Commission given new ideas on CO2 taxes on cars

Last year's deadline for the European Commission to prepare legislative proposals on carbon dioxide emissions from cars was missed after Member States came nowhere close to a consensus on the idea of a CO2-based purchase tax. Fresh proposals for an annual CO2 tax on cars have now been submitted to the Commission by its expert advisory group on vehicle pollution - but it remains to be seen whether they will suffer the same fate.

The Commission was placed under a duty to prepare legislation to limit CO2 emissions from cars in 1991. The deadline for submission of a legislative proposal to the Council of Ministers was December 1992.

After canvassing Member States' views on how the problem should be tackled and being given several competing options, the Commission sought advice from its Motor Vehicle Emissions Group (MVEG) - a body of national officials and motor industry representatives.

An MVEG sub-group eventually proposed a purchase tax based on a combination of the weight of each new vehicle and its CO2 emissions per kilometre. This approach, it believed, would encourage manufacturers to produce more fuel-efficient vehicles and consumers to buy smaller cars with lower emissions, so that by 2005 average CO2 emissions from new cars would be reduced by 40%.

However, the proposals received little support when they were put to MVEG last December (ENDS Report 215, pp 35-36 ). As a result, the legislative deadline was missed.

The Commission subsequently invited the sub-group to consider the option of an annual car tax on CO2 emissions. Its intention appears to be to incorporate this in a proposal for an annual tax which also tackles other gaseous pollutants as well as noise.

The sub-group completed its work on this idea last month. It points out that annual taxes for cars among the Member States are currently based on a wide range of criteria, and vary by well over a magnitude even for the same model. This would pose problems even for a gradual move towards tax harmonisation.

The sub-group has warned the Commission that attempting to deal with CO2, other pollutants and noise in a single tax could dilute the effect of the CO2 element, and create additional room for argument over the relative importance of the different pollutants and hence the weights to attach to them in setting the tax.

The basic proposal made by the sub-group is that an annual tax should be based on CO2 emissions per kilometre. As with its previous proposal on purchase taxes, it suggests that the baseline emissions at which the tax would begin to be levied should be lowered gradually to provide a continuous incentive for improvement. Specifically, it has proposed a baseline value of 160 grams of CO2 per kilometre in 1995, falling by 5g/km annual increments to 110g/km in 2005.

Several problems with an annual CO2 tax were identified by the sub-group. If the CO2 baseline was lowered annually for all cars, then the tax might be seen as discriminating against owners unable to purchase more fuel-efficient vehicles. On the other hand, if the tax was fixed for a particular vehicle at the time of first registration and subsequently remained constant during the life of the car, the effect could be to deter purchases of new cars.

In principle, the tax could be applied not only to cars sold after it was brought into effect but also to existing cars. While this would minimise market distortions, the sub-group points out that CO2 emissions are not known for all existing models and hence administrative difficulties would arise.

The sub-group also expresses uncertainty about the impact of an annual tax. It is "unlikely", it believes, that an annual tax alone could bring about the 40% improvement in average CO2 emissions from new cars by 2005 which it believes to be feasible, although this may be possible if fuel prices were also raised. In addition, the sub-group was told by the Commission not to consider at what rate an annual tax should be set.

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