Abstract
This chapter describes CO2-related tax rate differentiation currently applied in one-off or recurrent motor vehicle taxes in OECD countries. It also calculates the tax rates applied, measured in Euros per tonne of CO2 emitted over the lifetime of a vehicle. For subsidies to low-emission vehicles in one-off vehicle taxes, the cost per tonne CO2 ‘saved’ is also calculated. The chapter ends with a discussion of the current practices, inter alia in the context of the policy measures applied to combat climate change in other parts of the economy.
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Notes
- 1.
See OECD (2009a) for an in-depth discussion.
- 2.
Sallee (2010) discusses taxation of the fuel economy of vehicles in the United States and Canada and emphasizes that while fuel economy taxation does have an impact on fleet fuel economy; such taxation is a less efficient policy for reducing fuel consumption than would be direct taxation of motor vehicle fuels.
- 3.
CO2-related tax rate differentiation of motor vehicle taxes is also used in some non-OECD member countries, including some of the EU member states that are not OECD members. As of 1 September 2010, South Africa also introduced a CO2-related purchase tax on motor vehicles, with a tax rate of 75 ZAR (South African currency) per gram of CO2 emitted per km, above 120 g of CO2 per km, for passenger vehicles. For small goods-transporting vehicles, the tax rate is 100 ZAR per gram of CO2 emitted, above 175 g/km. In October 2010, one ZAR equalled about 0.1 EUR. Hence, e.g., for a vehicle emitting 180 g of CO2 per km driven, the tax rate is about 450 EUR.
- 4.
Whereas the combustion of 1 l of petrol causes 2.343 kg of CO2 to be emitted, the combustion of 1 l of diesel causes emissions of 2.682 kg of CO2.
- 5.
The tax rate differentiation in the vehicle purchase tax in Belgium only applies to the province of Wallonia. Sallee (2010) indicates that the vehicle models affected by the ‘Gas Guzzler Tax’ in the United States had a market share of 0.7% in 2006 – and that the taxed models are overwhelmingly made by foreign manufacturers. Light trucks, including Sports Utility Vehicles (SUVs) are not covered by the tax.
- 6.
It is emphasized that the comparisons in this chapter only take CO 2 -related tax rates into account. In addition to the CO2-related element, the Motor Vehicle Tax in Norway also contains a cylinder volume part and a kW-based part – that each apply to the same vehicles. The total tax that a car purchaser in Norway has to pay is thus significantly higher than what is described in this chapter.
- 7.
According to Sallee (2010), in the calculations made of fuel savings in relation to the Hybrid Vehicle Tax Credit in the United States it is assumed that each vehicle is driven 120,000 miles over their lifetime – which equals 193,000 km.
- 8.
Sallee (2010) indicates that the average lifespan of cars in the United States is 14 years.
- 9.
As in any case, the choice of a discount rate would be somewhat arbitrary, for simplicity, no discounting is used in this graph.
- 10.
The same is, for example, the case in Denmark.
- 11.
One possibility could in principle be that vehicles with high CO2 emissions per km driven tend to be driven longer distances over their lifetimes than vehicles causing lower emissions per km they are driven. The differences in km driven would, however, have to be very large in order to ‘compensate’ for some of the differences described in this chapter.
- 12.
For example, West and Williams (2007) found that motor fuels are complements in consumption to leisure. Taxing motor fuels hence make it possible to indirectly tax leisure, thus correcting a distortion otherwise difficult to address regarding the choice between work and leisure.
- 13.
A counterargument could be the quite high willingness to pay for emission reductions that some people show in buying hybrid and other low-emission versions of some vehicle models.
- 14.
There can be co-benefits related to reducing motor vehicle CO2 emissions, in the form of reductions in emissions of local air pollutants, possibly noise, etc. It is, however, not evident that this is a good argument for taxing a given tonne of CO2 emitted from a high-emission vehicle (much) more than a tonne emitted from a low-emission vehicle. For further discussion of co-benefits from climate policies, see Bollen et al. (2009).
- 15.
This point is just as valid for policies obliging car producers to meet certain average fuel efficiency standards as it is for tax rate differentiation of motor vehicle taxes.
- 16.
Sallee (2010) documents that vehicles in the US have been ‘tweaked’ to fit in to tax-preferred categories of the ‘Gas Guzzler Tax’ applied there. These adjustments were said to entail negative welfare impact equal to three times the positive welfare impact that can be expected from an ideal Pigouvian fuel tax.
- 17.
A study by Vance and Mehlin (2009) of the German car market does, contrary to some earlier evidence, indicate that consumers there in fact to a considerable extent do take future tax payments into account in their purchasing decisions. Their results suggest that recurrent motor vehicle taxes and fuel costs significantly determine market shares of different car categories, and hence may serve as effective instruments in influencing the composition of the car fleet and associated CO2 emissions.
- 18.
All use of motor vehicles contributes to some negative externalities – for example, congestion and accidents. One can hence question the practice of providing subsidies for low-emission vehicles, as these contribute to increasing the total number of vehicles on the roads. If the policy context is one where it is deemed ‘necessary’ to provide subsidies to stimulate car sales, in order to ‘save’ the national motor vehicle sector, it can nevertheless be useful to include a stimulus for low-emission vehicles in these subsidies, cf. OECD (2009a) for a further discussion.
- 19.
In the aftermath of the financial and economic crisis in recent years, most OECD countries will need to go through a period of fiscal consolidation, with increases in tax revenues and/or reductions in public spending. It might prove easier to ‘sell’ the introduction of higher taxes on fossil fuels in such a context – where such taxes might be seen by the electorate as the lesser of several ‘evils’.
- 20.
Low-income households can to some extent be affected by increases in prices of public transport if motor fuel taxes are increased. However, with the additional revenues that such a tax increase would raise, it ought to be possible to provide targeted subsidies to relevant public transport schemes to offset the most negative distributive impacts. A full analysis of the distributional impacts of a fuel tax increase should also take into account the distribution of relevant changes in e.g. local air quality stemming from the tax increase.
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The author thanks Nick Johnstone, Sverre Mæhlum and Theodoros Zachariadis for helpful comments.
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Braathen, N.A. (2012). CO2-Based Taxation of Motor Vehicles. In: Zachariadis, T. (eds) Cars and Carbon. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2123-4_8
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