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France to Institute Vehicle Feebate Based on CO2 Emissions; $7,300 Bonus for Electric Cars

7 December 2007

France’s Ministry of Ecology (Ministère de l’écologie, du développement et de l’aménagement durables) announced a new feebate system based on CO2 emissions for new vehicle purchases.

Under the scheme, a bonus will be paid to purchasers of new passenger cars emitting less than 130 g CO2/km, which now represents about 30% of sales. The bonus will be supplemented by an extra payment when the acquisition of the vehicle is accompanied by the scrapping of a vehicle that is more than 15 years old. Conversely, buyers of new vehicles that emit more than 160 g CO2/km will pay a penalty. This will affect approximately 25% of new vehicles sold. Buyers of vehicles emitting between 130-160g CO2 will not receive a bonus nor will they pay a tax. This “neutral zone” will apply to about 45% of vehicle purchases.

The payments and the penalties are based on a sliding scale—the less (or more) carbon dioxide emitted, the greater the payment or penalty, respectively. The threshold points for payments or penalties will advance 5 g CO2/km every two years to encourage ongoing development efforts.

To encourage the development of extremely low emission vehicles—especially electric vehicles, the government has a special bonus of €5,000 (US$7,300) for the purchase of vehicles emitting less than 60 g CO2/km.

Feebate Payments and Thresholds
ClassEmissions CO2 (g/km)Bonus (-)/ Penalty (+) (€)Examples% Market share of Class in 2006
A+ ≤60 -5,000 Electric vehicles 0%
A ≤100 -1,000 Smart, Fiat 500 0%
B 101-120 -700 Citroën C1, C2 and C3; Renault Clio; Peugeot 107 and 207, Fiat Punto 18.1%
C+ 121-130 -200 Citroën C4, Renault Mégane, VW Polo, Dacia Logan 12.8%
C- 131-140 0 Citroën Xsara Picasso, Peugeot 307 and 407; Seat Ibiza 15.8%
D 141-160 0 Citroën C5, Mercedes A Class, Ford Focus 28%
E+ 161-165 +200 Peugeot 607, Opel Zafira 4%
E- 166-200 +750 Mégane II break, BMW 3 Series, Toyota Rav 4 14.5%
F 201-250 +1,600 Mercedes E Class, Nissan X-Trail, Renault Vel Satis 5.4%
G >250 +2,600 VW Touareg, Citroën C6 1.4%

(A hat-tip to Bob!)

December 7, 2007 in Climate Change, Emissions, Europe, Policy | Permalink | Comments (41) | TrackBack (0)

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This is ingenious; for every gas guzzler that goes off the road, an efficient, low-pollution car gets on! We need a system like this in the U.S. Kudos to France for leading the way.

On a similar vein, here are the annual motor taxation rates for Ireland - just announced in the december 5th budget:

VRT (Purchase tax rates) based on CO2:

Band gms Tax Rate
A 0 - 120 14%
B 121 - 140 16%
C 141 - 155 20%
D 156 - 170 24%
E 171 - 190 28%
F 191 - 225 32%
G 226 -> 36%

Annual Motor Tax:

Motor tax rates will be graduated as one moves up the CO2 bands.

* Band A ( 0-120 grams per km) - €100.
* Band B (121-140 grams per km) - €150.
* Band C (141-155 grams per km) - €290.
* Band D (156-170 grams per km) - €430.
* Band E (171-190 grams per km) - €600.
* Band F (191-225 grams per km) - €1000.
* Band G, the top band -€2,000, reflecting CO2 emissions of over 225grams per km.

Both of these measures kick in on July 1st 2008!

Thus, if you bought a car costing e50K getting 230 gms/km, you would pay E18K tax + E2K / year to put it on the road.

Now - that - is taxation!

A similar approach will be enforced also in Finland:

"Finnish Parliament passes CO2-based car tax scheme

4.12.2007 at 18:30

Finland's Parliament on Tuesday passed a bill changing the country's car tax scheme from a flat-rate sales tax into a staggered scheme where the rate ranges between ten and 40 per cent of a vehicle's retail value, depending on how much carbon dioxide it emits.

Cars that are not CO2-rated will be taxed on the basis of kerb weight and type of fuel.

The staggered car tax system is to be applied to both new cars and used ones imported from abroad."

http://newsroom.finland.fi/stt/showarticle.asp?intNWSAID=17460&group=Politics

It is going to be very interesting to see how efficient this system is in changing the buying behavior towards less polluting vehicles that also help to reduce oil dependence. I think the effect will be large and much larger than a tax on fuel that involved a comparable amount of tax money over the lifetime of a car as this lump sum fee.

For example, a $2000 tax on a high CO2 emitting car compares to $0.21 tax per gallon paid over the life consumption of gas for that car. In this calculation it is assumed that the driver go 15000 miles a year in a 25 miles per gallon car with a life time of 16 years. That is (15000/25)*16 = 9600 gallons on the life of the car or 9600/2000 = $0.21 per gallon. To be more accurate the tax per gallon should be discounted to present values to be directly comparable with the $2000 lump sum tax. That is not done.

In Europe a gallon of gasoline is typically taxed by about $4 so that it cost about $7 per gallon. Using the assumptions stated above this $4 tax per gallon could be transformed into a lump sum tax of (4/0,21)*2000 = $38000! Now I am very sure that if people had to pay $38000 extra for high polluting cars most people would change their consumption behavior immediately. As far as I know the average US fuel consumption is about 21 to 22 mpg and the average EU is about 34mpg. The difference is cause by the $4 tax. Imagine what this difference would be it was converted into a lump sum tax instead.

Feebate lump sum taxes on cars are better than fuel taxes because 1) They have a larger impact. 2) They are tax neutral. 3) They are easy to adjust. 4) And unlike a gas tax that also punish the low polluting vehicles the feebate reward the low polluting vehicles.

The structure of this feebate should increase consumer demand for high fuel economy vehicles. This is generally considered less disruptive than attempts to regulate supply.

However, the German auto industry association VDA has complained that the French proposal uses the cover of climate policy to give its domestic car makers an old-fashioned competitive advantage over their German rivals. There may be something to this, the French are after all the French.

Perhaps President Sarkozy is taking this action now because Germany may succeed in watering down the EU's plans for fleet average CO2 emissions by introducing separate targets for multiple weight classes. This would let it own car makers retain their dominance in the lucrative premium segments. Evidently, industrial policy cuts both ways.

Note that Germany will probably switch the basis for its annual road tax from displacement to CO2 emissions in 2009. The VDA has been calling for a final decision on this either way for months, as the uncertainty has compounded adverse market conditions caused by record fuel prices and a 3% hike in sales tax in January. New car sales in Germany in 2007 are at their lowest ebb since 1989.

Moreover, next year will see the introduction of "Umweltzonen" (enironmental zones) in several cities, to comply with an EU directive on air quality. In practice, this will boil down to barring vehicles with old, dirty diesel and gasoline engines from access to city centers on days with bad air quality. A program of subsidized DPF retrofits, intended to avoid such unpopular bans, backfired badly after it became known that some of the devices approved for installation were in fact defective.

The hope now is that many old clunkers will be scrapped or exported, e.g. to Africa. Don't be surprised if the VDA lobbies for fiscal incentives to get domestic new car sales going again.

---

Btw, the Netherlands also imposes steep taxes on vehicle registrations, based on value but adjusted for fuel economy relative to length x width.

Denmark, another country battling traffic congestion and capital outflows due to car purchases, also imposes famously high taxes whenever a car changes hands. These often exceed the purchase cost, but there are are discounts for safety equipment and high fuel economy, which is also the basis for the annual license fee.

The city of London is considering a modification to its congestion charge based on UK road tax bands, which are based on CO2 emissions. However, there is a loophole: vehicles registered as minicabs can avoid the charge altogether.

Here's a brief - but incomplete - overview of how different European countries accounted for fuel economy/CO2 emissions in their vehicle taxation in 2007:

http://www.acea.be/images/uploads/pr/Co2_tax_overview~Overview.pdf

Excellent news!
This is definately the way to go - influence consumer choice in the showroom.
Consider the effect on the Mercedes e-class saloon:
E200 cdi (160g) E0
E220 cdi (167g) E750
E280 cdi (199g) E750
E320 cdi (202g) E1600
E500 gas (258g) E2600
E63 AMG (342g) E2600

The rates could do with some tweaking.
Consider the marginal rates:
100g E1000-
120g E700- E300/20g E15/g
130g E200- E500/10g E50/g
160g E0 E200/30g E7/g
165g E200 E200/ 5g E40/g
200g E750 E550/35g E16/g
250g E1600 E850/50g E17/g
300g E2600 E1000/50g E20/g
400g E2600 E0
or E1000/150g E7/g

As you can see, the additional cost of cars at the top of each band varies from E7/g to E50/g and E100/g.
Also, the break points create anomalies; for example:
Mercedes C200k est manual (197g) pays E750,
Mercedes C180 estate auto (203g) pays E1600.
The feebate would be more effectve if the marginal rate was a steady rate per gram.

Also, above 250g, there is no additional charge. Hence the following vehicles pay the same tax:
Mercedes C350 estate (252g),
Mercedes SLK350 (255g),
Mercedes ML 350 (275g),
Mercedes ML 500 (304g),
Mercedes ML 63 (392g).
So,
four ML350 emitting 1100g/km pay E10400,
three ML63 emitting 1176/km pay E7800
Fair?
Clearly, there should be no upper limit.
With income tax, the highest income pays the highest rate. The same should apply here - the biggest gas guzzler should pay the highest rate per gram of CO2.
Even with high road fuel taxes in Europe, sales of SUVs have reached 1.2m pa, so something needs to be done.

The E5000 rebate for <60g CO2 is very generous and might prompt a lot of small BEVs like the Reva seen in central London due to the congestion charge exemption.
The limit of 60g might also be high enough to enable a PHEV to qualify, depending on how France decides to calculate the CO2 emissions of a PHEV. Off-peak electricity would be nuclear in France, so the CO2 emissions of an overnight charge would be minimal. That might tempt Toyota to market the PHEV Prius in France.
I am surprised that France did not also include a generous 90g bonus to
a.) support the Smart cdi (made in France)
b.) enable Peugeot to bring their diesel hybrid prototypes to market.
See earlier posts:
http://www.greencarcongress.com/2006/01/psa_peugeot_cit.html
http://www.greencarcongress.com/2007/06/daimlerchrysler.html

Henrik
The disadvantage of the feebate, one-off tax lump sum is that it does not tax driving style or distance driven. MPG or l/100km is only half the story. Miles or km per year is the other side of the equation affecting CO2 emissions and use of finite resources.

There is also the human nature reaction of getting a return on ones 'investment'. AKA: I paid for it, now I'll use it.


“We need a system like this in the U.S.”

Why? The US is not France. Traffic congestion and air pollution, not something I have to worry about. I have even heard of places where you have to pay to park your car. If people in big cites with these problems want to impose regulations to reduce these problems that is fine with me.

We need a system like this in the US,because we are the single largest producers of CO2 in the world and the only thing that is going to get us out of our gas guzzling SUVs is feebates.Pollution is a problem for you wherever you live.California receiving acid rain from China is an example of the small system we all live in.If pollution does not bother you,consider how much money we could keep here in the good ol'USA if we didn't send it all to Saudi Arabia.Feebates are awesome because they help lower income people get out from under their gas guzzlers.

Um, CO2 is not a city problem, it's a global problem. CO2 levels are essentially the same everywhere in on the globe. Everyone is producing it to some extent. Rural Americans are generally producing far more than city dwelling Europeans precisely because they have big vehicles that cover lots of miles. Europeans mostly take public transportation, which produces far less emissions, and when they drive, they tend to drive tiny cars over short distances. They are developing a system to encourage good behavior among their own, and the U.S. should be doing the same.

Thomas

You have a good point. A feebate system does not help much on subsequent >driving behavior<. However, most people >90% only knows one way to drive and this is not likely to change whether they pay a $4 tax per gallon or not. So driving behavior is more of a theoretical possibility than it is a practically matter.

Your other point about the >distance driven< can be incorporated into the feebate system by using a different feebate for each vehicle category. For instance, a car that is registered as a taxi should be subject to a much more profound feebate because it will likely do 80000 miles per year and not the usual 15000 miles per year. In fact it should be 80000/15000 = 5.3 times more profound.

The good thing about a feebate is that it will instantly make it profitable for vehicle manufactories to offer vehicles that use: 1) Expensive light weight materials. 2) Expensive drive trains such as diesel, advanced gasoline or hybrids. 3) To use designs with low drag coefficients instead of fancy design. 4) Use expensive but more efficient transmissions.

We need all four things and we need it now. Fuel taxes can’t do the magic. Their effect is too little and too slow.

AGW is a flimsy excuse for folks like middleoroad and WES to mind other peoples' business. This might be okay if they were not so clueless. They reject solutions that actually might work while coveting ineffective schemes of big government to tell others how to live.

Let me correct a few misconceptions about the US. First cars that get good millage are available to be purchased. Last year I bought a luxury car. My Toyota Corolla has all the luxury features that my old PU does not. It is very well suited for narrow country roads. I have noticed than many people will spend $25,000 more for a POV that what I paid. Increasing the tax on a car will not reduce ghg in the US. Nobody in the US is forced to buy expensive gas guzzlers and lower their income by sending money to Saudi Arabia.

Second, China is the largest ghg emitter. Coal power plants in the US, UE, Japan, and South Korea are about 1/3 more efficient than those in China. Pollution does not bother me since my air is clean because the coal plants that produce my electricity do it cleanly. Cleaner coal plants have a much higher capital cost, so more nuke plants will be replacing old coal plants than we might have seen a few years ago. Building more nuke plant comes under the category of solutions that might work. It is also one that the French are pursuing too. Construction started this week of the third nuclear plant at Flamaville.

The economist in me says that this is doomed to fail. Some possible scenarios:

1. The government has overestimated the amount of money they will make on the penalties and will eventually find that they don't have sufficient money for the feebates that they promised. In the end, they'll have to reduce the feebates.

2. Automobiles that emit low amounts of CO2 have an artificial sales advantage over other automobiles. The manufacturers now have less incentive to improve the overall appeal of the car and also less incentive to hold down prices on those cars. They might choose to redirect resources towards improving and reducing the cost of their more polluting models that are at a disadvantage. They may also choose to sell those models outside the country, where they can make more profit. I'm guessing the penalty only applies to domestically purchased vehicles, and a penalty is not collected on exported vehicles.

3. Automobile manufacturers start selling stripped down versions of the polluting models, to get the CO2 emissions down, as well as the cost. At the same time, they get into the business of aftermarket modifications that increase engine performance and/or increase the weight of the vehicle. Both of which also increase CO2 emissions.

Now would be a brilliant time for Reva to come up with a 5000 Euro car!

The Reva G-wiz electric car is already one of the cheapest cars to buy here in the UK.... now if they can just get it down to under 5000 Euros like Tata are attempting in India, we've got ourselves a FREE car!!

Kit P you're at it again!!!

I prefer the French proposal because it gives a significant bonus to buyers of cleaner vehicles and penalies buyers of polluting gas guzzlers. In reality, such scheme could be tax/revenue neutral. The 130 gr/Km pivot point is rather generous but could be easily adjusted to 100 gr/Km or less as technology advances.

Since pollution travels across international borders, an international car pollution fees/bonus scheme could have more impact. The European Community could (and probably will be) the leader.

Who will convince USA, Canada, China, India that they also have to do more?

I agree with Polly and Wes. The problem with focusing on the car purchase moment is that it doesn't affect the (much more frequent) moments when we decide to drive a mile to the store, a 100 miles to a movie or a 1000 miles on vacation.

Although feebates for a high-economy car is a great way to encourage people to think about their choice of vehicle, we also need some metric that accounts for total consumption more directly. I might drive more, thinking it costs less. Shouldn't we balance temporary and somewhat artificial incentive programs with some method of accounting for the real externalities (e.g. climate change) in the price of the consumable? A carbon tax at the wellhead, anyone?

Feebate scheme has distinct advantage over punitive taxation. It allows more people to afford and enjoy freedom of personal transportation.

Interesting, that both Canadian and France conservative governments choose such wealth re-distribution approach.

This is a very welcome attempt to truly incentivise car buyers to buy lower emissions cars.

Perhaps the most interesting is the EUR 6,000 payment made for vehicles that emit less than 60g CO2/km as there are some non-electric cars that achieve that.

The Loremo coming out next year claims to emit less than 50g CO2/km and costs just EUR 15,000 and so with the payment would costs just EUR 9,000

The low emissions seem to be achieved by lightweighting and downsizing a turbo diesle engine - pure simplicity as opposed to expensive heavy hybrid technology.

http://evolution.loremo.com/content/view/13/47/lang,en/

That we really give the mainstream manufacturers somethign to think about in how to achieve low CO2 emissions...

Bear in mind that a feebate is one of a range of market based measures being used and proposed to reduce GHG emissions from cars.
France is not intending to replace the taxation on gasoline. So French motorists will still be heavily taxed on every litre of fuel they burn in their cars in addition to paying a fee when they buy a gas guzzler. Indeed, European states have been criticised even within the EU for relying too heavily on road fuel taxes while under taxing other crude oil fuels for aviation, shipping, farming, motor racing & machinery.
European state governments have become addicted to road fuel taxes for reaching their revenue budgets.
In Britain they have the absurd situation where taxation on bio diesel made from used oil comprises Road Fuel Duty at 30.35 pence per litre plus VAT at up to 15 pence giving a total of 45 pence per litre. So about 90 cents per litre or roughly $3.60 per US gallon! Taxation on bio diesel made from new oil has been even higher. Fortunately, they have given up on collecting the tax on waste oil recycled for personal use up to 2500 litres per year.
Road fuel tax legislation is outdated and based on use rather than fossil fuel content; hence it is currently a very rough tool for tackling GHG emissions.
One way to improve fuel taxation is to set a GHG target of 40% gasoline equivalent or 80% now sliding down to 40% in 2050. The fossil fuel content of each renewable fuel can be calculated; fuel can then be taxed on the GHG emissions above the target. This would have the effect of driving down fossil fuel content while letting the market find the most cost effective means.
Road fuel taxes can be mitigated slightly by including Pay At The Pump (PATP) insurance. PATP insurance will provide minimum car insurance to low income drivers and enable drivers and pedestrians to recover costs from drivers who are currently uninsured.
The increasing renewable fuel standards in Europe & USA will reduce state coffers by billions. Likewise, increased fuel economy standards will reduce tax revenue from road fuel tax. It makes sense to transfer some of that tax burden to new car sales tax by making it proportional to CO2 emissions.

Feebates could also be tweaked to encourage emerging technology. For example consumables like fuel are normally excluded from car sales tax; so traction batteries could be classified as consumables and excluded from the GHG sales tax.
Likewise, CO2 emissions could be based on city mileage instead of highway or composite mileage; that would reduce the price premium of HEVs and PHEVs.

Britain, Ireland and other countries are also changing their annual car licence fees so that they vary with CO2 emissions. London is amending the congestion charge so that gas guzzlers pay more (as well as planning an exclusion zone for old diesels).

We also need a GHG tax on all fossil fuels, which would include the external cost of GHG emissions in car component manufacture and electricity.
However, this is harder to implement unilaterally because of the effect on the competitiveness of commerce & industry in global markets. (Britain has a “Climate Change Levy on electricity but it is currently less than the external cost of GHG emissions.)
A GHG or "carbon" tax will probably have to be included in the successor to the Kyoto treaty and enacted by ratifying the treaty. It will need to be backed up by an equivalent GHG excise duty on imports from states that have not yet ratified the treaty. That will be very hard to achieve because it will require revision of the WTO trade rules. It would also be virtually impossible to enforce because most goods are assembled from components made in many different countries.

A BEV would do fine as a holiday hire car.
Anyone fancy a holiday next year in Paris, the Mediterranean or Corsica?

If there are high fees for large vehicles, there will be less large vehicles sold and less revenue for smaller vehicles. Since the U.S. auto makers have depended on large vehicles for profits, this is not likely to pass in the U.S. If I got $3000 to buy a hybrid or $6000 to buy an EV, it would be an incentive.

It depends on whether your country is a car producing or consuming nation.
Ireland only consumes, so you have taxes only.
France produces as well, so you have the feebate system.
The tax only system is simpler and less prone to costing money. In particular, since many cars are imported, you are probably doing more good by raising taxes and lowering CO2 than harm in reducing demand for locally produced cars.
At least in France, they can call an electric car zero CO2 as most of their electricity is generated by Nuclear power.

Excellent!! This was proposed years ago by Amory Lovins. Makes perfect sense; those who choose to drive large cars subsidize those who choose to driver smaller cars. Vive La France!!

==Feebate lump sum taxes on cars are better than fuel taxes because 1) They have a larger impact. 2) They are tax neutral. 3) They are easy to adjust. 4) And unlike a gas tax that also punish the low polluting vehicles the feebate reward the low polluting vehicles.==

Exactly.


==“We need a system like this in the U.S.” Why? The US is not France. Traffic congestion and air pollution, not something I have to worry about.==

Well. 1. We have to pay the international price for petroleum as everyone else. So higher fuel economy is a very good thing. 2. More importantly, to deal with global warming.

So rather than ask why, the real question is, why not?

==The fossil fuel content of each renewable fuel can be calculated; fuel can then be taxed on the GHG emissions above the target.==

1. You cannot control what that person will put into their tank. So I see no reason to offer someone a tax break if they can just as easily fill the car up with fossil fuels.

2. We seriously don't know if there's any cumulative greenhouse benefit to be had from present-day biofuels. They might actually be making the problem much much worse. Certainly accounting for the indirect emissions alone would be a nightmare.

Looks like the French are serious about electrified transport. This plays into their strength: they have lots of nuclear power that sits idle at night.

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