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Following is a speech by the Secretary for the Environment and Food, Mrs Lily Lam in moving a motion of resolution under Dutiable Commodities Ordinance (Cap. 109) at the Legislative Council meeting today (June 27).

Madam President,

I move that the resolution as set out in the Agenda be passed. The resolution aims to introduce a concessionary duty on ultra low sulphur diesel (ULSD) as a fiscal incentive to encourage diesel vehicles to switch to this environmentally cleaner fuel.

Background and Justification

Improving air quality is a priority for us. In reducing air pollution from motor vehicles, one of the Administration's policies is to adopt environmentally cleaner fuels as far as practicable.

ULSD has a sulphur content of less then 0.005%, ten times lower than that of regular motor diesel now available in the market. The use of ULSD by a motor vehicle reduces its emissions of respirable suspended particulates (RSP) by between 10% and 30%, depending on different operating conditions, and its nitrogen dioxide emissions by about 5%. Use of ULSD will also cut down its black smoke emissions.

ULSD is being used in a number of European countries. Some of them successfully used duty incentives to encourage the switch from regular motor diesel to ULSD. We propose to follow suit.

The Proposal

At present, the duty on regular motor diesel is $2.00 per litre. The duty rate will be restored to $2.89 per litre from 1 January 2001. In order to encourage a quick switch to ULSD, we propose to introduce a duty differential of $0.89 per litre for ULSD from 7 July 2000 to make its retail price competitive with that of regular motor diesel.

Hong Kong will be the first place in Asia to introduce ULSD on a comprehensive scale for its vehicle fleet. Since no oil refinery in the region produces ULSD at present, the oil companies in Hong Kong will have to import ULSD from Europe initially. According to information provided by a number of oil companies, the import price of ULSD will be $0.80 per litre higher than that of regular motor diesel. We propose to introduce a duty differential of $0.89 per litre to offset the higher price of ULSD. The oil companies have agreed to transfer the full benefit of the duty concession to the customers.

According to the oil companies, when the demand from Hong Kong for ULSD is more established, the production of the new fuel in the region will become more viable. The import price of ULSD will drop then as a result of lower freight costs. However, this may not happen until a year after the full-scale introduction of ULSD to Hong Kong. We will therefore decide in 2001 on whether we should maintain or revise the concession duty rate for ULSD in the light of charges in its import price.

The resolution maintains the duty differential of $0.89 per litre for ULSD until 31 December 2001 and sets the duty on ULSD at $2.89 per litre (same as the duty for regular motor diesel) on 1 January 2002. The purpose is to avoid a vacuum period during which ULSD will become undutiable. As I have said, we will conduct a review in 2001 on the appropriate duty level for ULSD in 2002.

According to the latest information available to us, some oil companies will be able to supply ULSD to Hong Kong in three to four months' time. To encourage oil companies to make ULSD available to the local market as soon as possible, we propose to introduce the concessionary rate for ULSD from 7 July 2000.

I urge Members to support my motion. Thank you, Madam President.

End/Tuesday, June 27, 2000

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