Car tax regimes determine countries with lowest CO2 from new sales

Countries with the lowest CO2 emissions from new cars usually have registration and company car taxes which are strongly graduated according to CO2 emissions and have the greatest influence on car buyers’ choices, T&E’s latest How Clean are Europe’s cars report has found.

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.


Diesels now represent about half of all new cars sold in the EU, though they make up only one in four new car sales in the Netherlands and one in three in Denmark – dispelling the myth that dieselisation is required to achieve CO2 targets. Both countries have specific taxation surcharges on diesel.

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.'

The EU’s first obligatory rules on carbon emissions require car manufacturers to limit their average car to a maximum of 130g/km by 2015, and 95g by 2021. Cars are responsible for 15% of Europe’s total CO2 emissions and are the single largest source of emissions in the transport sector.

In 2013, the average CO₂ emissions from all new cars across the EU (as measured by the official test) was 127g/km, a 4% reduction on 2012. On average, therefore, the 2015 target has already been met two years ahead of schedule. However, the widening gap (now 31%) between the official test and real-world CO2 fuel economy means the official data is unreliable.