The Effects of CO2-differentiated Vehicle Tax Systems on Car Choice, CO2 Emissions and Tax Revenues

The Effects of CO2-differentiated Vehicle Tax Systems on Car Choice, CO2 Emissions and Tax Revenues


R Kok, Ecorys and Delft University of Technology, NL


This paper investigates the effectiveness and efficiency of vehicle tax reforms in the Netherlands and explores future reform scenarios and effects to 2015.


Following the European Commission proposal for a council directive on passenger car related taxes (COM(2005), 261), many countries in the EU have gradually implemented tax reforms to promote the purchase of fuel efficient cars. Vehicle taxes used to be structured primarily as flat rates related to car prices or vehicle weight-differentiated, whereas nowadays vehicle registration taxes (VRT), annual circulation taxes (ACT) and company car taxes (CCT) are largely CO2-emission-differentiated.

As opposed to carbon taxes which directly tax carbon emissions, carbon-differentiated vehicle taxes influence the type of vehicle purchased. The Netherlands has witnessed an explosive growth of hybrid vehicle- and small fuel-efficient diesel car sales, not only for private ownership but as company cars as well. Carbon-differentiated incentives may encourage people to buy a more fuel efficient car within the same car segment or choose for a car in a smaller segment. The evolution of the average CO2 intensity of new car sales include both consumer purchasing decisions (behavioural change) and technological improvements in vehicle efficiency. Technological improvement is mainly driven by CO2 emission regulation for car manufacturers in the EU. Behavioural change may be driven by fiscal policies, but also by the social-economic background of people and external forces like oil/fuel prices and GDP growth.

This paper shows how vehicles taxes gradually evolve towards a CO2-differentiated tax system and how the composition of new vehicle sales changed from 2005 to 2010 in the Netherlands. We will specifically show changes in the petrol/diesel ratio, ownership ratio (private/company car), car (size) segments, CO2 emissions values (NEDC test cycle) and the total CO2 emission reduction. The average CO2 intensity of new car sales decreased from 170 gCO2/km in 2005 to 130gCO2/km by the end of 2010, already being equal to the EU-wide target level for manufacturers by 2015. Furthermore, we show to what extent the composition and average CO2 intensity of new car sales is explained by technological improvements, behavioural change due to fiscal policies (VRT, ACT and CCT), and external forces like fuel prices or GDP.

Finally, we analyse the impact of fiscal policies on government tax revenues and how such a tax system could be designed to continuously promote the most fuel-efficient cars while maintaining stable government vehicle tax revenues. This analysis is built upon a thorough market analysis of car types, technologies and CO2 emissions to 2015, especially with regards to hybrid- and plug-in hybrid vehicles and small diesel cars with low CO2 values.


Association for European Transport