Official Report: Minutes of Evidence

The Chairperson (Mrs Erskine): I welcome Mr David Strain, Mrs Eilis Ferguson and Mr Patrick McEvoy, all of whom are from the transport planning and policy division in the Department for Infrastructure.

Are members content that the evidence session be recorded by Hansard?

The Chairperson (Mrs Erskine): I invite you to make an opening statement, after which members will ask questions. There was a bit of confusion last week, so we would like some clarity after that briefing as well.

Mr David Strain (Department for Infrastructure): Thanks, Chair, for inviting us back this morning. This is an opportunity for us to provide some further clarification of the implications of the introduction of the vehicle emissions trading schemes (VETS), following the oral evidence provided by the National Franchised Dealers Association (NFDA) last Wednesday. During that briefing, the NFDA articulated its concerns and how it felt that it would be impacted on by the introduction of the mandate and trading scheme, which is agreed with the Government and is managed by manufacturers with whom NFDA has commercial relationships.

Hopefully, today, we will be in a position to provide further information that will clarify the policy intention and the benefits of joining the scheme for Northern Ireland. The introduction of the mandate here reinforces the collective responsibility that is being placed on manufacturers to produce the number of zero emission vehicles (ZEVs) that will be required to decarbonise the private car and van market across the UK.

The targets that have been set do not relate to individual markets such as Northern Ireland. They are designed to reflect the ambition across England, Scotland, Wales and Northern Ireland, and, by the very nature of the scheme, that will allow manufacturers to trade credits and offset sales in one area to assist in other areas where there are different market dynamics.

Having considered the evidence provided by NFDA and the questions that members posed last week, we believe that there are three key areas on which it would be helpful for us to provide clarification today. The first is issues around type approval, which were raised as being related to the scheme. The second area is the transitional arrangements that would be put in place for Northern Ireland to join the scheme. The third area is the policy and cost implications of not aligning with the other three nations, remaining outside the scheme and failing to benefit from a UK market approach.

I will pass over to Eilis, who has been working closely with the Department for Transport (DfT) and the other devolved Governments on the development of the statutory instrument. She will take you through some of those areas.

Mrs Eilis Ferguson (Department for Infrastructure): Good morning. After watching last week and hearing what the NFDA had to say, as David said, I will touch briefly on type approval issues. I will clarify what type approval is and say a little about how Northern Ireland would join and meet the targets and what it would mean if we were to join or not join the scheme.

First, I want to be clear that type approval has nothing to do with the vehicle emissions trading scheme. It has nothing to do with the legislation that we are trying to put through, nor does it have anything to do with the zero emission vehicle mandate. That said, it is obviously a concern for the NFDA, so we want to touch on exactly what it is and give you a bit of clarification. It is a reserved matter, so, if the NFDA is concerned, it would be appropriate for it to discuss that with manufacturers and DfT. Equally, however, I will highlight that to DfT — I have weekly meetings with DfT — to ensure that it is aware that that is a concern for the NFDA in Northern Ireland.

DfT has provided me with some information on the three type approvals that cover the UK, including Northern Ireland. There are GB type approvals, which are for GB-only vehicles. A type approval is basically a standard that a car needs to meet in order to comply with safety regulations. There are EU approvals, which cover the EU and Northern Ireland, and there are UK/NI approvals, which cover Northern Ireland and GB and are basically a clone of the EU standards.

The NFDA highlighted the concern that cars would be approved only for GB, which would mean that they could not get them in Northern Ireland, but that affects a tiny number of vehicles. Generally, cars are made by manufacturers in the EU and get UK/NI type approval, so they can come to Northern Ireland. The examples that I was given for GB-only cars were a bespoke Morgan or a bespoke Caterham; in other words, the type of vehicle of which the manufacturer does not sell any in Northern Ireland or for which there is no market in Northern Ireland. They are not bespoke vehicles that a member of the public would request a manufacturer to make for them. If I were to go to a dealer and say, "I would really like that Morgan" — that would be lovely — the manufacturer would make it bespoke for me and would have to get a type approval appropriate for the jurisdiction that I live in. That is not what is being talked about.

Hopefully, that gives you a bit more clarification on what type approval is. It does not have anything to do with vehicle emissions trading schemes. I will leave that there. It is a reserved matter that does not come under our remit, so I cannot comment too much on it.

I will move to vehicle emissions trading schemes. The 28% target that was highlighted at last week's Committee is not for Northern Ireland or for a dealer but for a manufacturer that sells its vehicles in the whole of the UK. It gives the manufacturer the opportunity to meet the target across the UK market. For example, manufacturers sell a lot of zero emission vehicles in London. They will sell more than 28% in London, but they may sell 0% in Ballymena. The target of 28% per manufacturer covers all its sales from every dealership everywhere in the UK. No one dealer or one location will have to sell 28%. The target is per manufacturer: it includes every Ford, every BMW or whatever all over the United Kingdom. Hopefully, that clarifies the target element. It would be extremely difficult for any one dealer or location to meet that.

Manufacturers can meet the target not only by offsetting, whereby they sell a higher number of zero emission vehicles, but by using CO2 emission credits. If they do better with CO2 emissions than they are expected to, that gives them a buffer that they can transfer to a credit, swap it over and use it to offset not meeting their zero emission vehicle targets. That is one way of doing it. They can borrow credits from future years to meet their targets. They can trade with other manufacturers by buying and selling their targets. If they have excess credits, they can bank them to use in future years. You will see that some manufacturers will have to borrow credits from future years, because they do not currently manufacture zero emission vehicles. It is not of interest to them, because they know that, in three years' time, every vehicle that they manufacture will be a zero emission vehicle. They can fluctuate, and those flexibilities are how a manufacturer can meet the target.

Right now, in 2024, the percentage is 22%. BMW currently sells 26%. Some manufacturers are doing particularly well, and they will be able to bank their credits. Some manufacturers are doing poorly, but they know that, in two years' time, they will exceed the target, so they will borrow from future years.

I highlight the fact that the target is UK-wide; it is not for Northern Ireland or for a dealer. However, as I said, zero emission vehicles make up only half of the vehicle emissions trading schemes. Manufacturers want to sell a certain percentage of their new vehicles as zero emission vehicles, but they also need to make sure that their CO2 emissions do not go above a certain level. They can use both sides to trade or borrow back and forth between the two schemes. That gives them the opportunity to make sure that they can meet both targets by swapping credits or by selling them to or borrowing them from other manufacturers. That is what we are trying to encourage you to approve.

We are currently under regulations for CO2 emissions only; there is no zero emission vehicle element in them. The CO2 flexibilities are much narrower and will tighten by 15% from January. That is a significant tightening. Looking at the grammes per kilometre figure for CO2, we see that is a significant jump from where we are now. The manufacturers want a scheme with the option of going UK-wide. Manufacturers are not interested in having a Northern Ireland-only scheme, just as they are not interested in having a Scotland-only, England-only or Wales-only scheme. They want it to be UK-wide so that cars flow much more easily throughout the automobile industry.

If we do nothing and the Northern Ireland Assembly decides, "No thanks," to this, the whole bit of legislation — the amendment — will fall and not go through in any jurisdiction. The same would happen if Scotland or England were not to pass it. In that case, new legislation with the admin elements of the amendment would have to be drafted and put through GB, leaving Northern Ireland out. If that were to happen, we in the Department would take on admin duties for the current CO2 regulations. DfT currently does that admin, and it costs about £0·5 million a year.

Manufacturers are not interested in running two schemes. I am not a manufacturer, so I cannot say what I would do, but they are not interested. They have said that they are not interested in having multiple schemes. It is too much, and the fines are too great. We are keen for there to be one scheme throughout the UK and for Northern Ireland to be part of that scheme.

The Chairperson (Mrs Erskine): OK.

Mr Strain: Chair, may I make a final remark? Thanks to Eilis for running through that.

This is really important to all of us as part of the pathway. The Minister was up last week, and other colleagues will come to you to talk about the need to reduce vehicle kilometres travelled and to shift our modes of transport and our types of fuel. This is one part of that pathway. This part is needed to help us to build that approach and meet the requirements of the Climate Change Act (Northern Ireland) 2022, which the Assembly approved in that year. We are working our way through the pathway. Our colleagues will be up to talk to you about the active travel side of things and all those other pieces, but this piece is key at this stage.

The Chairperson (Mrs Erskine): Thank you very much. I gave you a bit of latitude because, given that there was a bit of confusion following last week's briefing, we needed to get an understanding of this. I appreciate your coming back to the Committee. I will come to members for questions, so, if members want to indicate, we will get to them.

This question sticks out in my mind: why did dealers misconstrue what the mandate was there to do? Is it because there was a lack of engagement with dealerships in Northern Ireland?

Mrs Ferguson: I am not sure why they were confused. There was a consultation two years ago. The NFDA responded to that consultation. This year, the CEO of the NFDA said that it was keen for VETS to be put into Northern Ireland, so I am not certain why it felt that it would be detrimental to Northern Ireland as an entity. There has been some engagement between DfT and the NFDA: DfT wrote to NFDA about type approval as long ago as November 2023.

Mr Strain: I will come at this from the perspective of concern about change, particularly in a commercial environment. Manufacturers will have relationships with all those dealers, and, as we all know, a manufacturer will say, "If you want my business, you have to sell this number of cars". We are not party to those commercial relationships. We looked at the policy intention side of things rather than that side of it. You can see why they may have thought, "OK, suddenly, we'll have to meet these targets that have been met in GB for the last year", because the scheme was introduced earlier in the other three jurisdictions. From that perspective, maybe there was uncertainty on their side and with the manufacturers. However, we cannot really speculate on that, because we were not party to those conversations. We can only listen to the concerns that the NFDA articulated last week.

The Chairperson (Mrs Erskine): You have spoken about not being privy to those conversations with the manufacturers and that type of thing. However, have you had any indication that manufacturers would pull out completely and exit the NI market, which was one of the concerns?

Mrs Ferguson: The only indication that we have had is that the manufacturers have approached DfT to say, "We are not interested in multiple schemes. If we have to deal with multiple schemes over the UK, we will have to consider our position, because the fines would be so great if Northern Ireland were under a totally different jurisdiction". They are not interested in that, which you can understand. We are a small percentage of the UK market. That would be much more detrimental to us than to them. I do not see them pulling out, because we are a part of this. It would be possible if we decided to do nothing, however.

Mr Strain: Chair, if you were to ask, "Have you heard of any one specific manufacturer saying that it will pull out of Northern Ireland?", the answer would be that we have not heard of anybody considering that approach.

The Chairperson (Mrs Erskine): Mark, were you wanting in on that point?

Mr Durkan: No, I will wait.

Mr Stewart: Thank you for your evidence today. It answered virtually every question that I had on the basis of last week's session.

May I get clarity on two points? First, in last week's evidence, there was a suggestion that there might be a second tier of targets for Northern Ireland. If that were even possible, which, from your evidence today, I do not think it is, what cost impact would that have on the Department and the Executive generally?

Secondly, I want to touch in more depth on the consultation that was run two years ago. My recollection of that consultation is that there was overwhelming support from dealerships and manufacturers for the scheme. Was that pretty much the case from everyone who fed back into it?

Mrs Ferguson: Yes. I believe that there were 143 responses to the consultation, only four of which were from Northern Ireland. Ninety-six per cent of the 143 respondents wanted one scheme and wanted Northern Ireland to be a part of it. They overwhelming wanted us to be a part of it.

On your first question, do you mean if we do not join or if —?

Mr Stewart: It was suggested that, under the legislation, there would be a second tier of targets specifically for Northern Ireland. That was my sense of one of the proposals.

Mrs Ferguson: I think that what NFDA desired —.

Mr Stewart: Yes, that is exactly it. It is just to quash that suggestion. That is not even possible in the current context, is it?

Mrs Ferguson: No.

Mr Stewart: That is all that I wanted to hear. It has been useful. Thank you.

Mr Boylan: Chair, it is a pity that your colleague Harry Harvey is not here. He would be able to explain what type of Caterham sports car we could purchase. [Laughter.]

I am happy with the explanation. I was concerned last week about European approvals compared with GB approvals. That was my main point: how the British market is able to transfer into the European market. After the explanation given today, I fully understand that. I wanted to seek reassurance on what exactly that meant, and I am content with the explanation that has been given today.

Mr Durkan: Likewise, in your introductory remarks, you said that it is important that we understand, and I feel that the Committee now has a very clear understanding. Credit to the team not just for coming along today but for the manner in which the evidence has been presented. It begs this question: why is there that misunderstanding among the sector? What engagement has there been? I know that there was a consultation, but have you had any direct engagement with it on the issue? That might be helpful and allay a lot of the concerns that it clearly has.

Mr Strain: The development of the statutory instrument and the approach was based on the fact that Northern Ireland did not join the scheme initially because the Assembly was not sitting at that time. It is the manufacturers who have to manage it if government says, "If we are to look towards net zero for 2030 or 2035, petrol and diesel cars will be banned", along with all the movement that there has been over the past couple of years. With the consultation, the introduction of the scheme and the amendment that was required, we were able to piggyback on the amendment, which was made easier for us because it was just on technical issues. The conversation was really between the manufacturers about how they will help the Government to meet their targets and how they will meet their targets over that time.

Mr Durkan: We legislate for a living or are supposed to, and it is confusing for us at the best of times, so it is difficult for other groups and organisations if they hear another narrative or a different explanation or interpretation from elsewhere. It might be helpful to have an engagement with them, because they would gain confidence from hearing the simple and effective way in which it has been outlined to us today.

Mr Strain: Mark, we have agreed to meet them after we talk to you today. We said that we would meet them later in the week or early next week. That engagement will take place.

Mr Durkan: Finally, are you aware of any representative groups in other regions that are airing similar concerns?

Mrs Ferguson: No. There is a vehicle emissions trading scheme operational user group. Manufacturers sit on that. They are extremely involved in the process and overwhelmingly keen for Northern Ireland to join. No body other than the NFDA has raised those concerns, be that because nobody has any concerns or because they are leaning the other way and are keen for us to join.

Mr Durkan: Thank you.

Mr McMurray: Thank you. This has been incredibly useful. I ask you to expand slightly on how running a separate scheme would be detrimental to achieving our Climate Change Act commitments. You touched on it, but a bit more expansion would be great, because it is important.

Mrs Ferguson: Do you mean the separate scheme that we are under or something completely different?

Mr McMurray: Doing something completely different by not taking all this on board.

Mrs Ferguson: If we did not join VETS, we would remain under the current CO2 regulations until we created our own legislation, which would mean primary legislation. That could take a number of years, which would mean having such a jump to meet targets that it would be a massive issue for manufacturers.

Mr Strain: We would lose out on the economies of scale that we would have with a four-nation approach, which allows us to help each other with the trading aspect of the scheme and with moving towards net zero in 2050.

Mr K Buchanan: Thanks for coming along. I appreciate the information; you have cleared up a lot of points. If you were to look at this broadly as someone in the manufacturing world — I appreciate that you are not; I am asking you to be — what would be the positives and negatives of it in Northern Ireland? You will have to wear a different hat.

Mrs Ferguson: I have to wear my manufacturing hat, OK. When you look at it from the broader perspective of where I sell my cars and where I manufacture my cars, you see that the manufacturer probably gains a lot less than we do. A manufacturer is gaining 2% of their sales across the whole of the UK, but what we gain in industry, economics and jobs is massive. While manufacturers are gaining the ability to run one scheme, the ease of selling is simplified because they are all under the same trading scheme. To lose that would be enormous for us.

You also asked for cons. If you are a manufacturer who is trying to sell a car and you do not have this scheme, it will be worse for you, because you will have to run two admins and you will, potentially, be fined, because your CO2 targets will be different under one scheme versus the other. That is detrimental to a manufacturer. The ease with which you sell your cars across the four nations will be greater under one scheme. I am not a manufacturer, so I will leave it at that.

Mr K Buchanan: Will you take off your manufacturer's hat and put on your dealer's hat?

Mr Strain: Dealers and manufacturers are both under pressure, but the pressures are different. Manufacturers have to develop the cars, develop the technology and move away from the integrated circuit manufacturing procedures that they have at the moment, and they are being pressed by government policy not just in the UK but in Ireland and Europe. Therefore, they are being forced down that route, and that is a pressure on them. They need to be able to transform their businesses to meet those requirements.

Similarly, the dealers are under pressure to sell the vehicles that the manufacturers provide. You have a double whammy: manufacturers are saying, "We're being pushed by government. We need to be in the marketplace, but we also need to be competitive with other manufacturers and, from a commercial point of view, win the game". The dealers are in a similar position: they are saying, "The manufacturers will place pressure on us".

The answer to that is that we are all under pressure. There is a climate emergency, and we all have to get to the point where we can reduce the emissions that are being produced by transport. This is part of that whole process, and everybody plays a part. There is also the policy end of it, which we are trying to get you to consider today, and all of the other things that the Minister is trying to take forward from a sustainable transport perspective. They are all part of it, too. Keith, hopefully, that balances that out.

Mr K Buchanan: Yes, it gives an argument from every side.

The Chairperson (Mrs Erskine): Mark, are you wanting in on that point?

Mr Durkan: You recognise that there is pressure on dealers, but is it fair to say that that pressure might be more acute in the North, given the lower and slower uptake of electric vehicles?

Mr Patrick McEvoy (Department for Infrastructure): I will take that question, Mark. The pressures are undoubtedly there, as David said. I will take that point back to Keith's question. At last week's evidence session, the NFDA touched on the concern that some manufacturers may withhold certain models. As the market develops and changes, there is an inevitability to what type of car and new models are available. There may be some concerns around a popular model from a specific dealer no longer being available. We are seeing improvements in the uptake here. The most recent statistics available show that just over 2·5% of the cars on the road here are electric vehicles. It was about 1·4% just over a year ago. We are now at a higher percentage of our total fleet than Wales is, which is already in VETS. We are seeing the adoption and change, and the pace of change is growing. Considering how that is moving forward, we see Northern Ireland as a place that is welcoming of it.

Mr McReynolds: Thank you for coming in. We are all incredibly reassured by that presentation. All of my questions have been answered, but I have one brief point on which I would like clarification. It is on cars moving from Northern Ireland to the South. I have family who live in Strabane, which I seem to talk about all the time. If they wanted to sell a car to the South, would there be issues? How would that look?

Mrs Ferguson: It depends on whether the car has EU type approval or UK/NI type approval. Again, it is a separate issue.

Mr McReynolds: Yes.

Mrs Ferguson: Yes. The second-hand market is totally different. The type approval issues that the NFDA raised last week were for newly registered cars that have not been sold before. If you have a used car that you want to sell, there may be some issues about where it was bought: for example, if the car was bought in France and you want to sell it in the UK, that is neither here nor there. As long as a used car has EU approval or UK/NI approval, it is good to go.

Mr Strain: Apart from the approval issues, the normal import/export aspects still apply. If someone from the South wants to buy a car in the North, they will know all about those.

Mr McReynolds: Perfect. Thank you very much.

The Chairperson (Mrs Erskine): Thank you. I think that we have covered all members' questions. We appreciate your coming to the Committee today. It provided us with clarity on all the issues that we had. I appreciate your evidence today. Thank you.