Policy: Definition & Typology

Vehicle Excise Duty (VED) also known as circulation taxes are taxes levied on vehicles in order to use public roads. Originally, vehicle taxes were largely introduced to gain revenue but are increasingly used as environmental policy instruments. Typically, the amount of charges levied are based on vehicle characteristics such as weight or power but are now increasingly linked to specific environmental characteristics including NO_X, CO, PM₁₀ and CO₂ emissions (Harmsen et al., 2002). As such, there are two main types of VED, those that charge based directly on environmental performance and those based upon other vehicle characteristics such as engine size. For example, in 2001, the UK Government introduced a revised system for Vehicle Excise Duty (VED) based on the CO₂ emissions performance of new vehicles. All new vehicles registered on, or after March 1, 2001 are charged based on CO₂ emissions performance differentiated by bands (A-G). A indicates emissions performance of 100 gCO₂/km or less, while G indicates 226 gCO₂/km and above. Band A vehicles are charged (£0) while petrol and diesel band G vehicles are subject to a £300 annual charge rising to £400 in 2008 (AEA, 2007). From 2009, the VED will be further reformed where in 2010 there will be a new higher first-year rate based on CO₂ emissions (HM Treasury, 2008).