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Motor vehicle taxes based on CO2 emissions are widespread throughout the EU. Table 3-1 lists European countries in 2008 with various vehicle taxes including circulation taxes linked to carbon emissions. Other forms of vehicle taxes are also listed in the table including registration taxes and fuel consumption taxes to give an overview of the breadth of taxation policies linked to carbon emissions performance of cars implemented across Europe.
Figure 3-1. Overview of CO2 based motor vehicle taxes in the European Union
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Country
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CO2/Fuel Consumption Taxes
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Austria
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A fuel consumption tax (Normverbrauchsabsage or NoVA) is levied upon the first registration of a passenger car calculated as follows:
· Petrol cars: 2% of the purchase price x (fuel consumption in litres – 3 litres)
· Diesel cars: 2% of the purchase price x (fuel consumption in litres – 2 litres)
Under a bonus-malus system starting on 1 July 2008, cars emitting less than 120g/km receive a maximum bonus of € 300. Cars emitting more than 180g/km pay a penalty of € 25 for each gram emitted in excess of 180g/km. (160 g/km as from 1 January 2010). Alternative fueled vehicles attract a maximum bonus of € 500.
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Belgium
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1. Tax incentives are provided for purchasing a car that emits less than 115g CO2 /km. The incentives consist of a reduction of the invoice price of the following amount:
· Cars emitting less than 105g/km: 15% of the purchase price, with a maximum of € 4,350
· Cars emitting between 105 and 115 g/km: 3% of the purchase price, with a maximum of € 810
2. The company car tax is based on CO2 emissions.
3. The deductibility of expenses related to the use of the car (60 to 90%) is linked to CO2 emissions.
4. The Walloon Region operates a bonus-malus system whereby new cars emitting 145 g/km or less obtain a bonus (maximum € 1,000 for cars below 105g/km) and cars emitting more than 195 g/km pay a penalty (maximum € 1,000 for cars emitting more than 255 g/km).
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Cyprus
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1. The rates of the registration tax (based on engine capacity) are adjusted in accordance with the vehicle’s CO2 emissions. This adjustment ranges from a 30% reduction for cars emitting less than 120 g/km to a 20% increase for cars emitting more than 250 g/km.
2. The rates of the annual circulation tax (based on engine capacity) are reduced by 15% for cars emitting less than 150 g/km.
3. A premium of € 683 is granted for the purchase of a new car when its CO2 emissions are below 120 g/km. For the purchase of hybrid and flexible fuel vehicles, the premium amounts to € 1,196.
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Denmark
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1. The annual circulation tax is based on fuel consumption.
· Petrol cars: rates vary from 520 Danish Kroner (DKK) for cars driving at least 20 km per litre of fuel to DKK 18,460 for cars driving less than 4.5 km per litre of fuel.
· Diesel cars: rates vary from DKK 160 for cars driving at least 32.1 km per litre of fuel to DKK 25,060 for cars driving less than 5.1 km per litre of fuel.
2. Registration tax (based on price): An allowance of DKK 4,000 is granted for cars for every kilometre in excess of 16 km (petrol) and 18 km (diesel) operating on one litre of fuel. A supplement of DKK 1,000 is payable for cars for every kilometre less than 16 km (petrol) and 18 km (diesel) operating on one litre of fuel.
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Finland
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1. The registration tax is based on CO2 emissions. Rates vary from 10% for cars emitting 60g/km or less to 40% for cars emitting 360g/km or more.
2. The annual circulation tax (currently based on weight) will be based on CO2 emissions from 2010 onwards. Rates will vary from € 20 to € 605 per year.
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France
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1. Under a bonus-malus system, a premium is given for purchase of a new car when its CO2 emissions are below 130 g/km. The maximum premium is € 5,000 (below 60 g/km). A “super-bonus” of € 300 is given when a car of at least 15 years old is scrapped simultaneously. A tax is payable for the purchase of a car when its CO2 emissions exceed 160 g/km. The maximum tax amounts to € 2,600 (above 250 g/km). The different thresholds are strengthened by 5g/km every two years.
2. The regional tax on registration certificates (“carte grise”) is based on fiscal horsepower, which includes a CO2 emissions factor. Tax rates vary between € 25 and € 46 per horsepower according to the region.
3. The company car tax is based on CO2 emissions. Tax rates vary from €2 to €19 for each gram for cars emitting 100g/km or less to €19 for each gram emitted for cars emitting more than 250g/km.
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Germany
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The Federal Government intends to change the basis of the annual circulation tax from cylinder to CO2 emission from 1 January 2009. Cars with CO2 emissions below 100 g/km are exempt.
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Ireland
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1. From 1 July 2008, the registration tax will be based on CO2 emissions. Rates vary from 14% for cars with CO2 emissions up to 120g/km to 36% for cars with CO2 emissions above 225g/km. Hybrid and flexible fuel vehicles will benefit from an additional tax relief of € 2,500.
2. The annual circulation tax will also be based on CO2 emissions. Rates will vary from €100 (up to 120 g/km) to € 2,000 (above 225 g/km).
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Italy
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A tax incentive of € 800 and a two-year exemption from annual circulation tax is granted for purchase of a new passenger car complying with the Euro 4 or Euro 5 exhaust emissions standards and emitting not more than 140 gCO2/km, provided a Euro 0 or Euro 1 car is scrapped simultaneously. The exemption from annual circulation tax is extended to three years for cars with a cylinder capacity below 1,300.
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Luxembourg
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The annual circulation tax is based on CO2 emissions. Tax rates are calculated by multiplying the CO2 emissions in g/km with 0.9 for diesel cars and 0.6 for cars using other fuels respectively and with an exponential factor (0.5 below 90 g/km and increased by 0.1 for each additional 10 g of CO2 /km).
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Netherlands
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1. The rate of the registration tax (based on price) is reduced or increased in accordance with the car’s fuel efficiency relative to that of other cars of the same size (length x width). The maximum bonus is € 1,400 for cars emitting more than 20% less than the average car of their size, the maximum penalty is € 1,600 for cars emitting more than 30% more than the average car of their size. Hybrid cars benefit from a maximum bonus of € 6,400. Cars emitting more than 232 g/km (petrol) and192 g/km (diesel) pay an additional tax supplement of € 110 per gram emitted in excess of these thresholds.
2. The annual circulation is reduced by 50% for cars with CO2 emissions up to 110 g/km (petrol) and 95 g/km (diesel).
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Portugal
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The registration tax is based on engine capacity and CO2 emissions. The CO2 component is calculated as follows:
· Petrol cars emitting less than 120g pay [(€ 5 x g/km) - 475]. Diesel cars emitting less than 100g pay [(€ 15 x g/km) – 1,100]
· The highest rates are for petrol cars emitting more than 210g [(€ 115 x g/km) – 19,285] and for diesel cars emitting more than 180g [(€ 160 x g/km) – 21,190].
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Spain
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The registration tax is based on CO2 emissions. Rates vary from 0% (below 120 g/km) to 14.75% (above 200 g/km).
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Sweden
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1. The annual circulation tax for cars meeting the Euro 4 exhaust emission standards is based on CO2 emissions. The tax consists of a basic rate (360 Swedish Kroner) plus SEK 15 for each gram of CO2 emitted above 100 g/km. This sum is multiplied by 3.15 for diesel cars registered for the first time in 2008 and by 3.3 for other diesel cars. For alternative fuel vehicles, the tax is SEK 10 for every gram above 100 g/km.
2. A premium of SEK 10,000 is granted for the purchase of “environmentally-friendly cars”:
· Petrol/diesel/hybrid cars with CO2 emissions up to 120 g/km
· Alternative fuel/flexible fuel cars with a maximum consumption of 9.2 l (petrol)/8.4 l (diesel)/9.7cm/100 km (CNG, biogas)
· Electric cars with a maximum consumption of 37 kwh/100 km
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UK
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1. The annual circulation tax is based on CO2 emissions. Rates range from £ 0 (up to 100 g/km) to £ 300 (petrol, diesel) and £285 (alternative fuels) for cars emitting more than 225 g/km.
2. Company car tax rates range from 15% of the car price for cars emitting less than 140 g/km to 35% for cars emitting more than 240 g/km. Diesel cars pay a 3% surcharge.
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Source: ACEA, 2008
Vehicle taxation often varies by engine size or power although other schemes are directly linked to environmental performance. In Denmark, the tax varies with fuel consumption, whereas Germany links tax liability directly to the European emission standards, with the least polluting car paying 20% the rate of the most polluting vehicle. However, the overall tax is low (approximately 50 Euros or £35 per car) that its impact on car choice is negligible. For cars registered from 2001, the UK has adopted a CO2 emission-based system in four bands (A-D). In 2003, two further bands were added for very low CO2 emission cars with a charge range of £55 to £165 (81- 243 Euros). A similar system has also been introduced in the UK for lorries, with seven charge bands according to emissions and amount of road wear imposed (Potter and Parkhurst, 2005). German and Portuguese Governments have recently announced intentions to re-structure their equivalent VED taxes based on CO2 vehicle emissions. Among the 18 European countries which levy a registration tax approximately 8 include ecological aspects into the taxation scheme with criteria for emission pollutants or fuel consumption (Defra, 2007: Kunert and Kuhfeld, 2007).
Schemes are also in place in Asia. In China by mid-2000, a 30% reduction in excise tax was announced for purchases of light-duty vehicles meeting Phase 2 EURO emission standards which were not required in Beijing until 2003. This accounts for 5% of the vehicle purchase price for a typical car in China. The policy was in effect by the end of 2001 and was viewed to be successful in promoting the early sales of low-emission cars. A similar excise tax deduction will be given to vehicles meeting EURO 3 emission standards (Hau et al., 2006). Vehicle excise taxes are also in place in Japan and South Korea (Gray et al., 2006). The following provides more detailed case analyses of the United Kingdom and Sweden.
