewable fuels.
  • To propose a pricing mechanism for aligning fossil and renewable GHG emission performance and fuel duty.
  • To demonstrate what income this could bring to Treasury by 2030, 2040 and 2050.
  • To ascertain revenue loss in fuel duty due to electrification (BEV/HFC) of LDVs and HDVs between 2020 and 2050.
  • To outline the strengths and weaknesses of reforming fuel duty with industry stakeholders, in particular focusing on the mechanics of implementation. 

Actions and Outputs

  • Develop a simple, adaptable Excel model to run ‘what-if’ scenarios in order to generate indicative projections of demand for combustion fuels, duty revenues and cumulative GHG emissions savings based on different high blend renewable fuel pathways.
  • Engagement with the Fuels Working Group through two stakeholder workshops.
  • Briefing paper with high level findings and recommendations.

Timeline

July - November 2021 (Pending sponsorship)

Zemo Partnership Lead:
Gloria Esposito

Head of Sustainability

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