Car tax regimes determine countries with lowest CO₂ from new sales

The Netherlands had the lowest CO₂ emissions from new cars of all 28 EU member states in 2013 at 109 g/km. The country saw the second best overall reduction, 30.4%, since the EU introduced binding CO₂ limits for new cars in 2008. The Netherlands’ car registration tax is steeply differentiated by fuel economy while it has exemptions from circulation tax for very low-carbon vehicles including electric cars.

It also strongly differentiates against CO₂ emissions in the taxation of ‘benefit in kind’ payments for company cars to incentivise the purchase of the lowest-emitting vehicles.

Germany, the largest European car market, was by far the worst performer of the EU’s 15 longest participating member states with 136.1 g/km. It has no significant registration tax and annual circulation taxes are so weakly graduated according to CO₂ emissions as to have little effect on consumer choice. Company cars are hugely subsidised with a benefit-in-kind payment of 12% of the car price per year, not differentiated by CO₂. Germany also has a labelling scheme widely criticised for being counterintuitive; a Porsche Cayenne emitting 191g/km is rated the same as a 114g/km Citroen C3.

However, car taxes graduated according to CO₂ emissions have sharply increased the share of diesel cars, which typically have around 15% lower tailpipe CO₂ emissions than petrol cars but are a major cause of pollution in urban areas and 400,000 premature deaths every year.