1. This clause exempts the water content of an emulsion of water in gas oil from the excise duty charged on fuel substitutes. This change will come into effect on Royal Assent.

2. Subsection (1) - adds a new subsection (2A) to section 6A of the Hydrocarbon Oil Duties Act 1979 (duty on fuel substitutes). The new subsection 2A provides that the use of water in an emulsion of water in gas oil is not a chargeable use as defined by section 6A(2) (namely, use as fuel or as an additive or extender).

3. Subsection (2) provides that this section shall have effect from Royal Assent.

4. Water/diesel emulsion is an invert emulsion consisting of water in diesel stabilised by surfactants. The surfactants ensure that the water remains evenly suspended throughout the mixture, rather than separating out as would happen in a normal mixture.

5. The clause uses the term gas oil as this includes diesel, ultra low sulphur diesel and red diesel (used in "off road" vehicles).

6. This fuel is aimed at centrally located fleets, pick up and delivery fleets, urban and school buses and waste management fleets. Most of these fleets are urban based and there are benefits for urban air quality from use of this fuel.

7. Early tests show a 9% reduction in nitrogen oxides and a minimum 19% reduction in particulates compared to use of ultra low sulphur diesel. Both of these emissions are a cause of concern in urban areas and use of this fuel is targeted at these environmental hot-spots.

8. This clause shows the Government’s commitment to a fair and equitable approach to duty liability. Current legislation makes any liquid added to a fuel liable to duty at the appropriate rate. However the water content of water/diesel emulsion fuel is not used as a fuel; it is used to disperse the fuel in the engine so lowering the combustion temperature and reducing nitrogen oxide and particulate emissions.

9. This clause will help to make this environmentally friendly fuel economically viable and will target those areas where pollution is a serious concern. This is further evidence of the Government’s action to improve urban air quality.