Policy: Behaviour Target

Graduated VED based on CO₂ emissions aims to raise awareness among consumers of the impact of vehicle ownership upon climate change and induce a shift towards purchasing lower CO₂ emitting vehicles (Myles and Uyduranoglu, 2002; AEA, 2007). In 2006, an environmental excise duty was introduced in Sweden consisting of a base charge of 360 SKR plus a CO₂ charge of 15 SKR per gram of CO₂ exceeding 100 grams per kilometre (g/km). This charge applies for typical petrol passenger cars, while for alternative fuelled cars the carbon charge is 10 SKR gCO₂/km. The results of the Swedish VED may have contributed to behaviour change in vehicle purchasing. For example, between 2005 and 2006 the share of lower CO₂ emitting vehicles quadrupled rising from 2.9% to 12.8% (Klimataktuellt, 2006, 2007 in Borup, 2007). By April 2007, this figure increased to 14.3% where the amount of vehicles with emissions less than 120 gCO₂/km was three times higher than in 2006. However, the impact of VED upon consumer behaviour is relative given that Sweden still has among the highest levels of high CO₂ emitting vehicles despite rapid uptake of more efficient vehicles. Nevertheless, the Swedish excise tax has been viewed as contributing to changing consumer behaviour (Borup, 2007).

Studies of the potential impact of VED upon vehicle purchasing behaviour in the UK have had mixed and contradictory results (EST, 2004, 2007). Survey’s examining the potential response to greater differentials between VED bands in the UK found 33% of respondents would buy a different vehicle if the difference was £50 rising to 55% for a £150 differential. The highest difference offered in the survey was £300 at which point 28% would not switch, rising to 40% for those owning larger vehicles (DfT, 2003; Lane, 2005). Also, only 3% of respondents stated that VED was important in influencing purchase choice whereas, the second most frequently mentioned influence was fuel consumption at 26%. This suggests that in seeking to influence purchasing behaviour more attention should be given to fuel consumption rather than vehicle emissions. In contrast, a survey for the RAC Foundation found that annual costs would have to increase by at least £1,100 before consumers would switch to more efficient vehicles (RAC Foundation in Lane, 2005).

In terms of raising environmental consumer awareness, VED has also had mixed results in the UK. The Department for Transport (2003) suggest that new vehicle buyers have limited awareness of the graduated VED scheme’s linkage to CO₂ emissions believing it is more based on engine size (DfT, 2003; Lane and Potter, 2007). And where there is knowledge over the role of VED in carbon abatement, the differential that has actually been set in the UK was deemed too low to influence the decision making process. A range has been suggested of £100 - £1,000 as a sufficient differential between vehicle classes to influence purchasing behaviour (DfT, 2003). In contrast, the Energy Savings Trust (EST, 2007) suggest that a VED increase of 1% of the purchase price can increase the cost of ownership of a new car by 12% which may be sufficient enough to induce a shift towards uptake of lower CO₂ emitting vehicles. Moreover, many European states (See Case Studies) are now developing CO₂ graduated fiscal schemes. Figure 2-3 shows comparative data for the UK between 2000 and 2006 revealing that the number of vehicles in band C increased from 19% to 32% and vehicles in band F declined from 24% to 15% of total market share.

Figure 2-3. New Car market distribution by VED (road tax) band

Source: Society of Motor Manufacturers and Traders (SMMT), 2007 

This suggests that the VED may have contributed to increasing consumer awareness thereby influencing consumer purchasing behaviour. However, Vehicle Excise Duty is a fixed cost of car ownership and does not necessarily incentivise motorists to drive less. And although there are positive signs of rising consumer awareness over the link between vehicle purchasing and climate change consumer trends across Europe favour larger and more powerful vehicles (Anable and Bristow, 2007; Banister, 2007). However, in recent months the European market for large cars has slowed which may be more attributable to an upward trend in fuel prices. This points to an opportunity to possibly capture synergies between fuel price and car taxation policies to influence consumer behaviour and reduce carbon emissions.