CO2 based annual vehicle circulation tax (CO2 taxation)

FACT SHEET NO.: Cat-No.2 / Subcat-No.2.2-1

2. Taxation

2.2 Transport taxation

CO2 based annual vehicle circulation tax (CO2 taxation)

Car taxation is a powerful instrument to influence the purchase decisions of consumers. Taxes can be differentiated to support the market introduction of fuel efficient and low CO2 emitting cars. This could greatly facilitate the efforts of car manufacturers to meet their obligations by bringing such vehicles to the market. Of the various taxation instruments available to the policy maker, the present assessment focused on the use of taxes to encourage the purchase and use of low emission vehicles, i.e. taxes on registration and annual circulation Some countries modernized their circulation tax system with CO2 base in order to reduce GHG emission. The European Community's objective is to reduce CO2 emission to 120 g/km on average of the new car fleet. [3]

Germany: Vehicles first registered before June 30, 2009 are taxed according to engine displacement and national/European emission class, whereas vehicles which were registered after that date are taxed solely based on CO2 emission in grams per km (g CO2/km).
France: Since 2006 the tax is levied according to CO2 emissions ranging from 2 euros per gramme to 19 euros per gramme.
Belgium: Passenger cars pay a registration fee based on the cylinder content and KW output (degressive towards 2014 (66% in 2012, 33% in 2013, 0% in 2014) and environmental criteria such as CO2 gr/km output (increasingly towards 2014). The more CO2 gr/km the car produces, the higher the fee will be.

Vehicle taxes can significantly determine the composition of the car fleet [2], therefore CO2 based circulation taxes could effectively raise the market share of low-carbon vehicles. IN addition to this:- Providing for a high level of environmental protection in the European Union- Reducing local air pollution emission- Reducing the climate change impacts and improving the fuel efficiency of light-dutyroad vehicles

Lower CO2 emission usually imply lower fuel consumpiton, due to more efficient engines

[1] Hill, N. et al (2012): EU Transport GHG: Routes to 2050 II
[2] Vance, C., Mehlin, M. (2009): Tax Policy and CO2 Emissions - An Econometric Analysis of the German Automobile Market. Ruhr Economic Papers #89, Feb. 2009
[3] European Commission (2007): Results of the review of the Community Strategy to reduce CO2 emissions from passenger cars and light-commercial vehicles Impact Assessment. Brussels.