Fiscal Policy and CO2 Emissions of New Passenger Cars in the EU

Tax incentives have motivated motorists to opt for more fuel-efficient vehicles more often, in 15 of the studied EU Member States. CO₂ emissions from new passenger vehicles, per kilometre driven, therefore, have decreased by around 1.3% between 2001 and 2010, which is about a tenth of the total decrease over this period.

PBL Netherlands Environmental Assessment Agency, together with the University of Tilburg and CPB Netherlands Bureau for Economic Policy Analysis, conducted a study on 15 EU Member States*, for the 2001–2010 period, about the degree to which national tax policies have contributed to new passenger vehicles' CO₂ emission reductions per kilometer driven. Those 15 countries are trying, in various ways, to create incentives for private motorists to opt for fuel-efficient vehicles with lower CO₂ emission levels. To do so, governments may implement a variety of measures. This study has shown that greening the vehicle purchase tax (BMP, in Dutch) is effective, in this regard, because the level of such a tax depends on a vehicle’s CO₂ emissions per kilometre driven. Countries that have implemented this policy have seen a substantial increase in the number of fuel-efficient vehicles sold, and a related decrease in those less fuel-efficient. One of the other possible measures to tempt motorists to opt for fuel-efficient vehicles is that of increasing fuel tax. Although this also has some effect, it can have a negative impact on petrol stations along national borders if neighbouring countries do not impose such taxes. The greening of road tax hardly has an impact on vehicle choice.

* Belgium, Denmark, Germany, Finland, France, Greece, United Kingdom, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Spain, Sweden