Thread by @DrSimEvans

Ahead of #Budget2020 tomorrow I've got some new analysis on the decade-long fuel duty freeze & UK CO2 emissions

Bottom line: UK carbon output is up to 5% higher than it would have been – & road transport CO2 is up to 16% higher

THREAD

carbonbrief.org/analysis-fuel-…

Fuel duty is levied on petrol and diesel sales at a rate of 58p per litre +VAT.

Back in 2010, the incoming coalition govt inherited plans for fuel duty to rise at 1p above inflation each year.

Instead, fuel duty has been frozen ever since:

carbonbrief.org/analysis-fuel-…

The fuel duty freeze means rates are now 24p per litre lower than they would have been, if planned increases had gone ahead (28p inc VAT).

That's an effective tax cut worth £11bn to motorists, even as public transport fares have risen above inflation.

carbonbrief.org/analysis-fuel-…

There are legitimate arguments around the appropriate rate of fuel duty, whether it reflects the social costs of emissions (in which case it's high) or also congestion (too low). Also around the distributional impact.

This @TheIFS rpt highly recommended

ifs.org.uk/uploads/GB2019…

But what we can say for sure is that the fuel duty freeze has increased demand for petrol & diesel, therefore also raising UK CO2 emissions.

Key question is *how much higher*, which depends on the "elasticity of demand". Basically = price sensitivity.

carbonbrief.org/analysis-fuel-…

Taking a reasonable range for elasticity, I reckon UK road transport CO2 is 2-18MtCO2 higher than it would have been w/out the fuel duty freeze.

That's a lot! Esp when you consider transport is single-largest source of UK emissions & cars > power plants.

carbonbrief.org/analysis-fuel-…

All told, the fuel duty freeze means UK CO2 emissions are up to 5% higher than they could have been if planned increases in rate had gone ahead.

And road transport emissions, which increased by 3% over the past decade, could instead have fallen by 13%.

carbonbrief.org/analysis-fuel-…

The range in elasticity estimates is large.

This makes sense though: short-term price changes might not shift behaviour – still need to drop kids at school etc

But longer term there's more chance to change habits, buy fuel efficient cars (or an EV!)

carbonbrief.org/analysis-fuel-…

It's actually pretty hard to measure the elasticity of fuel demand b/c most of the short-medium term changes in price are down to oil mkt volatility (as we are seeing this week!)

One way around this is to look at demand between countries, with different rates of tax etc.

Over the long term, there's good evidence to suggest that countries spend a relatively fixed share of GDP on energy, regardless of price.

So eg high-price Japan is more efficient than low-price US.

carbonbrief.org/analysis-fuel-…

Given the UK's net-zero target & clear CO2 impacts of lower rates, will chancellor @RishiSunak end the fuel duty freeze in his #Budget2020?

Or will he put off a decision until later this year?

We'll have all the climate and energy details in our budget coverage tomorrow.