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The way EU governments tax cars has a considerable impact on the uptake of more fuel-efficient vehicles, the last part of T&E’s ‘How clean are Europe’s cars 2014’ report reveals today. Countries with the lowest levels of CO2 from new cars tend to have registration and company car taxes that are strongly graduated according to carbon emissions and have the greatest influence on car buyers’ choices. Countries failing to encourage fuel efficient vehicles must import more oil harming growth and job creation as money pours out of the economy.
In 2013, the Netherlands achieved the lowest CO₂ emissions from new cars of all 28 EU countries at 109 g/km. It also shows the second best overall reduction across Europe since the introduction of binding CO₂ limits for new cars in 2008, at 30,4%. This performance is largely due to a registration tax that is steeply differentiated by fuel economy, as well as exemptions from circulation tax for very low-carbon vehicles including electric cars. The Netherlands also has a strong differentiation against CO₂ emissions of the taxation of ‘benefit in kind’ payments for company cars, which were further revised downwards in 2012 and subsequently continue to incentivise the purchase of the lowest-emitting cars.
In contrast, Germany’s 2013 average CO₂ emissions from new cars was 136,1 g/km, by far the worst performer of the EU15. Germany, the largest European car market with almost 3m new cars registered in 2013, does not have a significant car registration tax. Annual circulation taxes in Germany are so weakly graduated according to CO2 emissions (a linear €2/g/km above a given threshold) as to have little or no effect on consumer choice. The benefit-in-kind for a company car, at 12% of the car price per year, constitutes a huge subsidy, and is not differentiated for CO₂. On top of that, the federal government promotes a labeling scheme so counterintuitive that it rates a 191g/km Porsche Cayenne the same as a 114g/km Citroen C3.
Car taxes graduated according to CO₂ emissions have had one negative consequence: they have sharply increased the share of diesel cars, which are a major cause of pollution in urban areas and 400,000 premature deaths every year. Besides enjoying lower fuel duty, diesel cars have typically around 15% lower tailpipe CO2 emissions than petrol cars, so they benefit more from the fiscal incentives on offer.
Diesels now represent about half of all new cars sold in the EU. But this is not case in the Netherlands, where only one new car in four is a diesel, and in Denmark (one in three). These two countries have specific taxation surcharges on diesel aimed at penalising their contribution to air pollution, which have effectively discouraged their purchase.
Greg Archer, clean vehicles manager at T&E, said: “This report shows that effective vehicle and fuel taxes can drive the market for lower carbon, fuel efficient vehicles and avoid the air pollution caused by high number of diesels. By graduating company car and registration taxes strongly with CO2 emissions and taxing diesel vehicles and fuel at a higher level than gasoline cars both CO2 and air pollution emissions can be sharply reduced.”