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European Commission Proposes CO2 Tax on Passenger Cars

7 July 2005

The European Commission has proposed that member states restructure their car tax schemes away from registration levies to link taxation directly to CO2 emissions from passenger cars.

The Commission proposes that charges based on emissions account for 25% of tax charges by the end of 2008, and for half of such tax revenues by 2010. The directive does not attempt to harmonize tax rates or obligate member states to introduce new taxes.

The impetus for this proposal is two-fold. First is the perceived need to normalize the EU tax rules to prevent double taxation as vehicle owners (and vehicles) move freely within member states. Second is the desire to use taxation as a policy tool to provide incentive for reducing greenhouse gas emissions.

Following the extensive consultations that the Commission has conducted with stakeholders, we believe that there is strong support for the abolition of registration taxes which give rise to double taxation for European citizens and create fragmentation within the European car industry. There is also considerable support for tax measures that would encourage consumers to select more environmentally friendly passenger cars.

—EU Taxation and Customs Commissioner László Kovács

The passenger car tax proposal contains three main elements:

  • Abolition of car registration taxes over a transitional period of five to ten years. The Member States’ revenues would not be affected if the gradual abolition of registration taxes is accompanied by a parallel increase of annual circulation taxes and, if necessary, other taxes. A gradual change would protect car owners from dramatic devaluations of their cars. The transitional period would also allow those Member States applying high registration taxes to make the necessary structural changes to their car tax systems.

  • A system of refunds—until the registration tax is eliminated—to prevent double taxation where a passenger car that is registered in that Member State is subsequently exported or permanently transferred to another Member State.

  • The introduction of a CO2 element into the tax base of both annual circulation taxes and registration taxes. This would mean a tax differentiation on the basis of the number of grams of carbon dioxide emitted per kilometer by a car.

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July 7, 2005 in Climate Change, Emissions, Europe, Policy | Permalink | Comments (5) | TrackBack (1)

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Comments

Will the CO2 tax reflect the kilometers driven, or just the auto's "capability"?

After all, a hummer driving 1000 km per year may very well release less CO2 than a Fiat driving 50,000 km per year.

Extreme example, but the idea is straightforward...

There's a simple way to implement a carbon tax on vehicles.

It's called the "motor fuel tax".

How does it help save the planet? It is definitly not going to stop people from using vehicles. It simply will generate reveneu for commission. And then do they have any plans to use this money for recoverying from the pollution.

Why does it need to stop people from using vehicles?  It only needs to get people to stop emitting carbon.

After all these discussions where did we arrive. Did the EU lower registration tax and introduce the system as suggestedie emissions etc. Nothing has happened. Every country will continue as usual. We have to take action. I feel EU is dragging her feet in this regard and nothing concrete has been regulated.

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