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UK Luxury Car Buyers Choosing Higher CO2 Vehicles

An analysis of UK vehicle sales data by Clean Green Cars found that luxury car buyers in 2007 are choosing models with higher CO2 outputs than in 2006. The report concludes that the shift is a result of the structure of the existing CO2 road-tax bands.

The problem is that the top road-tax band (Band G), is set at 225 g/km. However, the actual CO2 output of cars on sale in the UK ranges up to 450 g/km, so the top band is only half way up the CO2 scale (99.8% of cars sold in the UK fall between 100g/km and 450 g/km).

While the new Band G is reducing the number of cars emitting just over 225 g/km, it is doing nothing to discourage sales of cars emitting over 275 g/km, whose sales are actually going up. It seems perverse that a family that wants to buy a Renault Espace 2.0T Auto (234 g/km) pays the same tax as a Ferrari F430 owner (420 g/km).

The report author suggests establishing a new Band H set at 275 g/km, costing around £500 per year to provide an incentive to luxury car buyers to choose the less polluting alternative. Forty-five percent of cars over £40,000 fall between 225 g/km and 275 g/km.

While the extra cost of the road tax would not be significant, the impact on resale values certainly would be. Given that the loss in value of a car just over the Band G threshold is around £1,500 more than an equivalent car in Band F (e.g. a 2004 Mondeo 2.5 V6 compared to a Mondeo 2.0), the loss for a Band H car compared to a Band G car would be over £2,000. That would be enough to make even luxury car buyers think twice.

Comments

NBK-Boston

Setting road tax by a formula could reduce some of these distorting threshold effects that come with discrete bands. The formula could be something as simple as 1 pound per year for each rated gram of CO2 per km that a car emits. Thus, the aforementioned Renault Espace 2.0T Auto (234 g/km) would pay 234 pounds per year, while the Ferrari F430 (420 g/km) would pay 420 pounds per year.

Alternatively, if public policy reasons supported it, one could implement a modified formula which contains a sort of accelerated structure: First 100 g/km are free, the next hundred g/km cost 1 pound per year each, each gram above 200 is 2 pounds each. The Renault would cost 168 pounds per year in tax, while the Ferrari would cost 540 pounds per year.

Much like at present, taxes would be calculated based on a car's rated economy as revealed by standardized tests, the results of which could be disclosed at the point of sale, over websites, by telephone hotline, etc. This approach would mitigate the distorting pressures that stepped thresholds create, and allow for a more precise sorting of costs and benefits by each auto maker and buyer.

scatter

I certainly favour your second option over the current system which just doesn't have the banding and rates set right.

But ideally I'd like to see a variable tax on every litre of fuel bought. If an A band was charged say 80p per litre and a G band was charged £1.10 per litre it would lift CO2 emissions to close to the top of your decisions when buying a car.

It'd doubtless be tricky to implement but it would rapidly drive people towards cleaner cars and driving less.

mahonj

Some interesting problems here - which is the best way to get people into less polluting cars with tax:

Do you have bands or a smooth scale (based on co2/km say)?
and
What level does the tax have to be at to have effect.

We have much higher road tax rates in Ireland (approx 700 euros for a 2.2L Espace) AND a purchase tax of 22 - 30% based on engine size (30% after 1.9L engine displacement) and the place is still full of SUVs.

People need them for the ramps in Tesco.

I am in favour of a purchase tax like ours, with the percentage = (say) the gms of co2/7 as a rate, applied to the price of the car.

It is a kind of up front carbon tax.

Scott

The problem with banded annual CO2 taxes, is that they amount to a revenue ownership tax, regardless of whether people drive 5,000 miles or 25,000 miles per year. It doesn’t distinguish between the luxury car owner that is happy to take public transport to work and uses the car only for occasional weekend trips, or the average commuter who racks up galactic mileage.

Increasing fuel taxes is not a good alternative. They were increased as a “carbon tax” in the UK from 1992-2000. Despite a further ramping up of fuel prices from global oil price rises, this hasn’t dented demand for luxury vehicles. At the same time people on low incomes in rural areas who may already run relative lower carbon emitting cars are affected disproportionately more, as a much higher and increasing percentage of their income has to be devoted to higher fuel costs, let alone annual car ownership taxes.

In my view, a one off purchase price would control the CO2 emissions of vehicles entering the market place and in time this would trickle down into the second hand market, progressively reducing average carbon emissions from vehicles. To me this is a much more equitable and fairer alternative to charging for vehicles that people already have to live with.

Bengee

Why not just tax the gasoline ?

If you have a big car, but you hardly drive, it is less polluting than a prius driving 200 km/day.
There is a perverse effect that people buy a 'green' car, and then reason that since they pay less taxes, they can spend the money on buying more gasoline.

Every kg of CO2 is equally polluting, so just taxing the gasoline is the most simple and direct way of reducing pollution.

Scatter

If you earn more money you pay a higher percentage of that money as income tax. Chances are you're consuming less state-funded resources (e.g. not receiving unemployment benefits) and yet everyone rightly expects you to contribute more.

Why shouldn't a similar thing happen with pollution?

The point is that we need to nudge people towards cleaner cars (the majority aren't going to do it out of a love for the envrionment) and money is the only thing that people will really listen to.

That person only occasionally driving the gas guzzler could be driving something much cleaner. The person driving the Prius could be driving something much more polluting but instead has opted to go for the cleaner car.

I think there should be a reward or incentive for positive behaviour.

Scatter

Also I recogise your comment regarding comfort taking but most people only drive as much as they need to. I doubt you get Prius drivers burning around town unnecessarily just for the hell of it!

Ruaraidh

Ah Bengee the petrol *is* taxed. Today I paid 0.94GBP/l (6.87USD/USG) of 95RON (ie 91US PON). You can easily pay over 1.05GBP/l for 98RON (95PON Super) fuel which is 7.75USD/USG.

Fancy those apples? ;)

NBK-Boston

Part of the reason one would want to have a graduated sales and/or ownership tax is to influence behavior at the front end. A person might buy a vehicle with the assumption that gas would stay cheap forever -- the situation of many pickup truck and SUV buyers in the U.S. in the late 1990s and early 2000s. A person might buy a vehicle with the assumption that he would be taking public transit to work every day, and only drive a bit on weekends for recreation. Both these assumptions may turn out wrong, or be in need of revision after a few years. Then you end up burning more gas than you expected to, or can afford.

Taxing gas on the back end, or raising gas taxes, has some influence on immediate consumption habits (inflate tire, combine errands, shorten road trips), but not too much because gas demand is fairly inelastic over the short term. Sustained gas taxes also have some prospective effect, as people will estimate how much they intend to drive before they make their car purchase, and will factor the price of gas into the rest of their car budget. In more extreme cases, it will influence broader habits such as where someone chooses to live and work and such. But because of uncertainty about future needs, wants and habits, this estimate will be of only limited use. If people are generally overly optimistic, this prospective effect will not be strong enough.

A one-time sales/excise tax linked to fuel economy will skew purchases towards more efficient cars, while a yearly registration fee tied to economy will encourage the early retirement of inefficient cars, while encouraging the retention of efficient cars in the used car fleet. All of these types of taxes and fees have their place in managing the automobile economy.

sulleny

Amusing that we are still trying to foist off a substance comprising 0.0378 percent of our natural atmosphere as a "pollutant." What about benzene rings, monoxides and cancer causing keytones?? CO2 is not the problem - people are.

robert smith

This year i bought a brand new audi A6 3.0 tdi auto quattro avant when i found out it was 226 grams of Co2 i was gutted £400 tax disc !!! so i sold it and bought a bigger car !! A8 3.0 tdi auto quattro SAME ENGINE AND GEARBOX AS A6 but 224 grams of Co2 £205 tax disc HOW STUPID CAN GORDEN BROWN BE ??? ITS COMPLETELY WRONG ITS THE OLD ROVERS AND SUCH THAT CREATE DIRTY FUMES ETC

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