Vehicle Emissions Trading Schemes Order 2023
(Limited Text - Ministerial Extracts only)
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Lord Davies of Gower
That the draft Order laid before the House on 16 October be approved.
Relevant document: 1st Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Parliamentary Under-Secretary of State, Department for Transport (Lord Davies of Gower) (Con)
My Lords, this Order in Council creates regulatory frameworks with the purpose of reducing road transport emissions from new cars and vans in Great Britain and Northern Ireland and supporting the vehicle manufacturing industry in the transition to new zero-emission technologies.
The Government’s cost-benefit analysis projects emissions reductions of 411 million tonnes of carbon dioxide out to 2050 as a result of the instrument. The trajectory they set for the transition to new zero-emission cars and vans out to 2030 is strongly supported by industry and is the most ambitious of its kind in any country in the world. It is in such ambition that there is opportunity. Already, over £6 billion has been invested in UK automotive manufacturing from the likes of Tata, BMW and Stellantis. It is a particular pleasure to congratulate Nissan’s Sunderland plant on its success in securing the fully electric Qashqai and Juke models. Beyond manufacturing, there has been a further £6 billion investment in charging infrastructure from the private sector. This demonstrates beyond all doubt that legislation will provide certainty, and that certainty will deliver investment, growth and jobs.
As noble Lords know, effective consultation is crucial. The Department for Transport, along with the Scottish Government, the Welsh Government and the Department for Infrastructure in the Northern Ireland Executive, has consulted extensively since the UK Government first committed to bringing forward a zero-emission vehicle mandate in 2021 in support of the commitment for all new cars and vans to be 100% zero emission by 2035. For such an impactful policy, a wide range of views had to be taken into account: global multinationals investing billions in net zero, specialist vehicle manufacturers at the cutting edge of new technology, charge point operators tracking demand to inform investment, and the general public who rely on these vehicles for their day-to-day needs.
Industry supports these measures because at every opportunity the Government have sought to engage constructively. This includes not just the UK-based manufacturers—Aston Martin, BMW, Bentley, Ford, Jaguar Land Rover, McLaren, Nissan, Stellantis, Toyota and more—but international manufacturers such as Hyundai, Mazda, Mercedes-Benz, Mitsubishi and Tesla. Across the economy these measures have support. The chief executive of the Society of Motor Manufacturers and Traders called this
“the single most important measure to deliver net zero”.
The chief executive of the AA has said that the measure will
“support investment in ZEVs and associated technologies and industries … and … it will help the UK’s motorists manage the transition”.
Such positivity is down to how the Government have listened to industry. The chief executive of the British Vehicle Rental and Leasing Association said that
“the breathing space afforded by the ZEV Mandate van trajectory changing, car club parameters being adjusted, and commitment to an accessible transition will be welcome”.
The chair of Ford UK welcomed that the ideas and discussions that took place as part of the consultation were so clearly reflected in the final design.
The headline measure of the legislation is the creation of a zero-emission vehicle mandate—a framework designed to guide the transition to zero emissions by setting targets for the sale of new zero-emission cars and vans that increase each year. The ZEV targets start in 2024, at 22% for new cars and 10% for new vans, rising to 80% and 70% in 2030. It is these percentage targets that will give charge point operators the information that they need to invest in charging infrastructure and give vehicle manufacturers certainty on which products and technologies to focus their research and development on for the UK market. While this instrument covers only the period to 2030, subsequent legislation will set out the pathway to achieving the Government’s commitment to 100% zero-emission new car and van sales in 2035, in line with other major global economies including France, Germany, Sweden and Canada.
Of course, emissions from the remaining new non-zero emission cars and vans must also be considered. That is why the order makes provision for a per-manufacturer carbon dioxide target, based on the manufacturer’s emissions in 2021, that will apply from 2024 until 2030 when the instrument ends. This approach, when taken in conjunction with a ZEV mandate, ensures that average emissions from new non-ZEVs do not increase when compared with 2021 and enables manufacturers to invest in zero-emission technology rather than being forced into delivering small, incremental emissions reductions.
To implement this policy, the Government are creating trading schemes using powers under the Climate Change Act 2008. The Government have taken this approach because it offers the most flexibility to automotive manufacturers—the only group regulated by this legislation—and gives them agency in their technology choices as well as absolute certainty on the milestones on what their investments must deliver for the UK market in the next decade.
The instrument provides incentives to innovation and investment where there is particular social value. Zero-emission special purpose vehicles such as ambulances, armoured vehicles and wheelchair accessible vehicles are eligible to earn bonus credits. Non-zero emission special purpose vehicles are exempt from the regulation so as not to restrict their availability while zero-emission technology develops.
Low-volume manufacturers make an outsized contribution to the automotive industry, nowhere more so than in the UK, where the likes of Bentley, Aston Martin and McLaren lead the world with their research and development. That is why the Government have implemented a small-volume derogation from the ZEV targets, meaning that a manufacturer selling fewer than 2,500 vehicles annually is not subject to the targets and in addition will receive credit for every zero-emission vehicle that they sell.
The Climate Change Act 2008 requires that each devolved legislature passes the order for the trading schemes to apply UK-wide. In the absence of a sitting Northern Ireland Assembly, the trading schemes cannot apply in Northern Ireland. At such time as a sitting Assembly is able to approve the required legislation and chooses to do so, it is the intent of the UK Government, the Scottish Government and the Welsh Government that the order be extended to apply in Northern Ireland. In the interim, Northern Ireland will be covered by an appropriately scaled extension of existing UK-wide new car and van emissions regulations, provided for in part 8 of the order.
The Vehicle Emissions Trading Schemes Order is a critical step on the path to net zero and it is taken with the support and co-operation of the vehicle manufacturing industry, which is a crucial partner in delivering a long-term, sustainable transition to zero-emission vehicles. As the automotive sector undergoes the seismic shift to zero-emission technology, this order ensures that the UK will continue to punch above its weight in the global transition to net zero. I beg to move.
Lord Davies of Gower (Con)
My Lords, I thank all noble Lords for their consideration of this draft Order in Council. I will now respond to the specific points raised where I can, but I assure noble Lords that, where I miss any points raised, I will endeavour to ensure they are answered in writing.
The order creates four trading schemes: the car registration trading scheme, known as CRTS, the car carbon dioxide emissions trading scheme, knowns as CCTS, and equivalents for vans known as VRTS and VCTS. The car schemes, CRTS and CCTS, may interact with one another but not with the van schemes. The van schemes, VRTS and VCTS, may interact with one another but not with the car schemes. The CRTS and VRTS schemes apply the ZEV targets and the CCTS and VCTS schemes apply the carbon dioxide targets. This structure enables manufacturers to pursue multiple routes to compliance with their ZEV and carbon dioxide emissions targets.
Compliance in the trading schemes is tracked using units called allowances and credits. Each of the four trading schemes has its own allowance, and the two trading schemes that enforce the ZEV targets have their own credit. One credit is worth one allowance in the respective trading scheme.
Each year, the administrator of the trading schemes will allocate manufacturers enough allowances in each trading scheme, based on their in-year sales so that, if they meet their targets, they will require no allowances in addition and will be able to sell the excess to other manufacturers, bank it for future use or convert it for use in another scheme. Manufacturers who sell zero-emission special-purpose and wheelchair-accessible vehicles will receive bonus credits in the relevant scheme, as will manufacturers who sell zero-emission vehicles to car clubs.
The instrument provides a range of tools that facilitate different zero-emission vehicle transition strategies. Manufacturers who overcomply with their ZEV targets may bank that overcompliance for use in later years, convert it into compliance for the carbon dioxide targets at an exchange rate or sell it to other manufacturers. Manufacturers whose sales alone are not enough to meet the ZEV targets may borrow from their own future compliance at an interest rate of 3.5%, convert compliance from the carbon dioxide targets at an exchange rate or buy from other manufacturers.
Borrowing and conversion from carbon dioxide targets to ZEV targets are only allowed for the first three years of the schemes, expiring in 2026, and are capped proportionally to a manufacturer’s total car registrations or van registrations. This approach allows manufacturers to choose a path that makes sense for their business without increasing overall carbon dioxide emissions.
Vehicle manufacturers may trade freely among themselves. The only requirements are a short notification to the administrator of the trading schemes and enough units of compliance to fulfil the transaction. The price of trading units of compliance is determined by the market; however, there is effectively a cap on the maximum price per unit due to the final compliance payments to government required if a manufacturer does not meet their target. These are set at £15,000 per car in all years, £9,000 per van in 2024 and £18,000 per van from 2025, and, for the carbon dioxide emissions schemes, £86 per gram of carbon dioxide over the target multiplied by the number of non-zero emission vehicles sold.
The Secretary of State for Transport is responsible for the administration of the schemes for the UK. A specialist team in the Department for Transport is working with devolved Administrations and vehicle manufacturers to prepare for scheme commencement, with the vast majority of administrative obligations on manufacturers not falling before summer 2025. Draft guidance has been circulated to vehicle manufacturers as part of a collaborative process to ensure that they have the documentation they need to support this change. Officials are in regular contact with vehicle manufacturers and will continue to engage closely throughout implementation and operation.
On the point raised by my noble friend Lord Lilley on the environmental impact of zero-emission vehicle manufacturers, a battery electric vehicle, the most common type of zero-emission vehicle, produces only a third of the lifecycle emissions of an equivalent petrol car. They can make the best use of the UK’s renewable energy, which already represents around 40% of UK electricity generation and is set to rise to 100% by 2035.
If, after having the opportunity to make use of banking, borrowing, conversions, derogations, pooling and trading, a manufacturer has not met its target it will be required to make a payment. This is set at £15,000 per car for all years, as I said, and £9,000 per van in 2024, rising to £18,000 from 2025 onwards. The payment for missing the carbon dioxide target will be £86 multiplied by the number of non-zero-emission vehicles registered. These amounts are comparable to comparator schemes in the EU, California and Canada. The payment levels reflect the difference in emissions between a new zero-emission and new non-zero-emission vehicle and will serve as an effective incentive to meet targets.
Further to my answer to my noble friend Lord Lilley on the renewable energy mix and the grid, since 2010 renewables have gone from less than 7% of our electricity supply to 48% in the first quarter of this year. The UK will phase out coal from power generation in 2024 and is accelerating the growth of renewables, such as wind and solar, to meet our net-zero target and decarbonise our electricity system by 2035. We have seen £198 billion of investment into low-carbon energy since 2010 and our global leadership is set to attract another £100 billion by 2030. The very technical points that my noble friend raised perhaps deserve a more technical response than I can provide at the Dispatch Box this evening. On that basis, I will make sure that he gets a fulsome response in writing to his points.
The order contains robust provisions that will enable the Secretary of State for Transport to take action where necessary. There are four enforcement powers: to require information, to question an officer of a company and, as a last resort, to obtain a warrant and enter premises, where the final power—to seize documents—may be used. These powers would be used as a last resort only where all other forms of formal and informal engagement with the manufacturer concerned had been unsuccessful in resolving concerns.
As a result of the trajectory and flexibilities on offer, manufacturers will be able to comply with the requirements of the legislation in 2024 without selling any more ZEVs than they had planned to. Manufacturer commitments to transition to ZEVs by 2030 already amount to more than 67% of the UK car market, with manufacturers such as Ford, Stellantis and Nissan all committed to selling 100% zero-emission new cars and vans by 2030, and all major manufacturers committed to being fully ZEV by 2035. On the point raised by the noble Baroness, Lady Young of Old Scone, when the 2030 end-of-sale date was announced in December 2020, there appeared to be a clear difference in the carbon dioxide emissions performance between some hybrid and plug-in hybrid technologies and normal petrol and diesel cars.
On the point raised by the noble Baroness, Lady Randerson, on wheelchair-accessible vehicles, the Government recognise how important these vehicles are to their users as a vital lifeline that provides freedom and dignity. That is why the order exempts new non-zero-emission wheelchair-accessible vehicles from the requirements. This means that users who continue to need petrol, diesel or hybrid models can continue to access them. The order also applies a bonus credit for any zero-emission wheelchair-accessible vehicles that are registered, recognising the additional manufacturing and value that such a vehicle represents.
The noble Baroness, Lady Randerson, also asked about Northern Ireland regulations. The regulations that apply to Northern Ireland are a scaled-down version of the existing regulations that currently apply UK-wide and will end in Great Britain with the commencement of this order. In broad terms, manufacturers are set individual targets for their average emissions across all the cars or vans that they sell.
I think it was my noble friend Lord Lilley and the noble Baroness, Lady Randerson, who talked about charge-point disparity. On deploying those charge points and geographical disparity, the Government and industry have already supported the installation of over 49,200 publicly available charging devices. The number of local public charge points needed will vary by area and over time, depending on the types of charge point installed, travel patterns and consumer preferences. Setting binding targets at this stage would risk stifling innovative approaches and could lead to the installation of charge points in the wrong place at the wrong time. The Government’s local electric vehicle fund provides over £381 million of funding to all local authorities in England to ensure good coverage of charge points. The funding was allocated to local authorities using a number of set variables, including charge points by population and the level of rurality. The inclusion of the rurality variable means that local authorities in rural areas were allocated additional funding, compared to urban areas.
The noble Baroness, Lady Randerson, mentioned the impact on sales. We consulted on whether we should incentivise certain specifications of vehicles, and responses were overwhelmingly in favour of a simple one vehicle, one credit allowance scheme. Otherwise, we shall keep this under review. In response to the noble Lord, Lord Tunnicliffe, and the Climate Change Committee, the letter was responded to by Minister Norman during his time at the Department for Transport. We can commit to sending the letter to the noble Lord.
As I have outlined, this legislation sets out a clear pathway for the decarbonisation of new cars and vans. It will allow industry and households to plan confidently for the future. The order will establish the strongest targets of their kind in any country globally and will be a crucial catalyst for new investment, new jobs and new technology, which will drive the transition of our economy to net zero.
I hope I have answered some of the questions. I will certainly go through Hansard and see what is outstanding and write to noble Lords. I commend the order to the House.