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.”
The rich-nation club, OECD, recently ranked Germany third highest in the levels of subsidies provided to encourage company cars and Belgium the worst. The OECD also pointed out that "environmental outcomes across the OECD would be greatly improved by ending the undertaxation of company cars, particularly the distance component."
Greg Archer continued: “Car manufacturing countries are offering huge subsidies for private use of company cars. By doing so they encourage unnecessary use of larger, more polluting cars. Governments should bring an end to these polluting handouts by increasing company car tax and encouraging cleaner cars.”
The EU’s first obligatory rules on carbon emissions require car manufacturers to limit their average car to a maximum of 130 grams of CO2 per kilometre by 2015, and 95g by 2021.
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. Five out of seven European carmakers are on track to meet their 2021 targets if they keep progressing as they have since the introduction of the law in 2008.
However, official data must be taken with a pinch of salt since only half of the measured improvement in test results is being realised on the road. This is because there is a steeply widening gap (now 31%) between the official test and real-world CO2 fuel economy.
Cars are responsible for 15% of Europe’s total CO2 emissions and are the single largest source of emissions in the transport sector.