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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.