Government plans to scrap the lower rate of fuel duty on red diesel from April 2022 will increase council waste bills, says Joseph Doherty, Managing Director of Re-Gen Waste Ltd.
The company, which processes waste for councils across the UK, will see an extra £200,000 added to its fuel bill per annum. With red diesel duty rates moving from 11.14 pence per litre (ppl) to a white diesel duty rate of 57.95ppl, Re-Gen Waste’s fuel costs are set to increase by 237 per cent.
Doherty said: “As we transition to the new rules, these increased fuel costs will ultimately have to be passed to customers in the short term, doubling the cost per tonne of waste to £1. Fortunately, we are already making efforts to adopt cleaner, greener technologies within the plant, so that we can absorb these costs in the longer term. However, this may take longer than two years to implement and the new technology may not be fully operational in that time frame.
“We can’t argue with the motivation behind removing the entitlement to use red diesel; the desire to tackle climate change, ensure that businesses pay fairly for the harmful emissions they produce and incentivising them to improve their energy efficiency, is something every government must do.”
Red diesel is the term used for gas oil that is intended for uses other than as fuel in road vehicles, and is used by many waste and recycling companies to power heavy machinery.
While the increase of fuel duty on red diesel could raise an extra £2.4 billion in taxes annually and push the UK towards the government’s goal of net-zero emissions by 2050, the proposed change was criticised by Jacob Hayler, Executive Director of the Environmental Services Association (ESA), at the time of its announcement in Chancellor Rishi Sunak’s Spring Budget.
Hayler labelled the decision as a “major blow for the recycling and waste management sector, which relies on diesel fuels to keep vital public facilities, like recycling centres and waste transfer stations, running efficiently.”
The government has acknowledged that the proposed changes to the tax treatment of red diesel will affect local councils and has vowed to engage with them closely as part of the Red Diesel Consultation, which closes on 1 October 2020.
Spending pressures that arise will be discussed during the ‘Comprehensive Spending Review’ that is scheduled later this year, along with the £150 million per annum resource spending envelope, to account for this cost increase within the public sector.
Doherty added: “In the run up to 2022, businesses such as ours are totalling up the cost of what removing the entitlement to use red diesel will actually look like.
“In some instances, red diesel users are saying that there are no commercially viable alternative fuels they can use and others say that the cost of using cleaner technologies is a barrier to switching to non-diesel powered vehicles and machinery.
“From Re-Gen’s perspective, we are already committed to a ‘Cleaner Future’ and plans are already in place to begin the incremental shift to using greener technology, including introducing two electric powered cranes this year, with a further two in 2021 and gas-powered fork-lifts and trucks.
“While we are reassured that we have two years to make the shift over to red diesel alternatives, we would have been happier with a staged approach over a longer term, in order to transition to the new rules comfortably.
“Right now, we are looking into readily available, low carbon, alternative sources of energy such as using gas from anaerobic digestion plants. We are also exploring environmentally friendly, second generation biofuels, such as HVO (hydrogenated vegetable oil) which are compatible with existing diesel engines and equipment.”
“Ultimately in the short term, the industry is going to have to shoulder the burden of costs and put up with the pain in order to enjoy the long-term environmental gain.”