Impacts of the sale of house coal and the most polluting manufactured solid fuels: report

Executive Summary

Introduction and options considered

As part of the Cleaner Air for Scotland 2 (CAFS2) strategy, various actions are being investigated by the Scottish Government to further reduce air pollution in Scotland. One action being considered is a potential ban on the sale of house coal and of manufactured solid fuels with a sulphur content greater than 2% for domestic use. The fuels under the proposed ban emit significant amounts of particulate matter (PM_2.5 – an important air pollutant) into the environment, and as such the ban aims to improve air quality in Scotland.

This project gathered evidence and undertook analysis to inform the development of a Business and Regulatory Impact Assessment (BRIA) concerning the proposal. A BRIA assesses the likely costs, benefits and risks of proposed legislation on the public and private sectors. This project explored the potential environmental, social and economic outcomes of the following three policy option scenarios:

• Option 1: Take no action (i.e. the baseline) - This is a 'do nothing' counterfactual against which the other options are assessed, and assumes no further change in policy that impacts on the consumption of the fuels in scope.
• Option 2: Voluntary Approach - An information campaign is implemented informing the public of the health impacts of solid fuel use in homes. This then leads to voluntary changes in behaviour around the domestic burning of solid fuels.
• Option 3: Regulating the sale, distribution and marketing of fuels - A ban of the sale of bituminous (or 'house') coal and high sulphur (>2% sulphur) smokeless fuels for domestic use is put in place.

To inform the analysis, a literature review was conducted which captured a range of sources, including the 2022 Defra Solid Fuel Burning and BEIS Residential Wood Survey and the 2019 Defra impact assessment of the same policy options for England. In addition, targeted stakeholder interviews were conducted, in particular with industry stakeholders to gather data on potential effects for Scottish firms.

Impact of proposals on air quality

The key objective of the policy option scenarios is to reduce the emission of harmful air pollutants and the resulting concentration of these pollutants that persist in the air. To explore these effects, detailed air pollution modelling was undertaken using a suite of best-practice tools. The main findings of the air quality assessment were that:

• Domestic combustion for heating and cooking of the solid fuels which fall in the scope of Options 2 and 3 contributed a relatively small amount (an average of 0.07%) to total PM_2.5 concentrations across Scotland in 2019. This compares to other more important sources of PM_2.5 pollution, the top three being transboundary (i.e. pollution coming in from sources outside Scotland), industrial and road sources.
• Introducing an information campaign under a voluntary approach (Option 2) is likely to have a limited effect on PM_2.5 concentrations, mainly as the response to an information campaign is anticipated to have low impact on the behaviour of individuals.
  • Where impacts do take place, there is likely to be a higher reduction in urban areas than rural, as there is a higher proportion of households using wet wood in urban areas compared to rural and (of all the solid fuel types covered in the scope of the Options) wet wood causes the most PM_2.5 emissions per tonne of fuel combusted.
  • The maximum reduction of 0.0013 µg m^-3 for Option 2 was in Aberdeen; this reduction is 0.02% of total PM_2.5 concentrations and 0.3% of modelled domestic combustion concentrations in this location.
• A ban on house coal and high-sulphur smokeless fuel (Option 3) could lead to a larger reduction in PM_2.5 concentrations compared to Option 2. Although a ban would affect a narrower range of fuels (ban would not influence the burning of wet wood, which would also be anticipated to be affected by an information campaign under Option 2), the change is anticipated to be greater given this would be mandated.
  • The highest reductions are in anticipated in rural areas, where there is a higher prevalence of house coal use.
  • The maximum reduction of 0.020 µg m^-3 for Option 3 was in Fort William; this reduction is 0.5% of total PM_2.5 concentrations and 15% of modelled domestic combustion in this location.

The analysis above looks at changes in air quality at particular locations – these impacts can also be viewed over a larger Lower-Super Output Area (LSOA). These results showed similar trends as the location-specific results:

• Overall, in the baseline (Option 1), PM_2.5 concentrations are lower in rural areas, than in more populated areas in the central belt and east coast.
• The impact of both policy options is relatively small (i.e. the difference between total concentrations between the Option 1 (baseline) and Options 2 and 3).
• There are limited decreases in average concentrations in most LSOAs for Option 2. The largest decreases (of an order of magnitude of around 0.001 μg.m^-3) are in urban areas, e.g., in central parts of Aberdeen and Edinburgh.
• There are larger reduction in concentrations in Option 3 than in Option 2 for many LSOAs, particularly in rural areas. The largest reductions (0.02 μg.m^-3) are seen in LSOAs in remote towns, e.g., Fort William and Kirkwall.

Evidence to support the Business and Regulatory Impact Assessment and key findings

The policy options aim to improve air quality in order to reduce the detrimental human and environmental health impacts that are associated with exposure to harmful air pollutants. Human health impacts can be assessed using different approaches –this study adopted a more detailed 'impact pathway approach' in order to produce a more robust assessment. The approach is more robust as it reflects to a greater extent the specific situation in Scotland, namely that given the use of solid fuels is highest amongst households in rural areas, there is likely to be a lower exposure and associated health impact caused by the emissions from burning these fuels (say relative to England, where these fuels are burnt in areas with typically higher population densities).

The assessment of human health effects is combined with other impacts associated with the policy options (i.e. other benefits and costs) in a summary 'cost-benefit analysis' (or CBA). The result of the CBA intends to show whether the policy options would overall provide a net benefit (positive NPV) or net cost (negative NPV) for Scotland, and which would deliver a greater net benefit. The summary results are presented in the following table.

Note: *Table shows that the results applying to sets of assumptions around the relative price of coal and manufactured fuels.

The CBA found that the voluntary approach of stimulating action through an information campaign (Option 2) results in a small, positive NPV (i.e. the option would deliver an overall net benefit for Scotland). The human health benefits through air quality improvements and reduction in greenhouse gas emissions are seen to outweigh the increased fuel costs and implementation costs of the policy. These effects stem from an assumed shift in the type of fuel used: from wet wood to dry wood, and from coal to manufactured solid fuels. Although there is a small reduction in the overall amount of fuel consumed (given cleaner alternatives are marginally more efficient), there is an increase in fuel costs as the unit price of cleaner alternatives (in particular dry relative to wet wood) is relatively higher.

For Option 3, the CBA findings show that whether a ban on domestic use of coal and limit on sulphur in smokeless fuels could deliver a net benefit or a net cost for Scotland depends on the fuel prices assumed in the analysis. I.e. the result is sensitive to the difference (if any) between the assumed prices of coal and manufactured fuels.

When using price data from the 2019 Defra Impact Assessment^[1] (which considered the impacts of a similar ban for England), the costs of a proposed ban in Scotland outweigh the benefits for the policy – the NPV is a net cost of £5.1m. This result is driven largely by the increased fuel costs associated with switching from relatively cheap coal to more expensive manufactured solid fuels not in scope of the ban (assumed prices of fuel in this scenario: £293 per tonne of coal vs. £358-406 per tonne for smokeless fuels).

However, this source of price data is now several years old. Targeted interviews with stakeholders were conducted as part of this study in 2022 in which stakeholders indicated that the prices of coal and alternative, less polluting/smokeless fuels have converged in recent years to be effectively the same or very similar. Assuming equivalent prices for coal and smokeless fuels results in a positive NPV of £7.1m for Option 3 as the fuel cost (under the 2019 Defra IA prices) then becomes a fuel benefit due to the underlying reduction in the total amount of fuel consumed given the greater efficiency of burning manufactured fuel relative to house coal.

This highlights the strong sensitivity of the overall result, and the conclusions drawn, to the fuel price assumptions used. Views on the relative prices were provided by the industry stakeholders as part of the study and hence could be considered more up-to-date – as such the assessment utilising these assumptions could be considered a more likely picture of impacts as of December 2022. This suggests that should the cost of coal and alternative, less polluting/smokeless fuels remain equivalent, Option 3 could deliver a net benefit for Scotland.

It is also important to note that other, additional benefits have also not been captured in the NPV and monetised assessment, such as reduction in emissions of SO₂ brought by the 2% sulphur limit on manufactured solid fuels, and reductions in indoor air pollution, both of which will deliver an additional benefit for human (and environmental) health.

Alongside the summary cost-benefit analysis, a number of specific impact tests have also been carried out to consider the potential for important effects or outcomes for specific groups in more detail.

The sector for which there would be greatest potential for effect was identified as Scottish businesses, in particular those involved in the supply and distribution of solid fuels. Based on data gathered from industry stakeholders, the impacts of either option on businesses are expected to be negligible. It was found that the vast majority of fuel suppliers already sell a wide variety of fuels (or can do so easily), including alternative fuels not subject to the ban. Hence they would be able to adapt easily to any behaviour change under either option with limited impact on their operations. Furthermore, there is no difference in profit margins between banned and alternative fuels.

For consumers, the most important impact will be the change in fuel cost, which (as identified in the cost-benefit analysis) is uncertain – there could be an additional cost, but using more up-to-date evidence around relative fuel prices, there could in fact be no additional cost. It is anticipated that given the negligible impacts on businesses as outlined above, the number of suppliers will remain fairly constant and no issues around access to fuels and cleaner alternatives have been identified.

The assessment also did not identify any non-negligible impacts for: intra-UK trade, international trade, competition or digital transition.