Cracking a nut with a sledgehammer: how killing diesel risks taking local clean energy with it

Diesel engines don’t have a good rep these days. But while most public attention has been focused on those with wheels choking our streets, it’s a different bunch that the Government has actually been cracking down on.

Every year the Government runs a reverse auction for electricity generators (and some storage and ‘demand shifting’ projects) called the capacity market. Winners are granted public subsidy to be available during the winter to provide power if supplies become tight. What the Government really wants this to do is to incentivise new, large gas plants. But it turns out it’s cheaper to build small diesel plants. Few gas plants can compete - and thus few get built. Instead, we now have up to 2GW of diesel generators installed locally. This is not good press for the Government: diesel has high carbon emissions and local air quality impacts. We shouldn’t be subsidising them (nor should we be subsidising coal plants, by the same token). So the Government set out to cut them out of the picture.

So far, so good. But what happened next risks undermining not just diesel, but the shift to local, clean, flexible energy too. What went wrong?

A quick rewind. The power sector has seen radical changes in the last decade. The major story has, of course, been renewables. Much renewables capacity in the UK is locally installed, which ushers in a fascinating new paradigm in which power doesn’t just flow from the beating hearts of vast coal, gas and nuclear plants out to the veins and capillaries of towns and villages. Now our homes, businesses and fields are themselves centres of energy; either used onsite or transmitted to local consumers.

This actually makes a lot of sense. You cannot transmit power without losing some of it. The further it travels, the more you lose. The UK wastes 8% of the electricity it generates in moving it from A to B (and over 50% overall if you include thermal power station inefficiency). But generating wasted electricity still costs money - and still incurs wear and tear of infrastructure used to transport it - all of which costs bill payers. If electricity is generated closer to demand, lower losses should entail a more efficient system, and thus lower costs overall. 

The rules governing the use of wires and pylons by generators and suppliers of electricity were not designed to support local generators, but they do end up reflecting the fact they do not use as much of the total network. There are 14 regional electricity networks, each of which connects into the larger national grid. Suppliers with customers in those regional networks pay charges based on the amount of electricity they buy into them at peak times. If local generators produce electricity during those periods less electricity needs to be imported from the national grid. This saves the suppliers money in reduced charges, part of which is then passed onto those local generators as a reward. This is called an ‘embedded benefit’, and it helps incentivise building generation closer to where electricity is consumed.

At least it did.

Connected locally, diesel plants can do what big, central gas plants cannot - access these embedded benefits. Take this revenue stream away, the Government thought, and perhaps gas will be able to compete again. Ever since, there has been pressure on Ofgem to do just that. And three weeks ago they announced a cut of up to 93% - almost entirely removing it. 

So much for diesels. But this also deals a blow to renewables and storage projects (such as batteries or pumped hydro) connected locally, of which there is several times more capacity than there is diesel. Worse, unlike subsidy cuts which only affect future projects, this hits existing projects too - punishing them for a problem they didn’t cause. Reduced projected revenue, and increased uncertainty, is expected to cool investment in local, clean, flexible electricity infrastructure. Storage - that oft-touted key to a renewable future - could be hit particularly hard. With access to few public support levers, projects often rely on being able to deliver power at times when rewards are available to build a business case. 

But was this simply an unintended consequence?

Actual rule change is undertaken by industry panels, which are dominated by sector incumbents including the ‘Big Six’. Only they have the personnel and capacity to resource such involved work. The panel that presented proposals to Ofgem in this case did not have a single renewable energy or community energy representative on it. In the consultation that preceded the final decision seven out of nine of the big commercial players were opposed to the benefit. The two in favour either have no large central generation assets of their own, or their own interest in renewables.

Whether the product of genuine manipulation, or simply the inertial imbalance of representation on Ofgem’s panels, it is the incumbent generators who won. They are, theoretically at least, now more likely to be able to build new gas stations - as diesel competitiveness is reduced - capturing public funds in the process. And the renewable and storage projects causing such havoc for their business models just lost revenue. 

So it’s the transition to a local, clean, smart - and ultimately cheap - energy system that is losing out.

Which raises several questions. Should Ofgem’s remit formally incorporate the UK’s 2050 climate target, given its pivotal role in shaping the systems that must get us there? Should incumbents be allowed to continue dominating the processes that evolve regulations? And should the Government ensure that Ofgem is driving our energy system to one that is lower cost, more local and lower carbon?

Our answers would be: yes, no and yes. The rapid (and urgent) transition in the design and operation of our energy systems for a liveable planet simply demands it.

Max Wakefield is lead campaigner at 10:10, a charity that focuses on practical, participatory and positive solutions to climate change. 10:10 work with everyone, from policy makers and politicians to community energy groups and schools, to create the practical and cultural change necessary for a rapid transition to a low carbon UK. You can join 10:10’s campaign to challenge Ofgem’s decision here

The views expressed in the article are those of the author, not necessarily those of Bright Blue

A cool change is coming and business needs to get ready

The case for decisive action on diesel pollution gets stronger by the day. The main reason is of course the toll on public health. Every year, emissions of nitrogen oxides (NOx) and particulate matter (PM) kill around 40,000 Britons, cause the loss of 6 million working days, and cost the economy up to £20 billion per year – equal to more than 16% of the NHS budget.

But pollution also threatens the health of companies.

While many companies are successfully adopting a variety of new technologies, others still have work to do – particularly operators of refrigerated vehicles. The industry continues to rely on decades-old diesel cooling technology that remains essentially unregulated and highly polluting; despite that, unlike the atmosphere in our major cities, the regulatory direction of travel is now clear.

Britain has been in breach of EU air pollution standards since 2010, and the courts have twice ordered the government to strengthen its plans. The European Commission has given Britain a “final warning” to act within two months or face big fines and referral to the European Court of Justice. The political momentum means regulation will tighten regardless of Brexit, and will almost certainly include a network of low emission zones in major cities and possibly a diesel scrappage scheme. The Mayor of London, Sadiq Khan, has just announced a £10 Toxicity-charge (T-charge) for the most polluting cars from October this year.

However, the most polluting engines on the road are not being used to drive cars or trucks. The worst emitters are in fact the secondary diesel engines used to provide cooling on refrigerated trucks and trailers. Analysis by Dearman, the clean cold technology developer, has shown that these independent transport refrigeration units (TRUs) can emit six times as much NOx and 29 times as much PM as the Euro VI propulsion engine dragging them around. Compared to the official emissions limits of a modern Euro 6 diesel car, the TRU emits up to 93 times more NOx and 165 times more PM.  

These disproportionately high emissions evaded the radar for many years, but are now beginning to be recognised by policymakers. TRUs were mentioned in both the Department for the Environment, Food and Rural Affairs’ (Defra) Clean Air Zone Framework published last autumn, and the Clean Air Bill, a Private Member’s Bill tabled by Labour MP Geraint Davies. Both make clear that TRUs will be covered by the new national network of Clean Air Zones. Defra talks of “encouraging the upgrade of refrigeration units on cold chain vehicles to the least polluting options”, while the Clean Air Bill calls for TRU use to be restricted in “specified urban areas”.

TRUs are vulnerable to regulation not only because they are highly polluting, but also because they are few in number. If the 84,000-strong UK TRU fleet were replaced with zero-emission alternatives, allowing for the total fleet mix it would equate to taking approximately 4 million Euro 6 diesel cars off the road. Come election time, businesses don’t have a vote, private motorists generally do.

TRUs may be relatively scarce, but they are hardly low profile. Each year in Britain they transport food worth £52 billion, often operating in residential areas or busy high streets. It can only be a matter of time before people realise that, while they are about to be penalised for driving a car, TRUs are operating on our streets unhindered by regulation or penalty.

Imagine the public fury when people realise that independent TRUs are also entitled to run on half price ‘red’ diesel. So not only do they spew much more pollution than cars - even old cars -  but taxpayers subsidise them to do so!

TRUs are allowed to run on red diesel – bizarrely - because they are classed as ‘non-road mobile machinery’, even though they operate on a truck or trailer. But there is no conceivable economic justification for continuing to subsidise such a mature and highly polluting technology against new zero-emission competitors. Britain is one of only a handful of countries in the EU that still permits it. This loophole is unlikely to survive the intensified scrutiny the introduction of Clean Air Zones is likely to bring.

The TRU red diesel subsidy is also vulnerable because it prevents new clean cold technologies from taking off in the UK. The government has invested tens of millions of pounds into supporting clean cold technologies through Innovate UK and the Research Councils, and is unlikely to want to squander it by maintaining perverse fossil fuel subsidies that stop these innovations being taken up in their home market.

Air pollution regulations will soon be toughened to meet the scale of the challenge, and refrigerated transport will not escape. At some point operators will be forced to act by the combination of rising public awareness and regulatory pressure. Companies that want to demonstrate they are responsible corporate citizens would do well to embrace this opportunity early, not as the laggard who did the right thing only when compelled by regulation.

Happily, cold logistics operators might also find that doing the right thing is also good for business. Some of the newly designed zero-emission TRUs materially outperform conventional diesel systems delivering additional benefits. A win for business, customers, the environment and public health – now wouldn’t that be cool?

Professor Toby Peters was the co-founder of Dearman, was recently appointed Visiting Professor in Transformational Innovation for Sustainability at Heriot-Watt University, and is Visiting Professor in Power and Cold Economy at the University of Birmingham

Could a diesel scrappage scheme solve the air quality issue?

Last week, it was reported that the Department for Transport is considering introducing a diesel scrappage scheme. Under this policy, the government would give cashback to motorists who trade in their old polluting diesel vehicle. A diesel scrappage scheme would help to accelerate the shift away from diesel vehicles, removing one of the biggest sources of harmful air pollution from the roads for good.

What’s the problem?

Readers of this blog will be familiar with the issue: each year around 40,000 premature deaths in the UK are linked to poor air quality. A recent EU report found that in the UK six million workdays were lost each year to air pollution and that the health-related externalities totalled €28 billion. Air pollution is damaging people’s health, and adding costs to public services and businesses in the process. The source of the problem in pollution hotspots is road transport, which produces over 95% of the toxic fumes in these areas. And diesel vehicles in particular are responsible, as they emit many times more nitrogen dioxide than petrol alternatives.

The Government urgently needs to find a solution to this problem, following their latest defeat in the High Court last year. The judge ruled the Government’s air quality plan was inadequate. The Government now has until April 2017 to produce a new draft plan to bring the UK into full legal compliance by 2019 at the latest. This strategy must be confirmed by July 2017. Air pollution is also being driven up the agenda by the Government’s decision to allow a third runway at Heathrow. Local campaigners say they are planning to use the air quality concerns to block the project in the courts.

Context for the scrappage scheme

The UK had a vehicle scrappage scheme in 2009, introduced in response to the financial crisis. Rather than an environmental measure, it was a stimulus for the domestic car industry, which had seen new vehicle registrations fall by 30% between the first quarter of 2008 and the same time in 2009. Under the scheme, vehicles over 10 years old could be scrapped in return for a £2,000 discount off a new vehicle. The Government allocated a £400 million budget for the scheme.

The idea of a scrappage scheme for polluting diesel vehicles has been around for a while. But, until now, the Government has always been dismissive on the grounds of cost. In April last year, a source from the Department for Environment, Food and Rural Affairs was quoted saying that there was "no proportionate way to appropriately target such a measure to the areas where it would be most needed and it would be prohibitively expensive, as well as an ineffective use of resource to offer a scheme indiscriminately".

Factors to consider when designing the scheme

The effectiveness of a diesel scrappage scheme will depend on its precise configuration. There are three issues in particular that the Government has to consider: first, how it is going to pay for it; second, how it is going to target it geographically to ensure the scheme eases pollution in hotspots; third, what types of vehicle trade will be eligible for a grant.

First, a diesel scrappage scheme has the potential to be very expensive, unless it is part of a suite of policies that is revenue neutral. One suggestion is to increase Vehicle Excise Duty (VED) on new diesel vehicles to fund the scrappage scheme. This would also serve to disincentivise purchases of new diesels, most of which continue to fail to achieve EU air pollution limits when tested under real-world conditions. Another approach could be to levy a “toxicity charge” on motorists entering pollution hotspots in old, polluting vehicles, like the Mayor of London is introducing in the capital later this year. This levy would ensure motorists pay the full social costs of their pollution, as well as providing a revenue to fund charges.

Second, a diesel scrappage scheme must be targeted to remove dirty vehicles from where pollution is illegal. If an old diesel car that only ever drives around rural English villages is taken off the road, then it won’t help bring cities like London and Birmingham into compliance with the law. One approach could be to restrict eligibility for the scheme to vehicles registered to properties in or near a pollution hotspot. However, there would be no guarantee that these will be the only vehicles travelling into hotspots. The Government could also explore ways of linking the scheme to its new Clean Air Zone network so that the cashback is available to those who are affected by their introduction.  

Third, the Government must carefully consider which vehicle trades are eligible for cashback. One condition could be that the old diesel must be exchanged for an ultra-low emission vehicle, such as a pure electric car. But some drivers of old diesel cars may want to scrap their car altogether and switch to just cycling or using public transport. Others may still need a vehicle with an internal combustion engine because of the long distances they are driving. But while a petrol car would reduce air pollution relative to a diesel, it would not help cut carbon emissions, another important government policy objective. The less flexible the scheme is, the fewer old diesels it will successfully take off the road.

Conclusion

If implemented correctly, this policy could form a big part of the Government’s response to the air pollution problem. It should complement smart regulation, such as an increase in the number of low emission zones. Bright Blue has campaigned for central government to devolve more powers and funding to English cities to enable them to set up low emission zones in pollution hotspots.

Replacing diesels in the vehicle pool is a major challenge: there are over 11 million diesel cars on the roads in the UK, or 38% of the whole car fleet. In terms of new vehicles, sales of diesels have started to decrease, with the most recent data showing a 4% drop relative to the same month in 2016. This is gradually unwinding efforts by policymakers since the 1990s that encouraged diesel over petrol, because of perceived lower carbon emissions. For instance, the then Chancellor of the Exchequer Gordon Brown cut vehicles taxes for diesels in the 2001 Budget.

The benefits of this shift away from diesel are broader than the purely environmental. As the industrial strategy confirmed last month, ultra-low emission vehicles are a priority sector for the Government, and crucial to the UK’s long-term economic prosperity. Now is the time for the Government to be ambitious with its domestic policy framework, so that it can establish a leading position in these new technologies.

Sam Hall is a researcher at Bright Blue