Report: EU Governments Likely to Reject Taxing Cars Based on CO2 Emissions

23 November 2007

IPS. The governments of the European Union will likely reject a 2005 proposal from the European Commission to phase out vehicle registration taxes over a 10-year period and to replace them with measures based at least partly on CO₂ emissions.

But Portugal, the current holder of the EU’s rotating presidency, has conceded that a breakthrough on this plan is unlikely. This is despite a pledge made by the EU governments earlier this year that they would lead international efforts to fight climate change.

In an internal paper, seen by IPS, the Lisbon government says there is “opposition from a considerable number” of EU countries to “an obligation to introduce a CO₂ element into national car taxes.”

Chris Davies, a British Liberal member of the European Parliament, described the opposition to the plans as “extraordinary”, especially given that some car-makers have reacted favourably to the idea of a green tax.

Earlier this year, the European Automobile Manufacturers Association (ACEA) called for a harmonized, cross-Europe CO₂ tax on cars and alternative fuels. (Earlier post.) The organization noted 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.

The ACEA argued 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.”