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European Automakers Call for Harmonized CO2 Tax on Cars

13 March 2007

The European Automobile Manufacturers Association (ACEA) is calling for a harmonized, cross-Europe CO2 tax on cars and alternative fuels.

The organization notes that CO2-based taxation offers a significant potential for CO2 reduction by shaping consumer demand and setting economic incentives to which vehicle manufacturers and fuel suppliers will respond.

A CO2-based taxation system raises customer awareness and gives a political signal that society attaches a priority to reducing CO2 emissions.

Currently, 11 EU member states (Austria, Belgium, Cyprus, Denmark, France, Italy, Luxembourg, The Netherlands, Portugal, Sweden, UK) have elements in their car and/or fuel taxation systems today that are totally or partly based on the car’s CO2 emissions and /or fuel consumption.

The ACEA argues that because the taxation systems are very different, they fail to send a clear market signal. Furthermore, manufacturers then face a fragmented EU market and are unable to exploit economies of scale, “to the detriment of their competitiveness.

ACEA is proposing a harmonized system in which:

  • All existing car taxes/fees should be substituted by circulation tax to send simple and clear signals to consumers;

  • CO2 should be the key criterion for taxation to provide incentives to buy lower CO2 emitting cars;

  • Taxation should be technology-neutral to allow competition for the best solutions;

  • There should be no discrimination against certain types, segments or classes of vehicles;

  • There should be a linear proportionality to emitted CO2 g/km without cap, or in other words: every gram of CO2 emitted should be taxed the same, to avoid arbitrary thresholds;

  • Tax revisions should be budget neutral in transition from old to new schemes and should be adjusted over time to ensure budget neutrality.

March 13, 2007 in Climate Change, Europe, Fuel Efficiency, Policy | Permalink | Comments (16) | TrackBack (0)

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Comments

This makes way to much sense to be implemented. Governments want complicated taxation rules so they can keep their tax inspectors busy, and they can favour their national car manufacturers and punish others.

This approach makes sense and could be an excellent tool to reduce CO2 from vehicles.

Unfortunately, with our split responsability system (Federal-Provinces) in Canada, it would be almost imposible to agree on a common carbon tax. The current low CO2 cars to high CO2 gas guzzler ratio varies considerably between Provinces. Our Western Cowboys friends drive gas guzzlers (up to 70%) while people in PEI, NS and Quebec drive much lower CO2 emisssion vehicles (up to 60% sub-compacts + Compacts + Intermediates).

It seems that people buy vehicles with better mpg where the price of gas is highest and yearly registration fees are based on weight + HP + mph.

Progressive (applied over 5 to 10 years) variable sales tax (-20% % to + 20 %) based on CO2 emission may convince the majority (not neccessarily all) to make the switch.

^ As an American, I disagree.

Different countries in Europe may very well have different environmental goals in mind -- fuel use reduction, CO_2 emission reduction, air pollutant reduction, to name three.

Why should they homogenize if they have different goals?

Think it's zany to have different goals? We see the same thing in the U.S. California has to worry about smog pollutants due to the mountains that keep the filthy air in. The Northeast is more worried about greenhouse gasses (RGGI), whereas the Midwest is mostly interested in reducing oil consumption (with the help of their corn-based Ethanol, naturally).

I'd venture a bet in all 11 countries that the less CO_2 the vehicle emits and/or the less fuel consumed per kilometer, the less tax paid. It doesn't matter if the legislation from the 11 nations is the same or different... the less CO_2/oil, the less tax. That's all they really need to know.

Furthermore, I completely disagree with the idea that "There should be a linear proportionality to emitted CO2 g/km without cap, or in other words: every gram of CO2 emitted should be taxed the same, to avoid arbitrary thresholds;"

One doesn't need linearity to avoid arbitrary thresholds -- piecewise linear or continuous nonlinear (with derivative non-negative or non-positive) curves accomplish the same goal, and may be more reasonable. Why? Even though every gram of a specific emission impacts the environment the same, they aren't all as easy to remove: a vehicle that is emitting many is likely a "low hanging fruit" to eliminate a large percentage, and therefore a bigger stick to get them to make that (easier) removal is appropriate. It's far easier to make the worst-performing unit better performing than to eliminate the same number of grams from the best-performing.


I also disagree with "Tax revisions should be budget neutral in transition from old to new schemes and should be adjusted over time to ensure budget neutrality."

That's another way to say feebates -- that the tax should reimburse manufacturers for vehicles which perform better. Hogwash. Until a vehicle comes around which removes CO_2 from the air, we shouldn't subsidize it. Penalize the small emitters less than the big emitters, but penalize them both please.


I do agree in principle with "Taxation should be technology-neutral to allow competition for the best solutions". Who knows what will come around the corner in terms of technology, and why cast unnecessary uncertainty in the market by changing legislation on the fly?

"Different countries in Europe may very well have different environmental goals in mind -- fuel use reduction, CO_2 emission reduction, air pollutant reduction, to name three.

Why should they homogenize if they have different goals?"

As the automakers point out, if the regulations aren't more homogenized then the changes sought by regulation in many countries won't be achieved. Remember CO2 is global. If half of the countries do something while the others don't we all suffer. Its called failure of the commons. I guess an alternative strategy would be just to impose import CO2 taxes on goods from heavily emitting countries. Not a bad idea if you ask me.

They don't need harmonised taxes, they just need harmonised directions - i.e. if they all push towards lower CO2, they all give the same signal to the car companies.
However, if some push towards Co2 and others push to lower NOx or particulates, you get a conflict.
Both are worthy goals, the problem is to combine them.

This is simple enough, if you simply take CO2/km and add a "weight" for the varying diesel pollution grades, such as
Euro3 - 30 gms
Euro4 - 20 gms
Euro5 - 10 gms
Euro6 - 0 gms

Diesel is very efficient and good from a CO2 point of view, but it does cause more pollution than gasoline, so it should attract a higher rate, but this should reduce as the Euro grades go up.

The trick is to get a unified pollution metric which you can tax - both in purchase and annual taxes.

Taxation of vehicles is effectively taxation of POTENTIAL fuel burned / CO2 emitted per year, not actual. If one drives less, he/she consumes less fuel. The most universal user tax would be taxation of fuel, and Europe already has it in plenty.

Nevertheless, proposed scheme is better than taxation according to engine displacement, fuel type, weight, class, etc., which is highly arbitrary and inevitably leads to market distortions.

Good idea would be to put harmonized tax to harmful emissions too, like NOx, PM, NMHC. Otherwise there will be further incentive to trade-off detrimental to health emissions for CO2 emissions.

This is a clear signal from ACEA that they accept that fleet average CO2 emissions regs are coming. If the EU decides it must change the goal posts on the supply side of the car market, it should also do so on the demand side. The European auto industry needs to turn a profit so it can continue to employ a lot of people and contribute to tax revenue in certain member states.

In its line of argumentation, the proposal appears sensible: it seeks to simplify and cut red tape, adjust vehicle TCO based on CO2 emissions which is what governments just decided is their top priority and, it advocates technology neutrality.

This latter demand is particularly striking, because European auto makers still have a technology lead in diesel engine design and manufacturing. Throughout most of Europe, diesel has long enjoyed a tax advantage over gasoline on a per-liter basis, in addition to the its naturally higher energy content per liter. Technology-neutral fuel taxes would mean a liter of diesel would end up costing roughly 10% *more* than a liter of gasoline, negating a key selling point for the most efficient available ICE technology. Note, however, that refineries in some countries are already having to export surplus gasoline to the US and import additional diesel from Ukraine and the Middle East (e.g. from Iran, which does not permit diesel vehicles).

In related news, the EU is discussing a sharp increase in the minimum tax rate of on-road diesel fuel. Individual member states are permitted to tax fuel even more heavily, but the EU sets the baseline. Raising the tax rate for diesel only would at least partially correct the current bias in its favor (see above). The stated objective, though, is to reduce "fuel tourism" by e.g. Dutch drivers to Luxembourg, where fuel has long been relatively cheap. However, CO2 emissions are accounted for by the country in which the fuel was purchased, with all that implies for the emissions certificate market.

telegraaf.nl story (in Dutch)

Purchase tax vs fuel tax.

The advantage of a purchase tax is that it influences the buying decision - once you have bought a car, the amount of fuel you use per year is more or less set.
Most people find it hard to drive less and will continue on as before for fuel increases of say < 50%.

So hit them with an up front purchase tax to encourage whatever behaviour you want.

Purchase taxes are more likely in countries that do not make cars (like Ireland for instance) leaving fuel taxes for countries that do make cars, like Germany.

However, as long as the taxes have a similar "pollution metric", both taxes point in the same direction and the car companies have a clear signal of what to do.

The car makers need 2 things to get work done.

1 A wide preferably world wide bit at least a certain number of million cars sold per year wide market

2 Regs that they can manage to meet give what people need and want in thoer cars.

the cars should also be made much much smaller. the bigger the footprint the larger the amount of space taken up in parking and in traffic congestion.

Ha anyone seen the following movie? If not, you should venture over to Google and watch it. That puts a totally new light on this discussion:

http://video.google.com/videoplay?docid=-4520665474899458831

Ha anyone seen the following movie? If not, you should venture over to Google and watch it. That puts a totally new light on this discussion:
How long do you have to watch it before they start providing some evidence for their claims that climate scientists only support AGW for the money it brings in? Sorry, but it looks like a slickly produced denialist video.

George, the movie only touched the top layer of AGW scum. Hundreds of other documents, articles, and researches reveal terrifying truth about this ordeal. You may not want to believe it, but anyway take a look at the article of Sir Christopher Monckton:

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/11/05/nosplit/nwarm05.xml

And there is much much more…

Gm put it fairly simply awhile back.

If you want a fair increase across the board your gona spend alot.

No more cheap cars with cheap enginea and cheap trans and cheap tires and cheap construction.

The engoine will go from a xheapo model to a 6 grsand one. The transmission will double or ever triple in cost. The car body will tri-ple in cost. No more cheapo tires every tire now 400 bucks. No cheap ac.. now its 1500 bucks. All new system to power acessories.. now all cars 36 volt and nothing running off the belt robbing power from the engine...

That will be 5000 bucks...

So your 2012 econo car will be a cheap 45 grand. Will that be morgage or arm and leg?

I think a system of harmonisation with an equal level of fuel taxes applied across the EU would be fairer. In the UK fuel tax on diesel is higher than gasoline despite the CO2 reduction benefits. This results in a huge difference in forecourt prices between diesel in the UK and the rest of the EU. In France for example diesel is roughly a two thirds of the cost of diesel in the UK.

Increasing the level of tax overall on fuel though would not be an answer. In the UK whilst fuel tax rises through the so-called fuel duty escalator have helped to more than double fuel prices over the last 15 years, you'd expect it to have led to a doubling in effeicency but it hasn't. It has not led to a reduction in car use either, as traffic has actually inceased. This is mainly because people in the UK have, in the main, chosen a car to be fit for purpose because fuel prices were high enough in the first place. Any improvements in vehicle efficiency have been driven by technology and to some extent long term trends in oil prices rather than artificial and somewhat arbitrary fuel tax levels.

The latest thinking of politicians in the UK is now to consider making the current system of annual vehicle taxes more differentiated to reflect CO2. I really don't think this would be fair as it would be a tax on ownership instead of use. Why should a person who uses his 4x4 occasionally pay £3,000 per annum whilst another person who drives a small car all day pay almost nothing. I don't see the logic.

I also get very cycnical about how politicians use climate change as an excuse to squeeze more money from motorists who are already overtaxed in the UK. When it comes to domestic household energy consumption, politicians would not dare to make any attempt to tax gas and elecrictity at levels based on CO2 emissions, despite there being a great need to ramp up energy efficiency levels, or at least wear a sweater when it gets cold.

I don't think Scott really needs to worry about SUV owners being priced out of the market in the Uk quite yet.
Commenting on the UK budget this year I calculated the following:
Vehicle Excise Duty, which ranks cars from A-G depending on their size and increases slightly as the car gets bigger, has always been a bit of a joke, a top efficiency car gets charged £50 a thirsty huge sports lump £210 – hardly a disincentive when according to the site Carpage.co.uk a top of the range BMW X5 comes in at £49,980 and a VW Toureg a cool £57,535. Brown announced today that the top range will rise from £210 to £300 immediately and to £400 next year, whereas the greener cars will see a decrease to £35. So someone thinking of buying all toys equiped Toureg is faced with a huge price increase of 0.0015%, this year and a behaviour changing 0.0033% in 2008. Of course higher parking, congestion, and of course fuel consumption increases the cost of running large cars, particularly in London. To make a major change in behaviour something a little meater would be more appropriate, like £2,000 which would add 10% to the price of a new short wheel based Landrover Defender.
or full article see
http://www.naturalchoices.co.uk/Brown-s-budget-a-lighter-shade-of?id_mot=10

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