Policy: Carbon Abatement

Case Evidence

In Sweden between 2005 and 2006, average carbon emissions from new vehicles fell from 198 to 191 gCO₂/km. Over the same period, gasoline consumption also decreased by 3.6% while diesel consumption increased by 2.7%. However, diesel makes up only a small share of total fuel use and there is uncertainty whether diesel uptake can be attributed to an increase in demand for more efficient vehicles or other factors such as changing oil prices (Svenske Petroleumsinstitutet, 2006 in Borup, 2007). In the UK, average CO₂ emissions from the new car fleet potentially influenced by VED has decreased by approximately 10% from approximately 191 to 167 gCO₂/km between 1997 and 2005 (EAC, 2006; EST, 2007a). It is important to note that carbon reductions cannot be solely attributed to VED because there were most likely a host of influencing factors such as the manufacturer Voluntary Agreement (VA), eco-labeling schemes and other economic drivers such as disposable income levels and fuel prices.

Modelled Data and Related Estimates

Potential carbon savings from the VED in the UK are aggregated with other policy instruments. Table 2-1 provides projected carbon savings in the UK from 2010 to 2020 from the graduated VED, voluntary agreement package and the company car taxation from a 2007 baseline.

Table 2-1. Projected energy and carbon savings from VED aggregated with other UK policies

Source: Defra, 2007

Disaggregated carbon savings estimates for differentiated VED include:

The Sustainable Development Commission (2006) estimates that a £300 differential between bands could achieve carbon savings in the range of 2 – 12 gCO₂/km/vehicle depending on whether all cars in a band are expected to change or just the top and bottom 10% of each band. This translates into 0.07 – 0.42 MtC in 2010 and 0.3 - 1.6 MtC by 2020. Anable and Bristow (2007) suggest that these estimates may be overly optimistic because they are based on survey evidence where transfer price may lead to unreliable values although giving indication of a likely response. Nevertheless, estimates from UK Budget 2007 indicate similar savings of 0.1 - 0.17 MtC by 2010/11 provided that environmental pricing sends a stronger signal to consumers. For instance, the total number of vehicles in the three lowest CO₂ emissions graduated VED bands are forecasted to grow partly due to VED reform (HM Treasury, 2007).

Modelling results undertaken by COWI (2002) estimate that increased differentiation in UK vehicle excise duty could reduce emissions from new passenger cars by 4.8% between 2005 - 2008. Moreover, changes to both vehicle circulation and vehicle purchase taxes in other European countries could reduce emissions from new passenger cars between 3.3 - 8.5% over the same period. The study concludes that both vehicle purchase and circulation taxes could potentially reduce average emissions from new passenger cars in the EU by 5%. These estimates are based on the following three constraints: 1) no downsizing of vehicles, 2) no increase in the proportion of diesel vehicles in the fleet and 3) no net change in tax revenue (COWI, 2002). If any of these constraints were relaxed, emissions savings could be greater.

More recently, the King (2007) Review of the potential for new car technology to reduce carbon in the UK indicates that there is a wide range of environmental performance within a particular group of vehicles for example family saloons or hatchbacks. As a result, CO₂ emissions and fuel bills could be reduced by up to 25% by simply selecting the most efficient vehicle in its class. The review also concluded that over the long-term the technology exists to reduce the average emissions of new cars to 100 gCO₂/km by 2020 (HM Treasury, 2008).

From 2001 – 2008 since the VED became linked to CO₂ emissions there has been a significant increase in market share of diesel engines where in 2007, diesel held over 1/3 of the total market for new vehicles (Banister, 2007; Kunert and Kuhfeld, 2007; Mazzi and Dowlatabadi, 2007). Mazzi and Dowlatabadi (2007) estimate that 0.4 MtC can be abated over the period 2001 – 2020 from diesel switching in the UK. This represents approximately 7 MtC and 20 million barrels of oil.

Time of Carbon Savings

Case evidence from the UK and Sweden suggest that VED may influence vehicle purchasing choice. Between 2000 and 2006, changes in the UK occurred with the number of cars in band C (121-150 gCO₂/km) rising from 19% to 32% and cars in band F (186-225 gCO₂/km) falling from 24% to 15% of total market share (SMMT, 2007). Between 2005 and 2006, changes occurred in Sweden where new car emissions declined from 198 to 191 gCO2/km. However, carbon savings cannot be directly attributed to the implementation of VED in either country since the data is not disaggregated in the UK and other factors may have influenced the change in vehicle purchasing in Sweden (Borup, 2007; Defra, 2007). It is therefore difficult to estimate the time of delivery of carbon savings directly related to VED. Nevertheless, Harmsen et al. (2003) suggest that once the policy instrument has been implemented, the time of delivery for carbon savings depends upon whether or not the tax only applies to new vehicles or second hand vehicles as well. They estimate that if the tax only applies to new vehicles the delivery time of carbon savings is between 10 to 15 years.