Policy: Vehicle Excise Duty

Vehicle Excise Duty (VED) also known as circulation taxes are taxes levied on vehicles in order to use public roads. Circulation taxes are increasingly used as environmental policy instruments.

Private vehicle fleet (new and second hand).

Incentivise consumer purchasing of new cars towards smaller, more efficient cars.

Implementation Costs:

No specific data found on implementation cost.

UK estimates of foregone tax revenue and operational costs include:

• Foregone revenue due to lower taxes = £100 million/yr. (2002 value)
• Advertising costs to reduce evasion   = £5.4 million/yr.  (2007 value

Enforcement costs:

• Court cases                                      = £2.3 million/yr.   (2007 value)
• Debt collection                                  = £900,000 /yr.     (2007 value)

Implementation Time:

• UK 6 years (2002 – 2008)
• Sweden 3 years (2003 – 2006)

Case Evidence:

• Sweden: 2005 – 2006 average new car emissions reduction of 3.5% (198 – 191 gCO₂/km).
• UK: 1997 – 2005 avgerage new car emissions reduction of 10% (191 – 167 gCO₂/km).
• These emissions reductions were likely influenced by a package of policies targeting the new car market.
• Therefore carbon savings cannot be solely attributed to Vehicle Excise Duty.

Modelled Evidence:

• UK carbon savings of 0.07 – 0.42 MtC in 2010 and 0.3 - 1.6 MtC by 2020 from a 2006 baseline.
• UK up to 25% CO₂ savings achieving average new vehicle emissions of 100 gCO₂/km by 2020 if the most efficient vehicle is purchased in class.
• UK - due to rapid diesel take up from 2001 – 2020 approximately 7 MtC (0.4 MtC per year) savings.
• EU could achieve up to 5% reductions of total CO₂ with proper differentiation of VED and purchase taxes.

• 10 – 15 years (if tax is only applied to new vehicle market)

• Social Equity
• Diesel Emissions

• Overview of European Union countries and Asia (i.e. China, Japan, South Korea)
• United Kingdom – Graduated Vehicle Excise Duty
• Sweden - Environmental Vehicle Excise Duty

Highlighted synergies:

• Fuel Taxes
• Congestion Charging
• Information Campaigns & Eco-labels
• Emission Standards & Manufacturer Agreements
• Company Car Tax

• Raising Public Awareness
• Proper Enforcement
• Local Government Leadership
• Extension to Vans and Lorries