Written evidence submitted by Dearman Engine Company (IAQ0051)

Executive summary

1. Government is right to invest in British small businesses that manufacture clean technologies. However, the Treasury’s red diesel subsidies disincentivise take-up of these very technologies. This is the issue facing Dearman and our zero-emission transport refrigeration unit (TRU), which government has awarded over £6 million of grants to develop but at the same time is subsidising red diesel for use in TRUs.

2. In the context of Brexit and enabling British SMEs to establish trade abroad credibly, it is also crucial that these SMEs are seen to have achieved success in their home market in the UK. Yet, this too is hindered for British clean tech manufacturers that government has invested in, when the Treasury is subsidising red diesel at the same time.

3. While the Clean Air Zones are a step in the right direction for tackling emissions, they do not cover a TRU’s weakly regulated secondary engine. The secondary engine used by a TRU can emit six times as much nitrogen oxide and 29 times as much particulate matter as a heavy goods vehicle’s Euro 6 main engine, and even the new regulations applying from 2019 are far too weak. Government must subject secondary engines to far stricter regulation.

4. Dearman commissioned an independent poll which showed that two in three UK residents would support an end to red diesel subsidies for use in TRUs, to encourage a take-up of the cleaner TRUs that are available. Seven in ten would also support stricter regulation for emissions from secondary engines to support the take-up of cleaner secondary engines.

About Dearman

5. Dearman is a Croydon-based British SME pioneering the development of clean liquid air technology to achieve major improvements in greenhouse gas emissions and air pollution of power and cooling.

6. At the heart of the company’s technology portfolio is the Dearman Engine, a revolutionary zero-emission piston engine driven by the expansion of liquid nitrogen. In partnership with academics, industry leaders and experts in energy and cryogenics, we are developing applications of the Dearman engine which are efficient, low carbon, zero-emission, quiet and cost-effective.

7. To date Dearman has received over £6 million of direct UK Government support – from Innovate UK and the Advanced Propulsion Centre to develop and commercialise its technology.

Background: What is transport refrigeration?

8. In advanced economies, a seamless cold chain of refrigerated warehousing and transport logistics stretches from farm to fork to ensure that food remains safe for consumption until it reaches consumers, in turn reducing food waste. Unfortunately, the transport refrigeration units (TRUs) that keep cargo cold on heavy goods vehicles are overwhelmingly powered by diesel and are disproportionately polluting.

9. The majority of TRUs on a heavy goods vehicle are powered by a secondary diesel engine – rather than the main vehicle propulsion engine. In Europe, the secondary engine is regulated by the Non-Road Mobile Machinery (NRMM) regulations rather than the Euro standards. From 2019 onwards, TRU engine emissions will be regulated for the first time in Europe – yet the standards will still allow them to emit up to six times more NOx and 29 times more particulate matter than the far larger main propulsion engine

Comments

Ending certain red diesel subsidies to boost British SMEs

10. Red diesel is the same as standard diesel, except the Treasury reduces tax on it for certain non-road uses and effectively subsidises it. For these uses, a red dye is used to mark the diesel and prevent misuse in road vehicles. TRUs powered by a secondary engine are allowed to use red diesel because they are legally considered Non-Road Mobile Machinery, even though they are solely used on roads.

11. There are over 84,000 TRUs on UK roads, 34,000 of which are refrigerated trucks and trailers while the rest are smaller refrigerated vans (mostly home delivery type vehicles). A proportion of these refrigerated vehicles are driven from the vehicle’s main engine (mainly refrigerated vans) therefore they are not allowed to use red diesel. Industry figures suggest however that approximately 26,000 out of the 34,000 refrigerated trucks and trailers in use in the UK feature highly polluting secondary engines, which can use red diesel.

12. Despite its support for low emission technologies, the UK remains one of only four countries in the EU (with France, Belgium and Spain) where the use of red diesel for TRUs is allowed. In some countries, such as the Netherlands, red diesel has been banned altogether.

13. Allowing the cheaper red diesel to be used in secondary engines is a disincentive to new, clean technology. Operators are discouraged from adopting more efficient equipment and manufacturers are disincentivised from investing in cleaner technologies because they face an immediate economic barrier to entry.

14. Reducing the price of diesel that operators can buy has the effect of undermining the Government’s investment in low carbon/low emission technologies by making it harder for them to compete in the open market. Dearman, for example, has received £6.35 million in grants from Innovate UK and the Advanced Propulsion Centre, yet the Treasury subsidising red diesel hinders us and other companies also in receipt of such grants. As the UK heads towards Brexit and seeking to establish further trading opportunities abroad, for British businesses to succeed abroad, they will be at looked at to see if they have succeeded in our home market in the UK- however the Treasury’s red diesel subsidies hinder this.

15. From an environmental perspective, it also presents a challenge as lower fuel costs reduce the impetus for operators to analyse their fleet and how it is operated. The fuel savings that can be delivered through, for example, reduced idling (keeping the engine running when a vehicle is stopped) are limited when the fuel is subsidised. However, the environmental impacts could be significant.

16. It is important to point out that some fleet operators do not use red diesel as it might be easier for them to fill up with road diesel at their depots. However, the majority of fleet managers use red diesel, and therefore they use calculations based on red diesel when considering the total cost of ownership of a new technology and ordering new TRU equipment.

17. Ending red diesel subsidies for TRUs would be immaterial to the overall cost base of a major retailer or food producer, and would have a limited impact upon small traders and SMEs. This is because the vast majority of small vehicles such as delivery vans use TRUs which are powered by the main engine. As a result, operators of these local delivery vehicles are already using fully taxed on-road diesel. Larger trucks and articulated trailers, which are generally operated by larger companies and are cooled by secondary engines, are however allowed to access red diesel at present, but as stated in paragraph eleven, these larger trucks and trailers that use red diesel only comprise 26,000 of the UK’s 84,000-strong TRU fleet.

18. The reduced fuel duty on red diesel costs HM Treasury £2.4 billion annually[1]. To be clear, Dearman is not calling for this to be scrapped entirely. Of the £2.4 billion, our submission relates specifically and only to the estimated £87 million which benefits TRUs, which combined with the reduced VAT worth £39 million, means that stopping the use of red diesel in TRUs would in total raise an additional £126mn in revenue for HM Treasury.

19. There is also strong public support for this measure- Dearman commissioned an independent poll of 1,000 UK residents (conducted by OnePoll, fieldwork undertaken August 2017) in which two in three people across the UK would support an end to red diesel subsidies for TRUs if it would encourage the take-up of cleaner alternatives.[2]

20. Recommendation: While government is rightly investing in small British businesses manufacturing clean technologies, it is then inconsistent to be subsidising red diesel. This disincentivises the take-up of those clean technologies and presents a barrier for those very businesses to take off. Furthermore, British SMEs seeking to trade abroad are of course expected to achieve commercial success in our home country first- this is all the more crucial in the context of Brexit and government seeking to establish wider international trade. HM Treasury should therefore use the outcomes of its red diesel consultation to end the use of red diesel in transport refrigeration units, clawing back £126 million by doing so, and with clear public support to take this step.

Extent of TRU emissions in Britain

21. As a whole, UK TRUs emit every year the equivalent of 2,800 tonnes of nitrogen oxide (NOx), 367 tonnes of particulate matter (PM) and 1,397k tonnes of carbon dioxide (CO2). Converting all diesel engine powered TRUs in the UK to zero emission technology would remove the same amount of particulate matter as taking 3.8 million Euro 6 diesel cars off the road. Due to their disproportionately high impact, taking action on TRUs would therefore also help the pressure on diesel use elsewhere.

22. Analysis by Dearman suggests that TRUs operating in the five Clean Air Zone cities (Nottingham, Birmingham, Derby, Southampton, Leeds) emit a total of 118 tonnes of NOx per year and 16 tonnes of particulate matter (PM), along with 34,000 tonnes of CO2.

23. And because their emissions are so disproportionate, replacing TRUs in the proposed Clean Air Zones with zero-emission alternatives would be the NOx equivalent of removing 4,000 Euro 6 trucks or 111,000 Euro 6 cars from Britain’s roads, and the PM equivalent of removing 21,600 trucks or 236,600 cars. Altogether, the pollution caused by TRUs in the proposed zones equates to driving a family car 309 million kilometres.

Covering whole vehicle emissions- not just main engines

24. A major loophole in government’s air quality plan is the extremely weak regulation of secondary engines. As outlined on the previous page, refrigerated delivery trucks use a second engine to keep their back compartments cold, in addition to the main engine propelling the truck.

25. DEFRA’s Clean Air Zone Framework refers to charging and non-charging zones, and Government has of course made clear its strong preference for the latter. If local authorities opt for charging zones, they are required to choose a ‘class’ of vehicles to whom the charge will apply if the stated Euro emission standards are not met by said vehicles. While classes B, C and D include heavy goods vehicles, air quality minister Therese Coffey has been clear that secondary engines used by TRUs will be exempt. Dearman’s local MP Tom Brake (Carshalton & Wallington constituency) asked the following written parliamentary question, which received the subsequent answer on 4th July 2017:

Tom Brake MP:

To ask the Secretary of State for Environment, Food and Rural Affairs, whether emissions from a transport refrigeration unit count towards a heavy goods vehicle's compliance with Euro VI standards when entering a charging Clean Air Zone.

Therese Coffey MP:

Emissions from transport refrigeration units are not included within the European emission standards used for assessing compliance for free entry to charging Clean Air Zones.

Guidance on the operation of Clean Air Zones in England is set out in a Framework published on 5 May this year available at https://www.gov.uk/government/publications/air-quality-clean-air-zone-framework-for-england. The Framework encourages local authorities to work with business to reduce pollutant emissions from vehicles, including encouraging the upgrade of refrigeration units on cold chain vehicles to the least polluting options.

The UK Government has been actively involved in developing new legislation for non-road mobile machinery at a European level that covers transport refrigeration units. The new regulation has recently come into effect and has widened the scope such that any new transport refrigeration unit powered by a combustion engine will be subject to strict new emissions limits from 2019.

26. Recommendation: A TRU’s secondary engine can already emit six times as much nitrogen oxide (NOx) and 29 times as much particulate matter (PM) as a HGV’s Euro 6 main engine. To properly tackle air pollution, government must subject these secondary engines to significantly stricter regulation, including in Clean Air Zones whether they are charging or non-charging.

27. In her answer, the minister refers to new legislation for Non-Road Mobile Machinery (NRMM). While she is correct in referring to the new limits that will apply from 2019, these new regulations are in fact extremely weak compared to the Euro standards applying to main engines. In the below graph, the red line shows the level of NOx and PM emissions that a TRU will still be allowed to emit once the 2019 limits come into force. In other words, the new NRMM regulations are weaker than the Euro 3 standards for NOx emissions, and much weaker than the Euro 2 standards for PM emissions.

28. Government must devise stricter regulation for emissions from secondary engines. There is certainly a will from local government to see this happen and also strong public support, as set out below.

29. For example, the Mayor of London has written to Environment Secretary Michael Gove seeking greater powers to regulate all NRMM emissions[3]. The Mayor’s draft environment strategy also includes:

• Proposal 4.2.1f: “The Mayor will work with stakeholders to understand the barriers to deploying ultra low emission auxiliary power units on vehicles and encourage further take up in London… This will include considering the appropriate tax treatment of ‘red diesel’, so that a switch to ultra low emission technologies can be financially incentivised.”

• Policy 4.2.3: ‘The Mayor will work with government, TfL, the construction industry and other users of Non-Road Mobile Machinery (NRMM), such as event organisers, to prevent or reduce NRMM emissions.’

30. Greater Manchester’s Air Quality Action Plan 2016-2021 includes:

• “2.6 - Diesel Transport Refrigeration Units (TRUs): TfGM [Transport for Greater Manchester] will look at the alternatives to Diesel Transport Refrigeration Units (TRUs) to ultimately achieve and promote zero-emission transport refrigeration.”

31. Leeds City Council[4] applied for and was awarded a £150,000 DEFRA air quality grant to “Research real-world emissions from road transport refrigeration equipment and possible mitigations”.

32. In terms of public support for stricter regulation on secondary engines, Dearman’s independent poll of 1,000 UK residents revealed that over seven in ten people would support stronger regulation on polluting second engines to encourage the take-up of cleaner secondary engines instead.

Summary of recommendations

33. While government is rightly investing in small British businesses manufacturing clean technologies, it is then inconsistent to be subsidising red diesel and thereby presenting a barrier for those very businesses to take off. British SMEs seeking to trade abroad are of course expected to achieve commercial success in our home country first- this is all the more crucial in the context of Brexit and government seeking to establish wider international trade. HM Treasury should therefore use the outcomes of its red diesel consultation to end the use of red diesel in transport refrigeration units, clawing back £126 million by doing so. Two in three UK residents would support government taking this step.

34. A TRU’s secondary engine can already emit six times as much nitrogen oxide (NOx) and 29 times as much particulate matter (PM) as a HGV’s Euro 6 main engine. To properly tackle air pollution, government must subject secondary engines to significantly stricter regulation, including in Clean Air Zones whether they are charging or non-charging. Seven in ten UK residents would support this move.

November 2017