€27bn subsidy to diesel cars last year in lower fuel tax

Europe’s diesel cars received indirect subsidies totalling almost €27 billion last year through lower fuel taxes, a new study has found. Diesel fuel was taxed at, on average, 14 cent less per litre than petrol in 2014, according to Europe’s tax deals for diesel, which was published by T&E last month.

This 30% tax gap would amount to a €2,600 indirect subsidy per diesel vehicle over its lifetime and is a key reason for diesel cars’ majority share of new sales in Europe and leads to air quality problems. Tests have indicated that nine out of 10 diesel cars fail to meet NOx limits when driven on the road. Lower diesel tax has also not been beneficial for the climate because it has led to larger vehicles and additional mobility.

T&E policy analyst Carlos Calvo Ambel said: ‘The recent diesel air pollution scandal highlights again why Europe should end its diesel subsidy that now amounts to €27 billion per year. With oil prices low, now is the time to act and finally align petrol and diesel taxes.’

Some European countries, such as Belgium and France, are planning to rebalance their fuel tax rates and the UK already taxes diesel and petrol at the same rate per litre. However, this means diesel is still taxed 10% less per unit of energy.

 

Hauliers’ €4.5bn rebate

Diesel used by trucks is taxed even more lightly and, in a bid to attract foreign trucks, 10 countries now tax truck diesel at or close to the EU minimum rate of 33 cent per litre. Truck owners received a €4.5 billion rebate last year on diesel fuel tax, the report also finds, and eight EU member states – Italy, France, Spain, Romania, Belgium, Hungary, Ireland and Slovenia – now give hauliers rebates on their diesel excise. This is up from one country in 2000.

Carlos Calvo Ambel added: ‘Small and centrally located EU countries are using fiscal dumping techniques to get foreign truckers to fill up at their pumps. This is not only undermining their neighbours’ tax revenues but is creating a race to the bottom that runs completely counter to the EU’s ambition to reduce CO2 emissions and oil imports. The Juncker Commission should propose a substantial increase in the minimum EU diesel tax as part of its 2016 transport decarbonisation package.’