As Red Diesel Rebate Ends Two Sides Line Up to Fight Over the Future

UK – The latest proposals regarding the use of red diesel have rung the bell for the start of the latest round in the seemingly endless boxing match of economy versus environment. The battle to make the world a greener place comes at a cost, and it is clear that the chancellor wants to remove the tax rebate on the fuel for all uses except agriculture, forestry, commercial marine, fishing, and rail industries.

As ever in the continuing fight to achieve carbon neutrality there are voices on each side, some asking for the pace of change to be slowed, others to speed it up, and others simply begging to be excluded from any move from the status quo, or sometimes for measures taken to be even more widespread, usually in all cases for financial reasons.

The government declaration that it would remove rate relief for non-road mobile machinery, made in the 2019 Budget did not clarify the finer points and the British Ports Association (BPA) has now published a report citing why that 'commercial marine'; exemption should apply to its members.

The BPA estimates that the changes will add additional costs amounting to 3.10% of port turnover when they come into effect in 2022. BPA modelling suggests that an ‘average’ terminal will be hit with additional fuel costs of nearly £500,000 a year, with bigger operations’ costs running into millions.

The BPA claims that the only viable alternative in the ports is electrically powered machinery, to which it claims the dock power supply networks rarely have enough capacity for widespread electrification of port operations. It says this point was identified in the BPA’s recent paper on barriers to shore power and 70% of English ports are in areas where the grid is at or near capacity.

It further states that the two year timeline to avoid these costs and invest in electric is not credible, even if there were a viable market for electric NRMM, which in the case of ports is highly specialised, and meanwhile the UK section of this global market is not big enough to drive wider change in the availability of electric machinery.

The BPA report, which can be read in full HERE, calls for a raft of measures including delaying the changes until at least 2030, treating low emission diesels differently and, if adopted, a phased approach such as an ‘escalator’ is used alongside other policy instruments such as a NRMM scrappage scheme. Phoebe Warneford-Thomson, Policy & Economic Analyst at the British Ports Association and one of the report authors, commented:

“Industry and Government have a shared goal in reducing emissions but with no viable alternatives for ports to turn to these changes could actually set us back on that path. Ports will see costs soar from 2022 if Government does not change this policy.

”BPA modelling indicates that these extra costs will be worth 3.10% of each port’s turnover, leading to less room to investment in the green technologies and perversely increasing emissions through encouraging modal shift from coastal shipping to road transport.

”We are asking Government to postpone this decision to 2030, at which point they should review the maturity of alternatively powered NRMM markets and determine if viable alternatives are indeed available. At the very least, a phased approach is needed to ensure that ports do not have to deal with cost increases of up to 130% on one of their biggest expenses.”

Colleague Mark Simmonds, Head of Policy and External Affairs at the BPA called the policy ‘a blunt instrument that will hammer the ports industry without driving any change in behaviour’, and saying that, where there are alternatives that can compete with existing gear, investment will follow. However, as with all these matters there are vested interests on both sides and industrial and technology giant Siemens’ see the matter differently.

Lynsey Jeffers is Siemens' port smart infrastructure expert and she was quick to comment following the release of the BPA report. She says businesses must face up to the facts of decarbonisation and this gives them just two choices; use less fuel or switch to more sustainable alternatives.

With red diesel currently attracting a rebate of 46.81p per litre, an 81% discount, as well as being entitled to a reduced 5% VAT rate for supplies up to 2,300 litres, it is currently the most economic option for many, and saves businesses an estimated £2.4 billion in taxes every year. Jeffers says ports have historically had a lack of incentive to decarbonise, owing to a government focus on reducing air and automobile emissions. Some ports, due to their primary use as logistic hubs, have never previously required significant energy infrastructure as their power needs were limited. This hasn’t been a problem as they haven’t had much reason to electrify, until now.

She says the change will bring about progressive developments in local and national infrastructure, required to future proof these previously low energy demand zones, some of which as the BPA report confirms, are already in areas which that are heavily constrained by electricity demand. Siemens view is that solutions such as Totally Integrated Power (TIP) can help here by delivering a reliable and flexible power supply for the entire harbour infrastructure, from planning to services and beyond, all from a single holistic source.

Obviously Siemens will be keen for such changes to come about for commercial reasons but the company claims that the changes, despite the costs, offer the opportunity to move to microgrid networks and the like and to adopt connected technologies across the decentralised energy solutions. These in turn mean the eventual reduction of costs, new business opportunities and reduced emissions and noise, as experienced with the Siharbor ship-to-shore grid connection for cruise ships in Hamburg.

Jeffers urges port operators to look at the alternatives now, rather than waiting and hoping it isn’t going to happen. We have seen advances such as ‘cold ironing’ making progress in many countries, particularly in Scandinavia, whilst the Port of Rotterdam has thrown everything into electrification. Change is going to come, at some point everybody has to accept it and move on.

Photo: Copyright MV Werften via Siemens. MV WERFTEN Wismar GmbH ordered supply and installation of turnkey Siharbor onshore power supplies to be used to build ‘Global Class’ cruise ships.