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European Parliament Backs Taxing Cars on Emissions and Fuel Efficiency, Not Registration

6 September 2006

Members of the European Parliament (MEP) have backed a proposal to replace passenger car registration taxes throughout the EU with a tax linked to fuel efficiency, tailpipe emissions and CO2.

MEPs stressed that the directive should not prevent governments from exempting vintage cars from road taxes.

Car registration taxes vary widely across the EU from 0 to 180% of the pre-tax price of a car. According to the Commission, this distorts the internal market, is administratively complex, encourages tax avoidance and can often mean people buying a vehicle in one Member State then moving it to another have to pay twice.

To solve these problems, the Commission last year proposed a directive to phase out registration taxes over ten years and replace them with Annual Circulation Taxes linked to the carbon dioxide emissions of the car concerned—the lower the emissions, the lower the tax.

By a vote of 385 votes in favor to 139 against with 109 abstentions, Parliament is backing the Commission’s general approach. However, Parliament says that the environmental aspect should be broader, with the level of tax linked to pollutant emissions as well as carbon dioxide (and, by extension, fuel efficiency). MEPs also note that the changes should be revenue neutral.

As will most matters concerning taxation, Parliament’s role is merely consultative—a final decision must be taken unanimously by the Council of Ministers.

September 6, 2006 in Climate Change, Emissions, Europe, Fuel Efficiency, Policy | Permalink | Comments (17) | TrackBack (0)

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FANTASTIC ... We need something like this in the United States!

What are the chances that the Council of Ministers will unanimously approve this great measure?

This would be a step in the right direction. Could usage (Km/yr) plus periodic emission + consumption checks be added as other factors.

Wonder how many years it will take to filter down to USA and Canada?

I propose this some time ago for Ireland. Here, we have a tax called VRT which is 22 - 30% of the cost of a car. The percentage is currently based on the engine capacity:
22.5 % = < 1400cc
25 % = < 1900cc
30 % = >= 1900 cc

What they should do it set the rate to gms CO2 / km / say 8.

Thus, if your car is 160 gms/km, the rate would be 160/8 = 20%
You can adjust the divisor as required to make it revenue neutral with the amount of tax they raise now.

There should be no exceptions for hybirds ( as they have now) or flex fuel vehicles. Just the gms CO2 / km.

This is like paying for the CO2 in advance and will influence people to buy efficient vehicles irrespective of how the effeciency is achieved. It also hits people at the time they decide to buy a vehicle - once it is purchased, the amount of CO2 you will generate is more or less set. If you increase the cost of fuel, it is too late as the car is already bought and most people do not have very much flexibility in how much they drive.

I like this and yearly emissions inspections (which many states have already) can record your mileage to go along with your registration information.

"...can record your milage..."
No thanks, I prefer no tax and no control by state at all.

Just set clear emission limits to the automakers.
Rich people don't care about emission taxes. Another nonsense EU law.

"Rich people don't care about emission taxes."
So?
Rich people are a minority. Most of the people who own cars are middle class so most of the miles driven will be by people like me who will do anything they can to save a buck.

If you prefer "no control by state at all" why do want clear emissions limits for the automakers, hypocrite.

An annual license fee based on noxious emissions as per model certification would incent consumers to switch to newer, cleaner models more frequently. There are still a lot of LDVs on Europe's roads that were certified to Euro 1 or 2 regs. The flip side would be accelerated asset depreciation, putting further downward pressure on carmakers' profit margins. Moreover, directly taxing noxious emissions would turn what is at heart a health and safety issue into a highly politicized economic one.

A more effective way to increase the European LDV fleet churn rate and indirectly, reduce aggregate emissions would be to prohibit all surtaxes on initial vehicle purchases, over and above the prevailing rate of VAT. In addition, vehicle license fees should be charged only when there is a change in ownership.

Since road wear and tear is proportional to vehicle weight to the 4th power, distance-based tolls should be levied only on commercial vehicles regardless of provenance, ideally using a single reliable collection system throughout the EU. Road taxes for LDVs should be limited to parking fees and tolls on privately financed highways. The corollorary is that major European transit routes would increasingly have to be financed directly by the EU or else by private industry.

To cover the resulting revenue shortfalls while discouraging aggregate CO2 emissions, fuel excise taxes should be harmonized at a fairly high level. Ideally, these would be based on carbon content, eliminating the present market distortion in favor of diesel. However, member states might have to adjust other tax rates to compensate for the degressive nature of the proposed shift from direct to usage taxes for vehicles.

Unfortunately, tax harmonization in the EU has proven quite slow and difficult because changing tax rates invariably implies economic pain for some portion of the population. Tied to this is electoral risk for the politicians in charge. In addition, member states have jealously guarded their tax sovereignty vis-a-vis EU insititutions.

Rafael,
Then you have all those used cars dealers, with 5 to 10 year old models. Another is the increased depreciation of cars will prompt fleet (Avis, Hertz, etc) owners to take larger tax writeoffs and deductions. In the US, business owners, who bought all those pickups and SUVs in the past 3-10 years, would do the same. The increased taxes rolling into govt. coffers might just end up funding increased writeoffs. You do not get good results from bad strategy, even with sound tactical implementation.

I view this proposal as a planet climate protection act.

adrianakau@aol.com

I agree with Rafael that CO2-calculated tax on fuel better addresses real cost of motoring than vehicle registration taxes (but not because of Global Warming). CO2 emission is the closest factor roughly integrating amount of crude oil necessary to produce diesel and gasoline. Moreover, this tax favors non-oil based vehicles (NG and slightly propane), which is important from the point of view of fuel sources diversification out of OPEK dictate. It also favors a lot hybrids and especially PHEV, which is the most important transportational development of today, and should be heavily promoted. Now, when all types of fuel are on level field, CO2 calculated tax favors more fuel efficient engines, smaller and lighter vehicles, less driving, and less aggressive driving habits. Bingo.

Any car, even SUV or Bugatti, does not pollute, use space on roads, impose tear on road surface, or could cause accident when it is in garage – i.e. does not consume fuel, and automatically does not pay taxes. Why tax the car by itself, not its use?

The only thing I assume to be critical is overtaxing. These taxes should be used for road construction and maintenance exclusively, and not to be milk cow of governmental bureaucracy.

Unfortunately, this simple (probably even oversimplified) scheme falls apart when we begin to factor in number three cost of driving: auto insurance. Once again we have to return to individual vehicle weight, subclass, pattern of use, miles traveled and days used.

Those in favour of banning registration taxes should not forget one thing: human short-sightedness. When people buy a car, they primarily look at how much they can afford to spend on the car (now), and less on how much they can spend on gasoline (future). This is not an ideal world an human psychology is a factor you should never forget. Therefore, taxing vehicles according to environmental criteria is a logical addition to fuel taxes.

Another argument justifying the taxing of vehicles: Most parking places are "free". Well, of course they are not free, they were payed for by home owners, shopping centers, companies. But for the majority of them, car owners do not have to pay for them. Most people can park their car for free on a public parking place in front of their house. So taxing a car, assuming that it will be taking up a public parking place somehwere for the coming 10-15 years, does not seem unreasonable to me. Over here in the Netherlands the ratio is 3:1. Three free parking spaces for every car on the road.

Those saying that a car in a garage does not pollute: Have you ever realized how much energy it costs to manufacture a car?

“Have you ever realized how much energy it costs to produce a car”

How this energy is different from, say, energy used to produce bicycle or heat a school?

That's was not my point. I was merely pointing out that the general notion that a car in a garage does not pollute is not entirely accurate. As a matter of fact, all consumption pollutes.

I dont think the us should do this. There are agencies the you can pay $30 to and they will revers the harm your car does in a year. People should be requiered to contribute to this intead of a tax

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