Memorandum to the House of Commons Environmental Audit Committee Department for Transport sustainability update MARCH 2019 Our vision is to help the nation spend wisely. Our public audit perspective helps Parliament hold government to account and improve public services. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund, nationally and locally, have used their resources efficiently, effectively, and with economy. The C&AG does this through a range of outputs including value-for-money reports on matters of public interest; investigations to establish the underlying facts in circumstances where concerns have been raised by others or observed through our wider work; landscape reviews to aid transparency; and good-practice guides. Our work ensures that those responsible for the use of public money are held to account and helps government to improve public services, leading to audited savings of £741 million in 2017. Contents Introduction and Summary 4 Part One Decarbonisation and renewable energy targets 11 Part Two Ultra-low emission vehicles 20 Part Three Air quality and the Volkswagen recall programme 26 Part Four Rail Sector 36 Part Five Sustainability reporting 41 Part Six Governance and oversight 44 The National Audit Office team consisted of Katy Losse, Liam Blanc, James Gjertsen, Angie Eagle and Jonathan Hyde, under the direction of Keith Davis. This report can be found on the National Audit Office website at www.nao.org.uk For further information about the National Audit Office please contact: National Audit Office Press Office 157–197 Buckingham Palace Road Victoria London SW1W 9SP Tel: 020 7798 7400 Enquiries: www.nao.org.uk/contact-us Links to external websites were valid at the time of Website: www.nao.org.uk publication of this report. The National Audit Office is not responsible for the future validity of the links. Twitter: @NAOorguk If you are reading this document with a screen reader you may wish to use the bookmarks option to navigate through the parts. 4 Introduction and Summary Department for Transport sustainability update Introduction and Summary 1 This memorandum responds to a request from the Environmental Audit Committee (the Committee) to follow up the Department for Transport (DfT)’s progress on the Committee’s recommendations for improving its approach to sustainability. The Committee made these recommendations in a 2016 report which drew on a previous National Audit Office (NAO) review of sustainability at DfT. 2 Our review of sustainability at DfT was the fourth in a series of sustainability overviews that we have prepared for the Committee, which have assessed how different parts of government have fulfilled their sustainability remit. It gave a high-level assessment of DfT’s approach to environmental sustainability across all aspects of its day-to-day activities, covering governance, operations, procurement and policy. We concluded that DfT had taken many positive steps to meeting the challenge of sustainability in the transport sector, particularly in respect of its internal processes and interactions with other parts of government. However, there was now an opportunity to build on this to act as a leader for sustainability in the transport sector, and to ensure that the environment was fully considered across all decisions. 3 The recommendations in the Committee’s subsequent report fall into six broad areas, covering: • national targets, for renewable energy and greenhouse gas emissions; • ultra-low emission vehicles; • air quality and the Volkswagen recall programme; • the rail sector; • sustainability reporting; and • governance and oversight. 4 This memorandum gives our assessment of DfT’s progress against the Committee’s recommendations as at March 2019. We have drawn on semi-structured interviews with relevant DfT staff, internal DfT documents and public literature. We have not sought to give an exhaustive analysis of the effectiveness of DfT’s current approach, and instead have focused on analysing the extent and significance of the main changes DfT has made. The memorandum is divided into six sections covering the six broad areas of the Committee’s recommendations (paragraph 3), and each section includes a summary of the Committee’s recommendation and a summary of progress, together with a more detailed analysis. DRAFT C&AG’S REPORT FOR ACCOUNTING OFFICER CLEARANCE Department for Transport sustainability update Introduction and Summary 5 Summary of progress 5 Overall, we found that DfT’s progress against the Committee’s recommendations is mixed. It has made good progress on two issues: renewable fuel for transport and appraisal guidance on air quality impacts. It has also taken important steps on the Committee’s recommendations on decarbonising transport as a whole, on the uptake of ultra-low emission vehicles, and on the Volkswagen Group recall programme. However, it has some way to go to implement these recommendations fully. Moreover, there are recommendations where DfT has made no substantive changes, such as on assessing cumulative impacts, and in two areas (sustainable procurement and requirements on environmental targets for the rail sector) DfT’s approach has deteriorated. Key findings 6 We found that DfT has made good progress on the Committee’s recommendations on renewable energy (Figure 1). While it has not established a separate target in UK law for 10% of renewable energy in transport in 2020, it has made legislative changes that it expects to have a similar effect. In 2017 government amended the Renewable Transport Fuel Obligations to increase requirements on fuel suppliers to use sustainable and renewable sources. It forecasts that this will mean that the use of renewable fuels in the UK will increase to just over 10% of transport energy demand in 2020 (as measured under the accounting rules of the EU Renewable Energy Directive) (paragraphs 1.6 to 1.11).1,2 7 DfT is also on track to meet the Committee’s recommendation to improve the way that transport appraisals factor in air quality impacts. In 2017 government reconvened an Interdepartmental Group on Costs and Benefits (IGCB) to examine how government project appraisal could better reflect the true cost of air pollution. This group proposed new draft figures for valuing the health effects of nitrogen dioxide and fine particulate matter in May 2018. Its analysis drew on work conducted by Public Health England and an independent expert group (Committee on the Medical Effects of Air Pollution) and proposed that appraisals should use damage costs that reflect a wider range of health impacts when assessing the impacts of air pollution. The Department for Environment, Food & Rural Affairs (Defra) updated its guidance on valuing air pollution accordingly in January 2019, and DfT told us that it is on track to implement equivalent updates to transport project appraisal guidance by May 2019 (paragraphs 3.3 and 3.4). 1 The Renewable Transport Fuel Obligations and the EU Renewable Energy Directive allow multiple-counting of certain types of biofuels, such as waste-derived fuels, to incentivise these markets. 2 Energy cannot be multiple-counted towards the overall renewable energy target set by the EU Renewable Energy Directive, meaning that if multiple-counting is used to meet the transport sub-target then other sectors must over-perform for the UK to meet the overall target. DRAFT C&AG’S REPORT FOR ACCOUNTING OFFICER CLEARANCE 6 Introduction and Summary Department for Transport sustainability update 8 Progress on some other issues, however, has been more mixed: • Decarbonisation: In its 2016 report the Committee raised a concern that transport emissions were not on track to fall quickly enough, with a 50% shortfall in 2025 against the cost-effective path for reductions recommended by government’s independent advisers on climate change (the Committee on Climate Change, CCC). It recommended that DfT tackles this shortfall. Since 2016, government has published four strategies relating to its approach to decarbonising transport, covering its overall approach, investment in cycling and walking, and tackling emissions from road transport and shipping. CCC’s analysis suggests that these strategies will help close the gap against its cost-effective path by 2025, if they are translated into firm and funded plans. However, it considers that there will still be a 35% shortfall by 2025 even if the strategies’ ambitions are realised in full, and on the basis of firm and funded policies alone the gap remains at 50% (paragraphs 1.1 to 1.5). • Ultra-low emission vehicles: DfT rejected the Committee’s recommendation to set a clearer market share target for 2020 for ultra-low emission vehicles (ULEVs), but its 2018 ‘Road to Zero’ strategy did incorporate new long-term market share targets, for at least 50% of all new car and van sales in 2030 and an end to the sale of conventional vehicles in 2040. DfT‘s modelling indicates that ULEVs could account for around 5.7% of new car registrations in 2020 if current grants are maintained at the same rate, and around 3.7% if grants were removed for the full year of 2020. This would mean take-up would fall well short of the 9% market share of new cars and vans that the CCC recommends for a cost-effective path to reducing transport carbon emissions (paragraphs 2.1 to 2.9). • Volkswagen recall: DfT considers that it has gone as far as legally possible in meeting the Committee’s recommendations relating to Volkswagen Group’s use of ‘defeat devices’ to manipulate vehicle emissions tests. Volkswagen Group has fixed around three-quarters of the 1.2 million vehicles in the UK fitted with defeat devices, but progress on the recall programme has slowed considerably.