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Charging Drivers by the Pound: How Does the UK Vehicle Tax System Affect CO2 Emissions?

  • Davide CerrutiEmail author
  • Anna Alberini
  • Joshua Linn
Article

Abstract

Policymakers have been considering vehicle and fuel taxes to reduce transportation greenhouse gas emissions, but there is little evidence on the relative efficacy of these approaches. We examine an annual vehicle registration tax, the vehicle excise duty (VED), which is based on carbon emissions rates. The UK first adopted the system in 2001 and made substantial changes to it in the following years. Using a highly disaggregated dataset at the trim-variant level of UK registrations and characteristics of new cars, we estimate the effect of the VED on new vehicle registrations and their carbon emissions. The VED increased the adoption of low-emissions vehicles and discouraged the purchase of very polluting vehicles, but it had a small effect on aggregate emissions. Using the empirical estimates, we compare the VED with two hypothetical taxes: a tax proportional to carbon emissions per kilometer, and a carbon tax. The VED reduces total emissions from new cars twice as much as the emissions rate tax but by half as much as the emissions tax. Much of the advantage of the emissions tax arises from adjustments in miles driven, rather than the composition of the new car sales.

Keywords

CO2 emissions Vehicle registration fees Carbon taxes Vehicle excise duty UK 

JEL Classification

H23 Q48 Q54 R48 

Notes

Funding

This research is also part of the activities of SCCER CREST, which is financially supported by the Swiss Commission for Technology and Innovation (CTI) / Innosuisse.

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Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.Centre for Energy Policy and EconomicsETH ZürichZürichSwitzerland
  2. 2.Department of Agricultural and Resource EconomicsUniversity of MarylandCollege ParkUSA

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