CO2 related car tax in Europe

exhaustIt was no April fool, but as of the 1st April 2014, 20 of the European Union member states were in the process of imposing some form of CO2 charge to owners of cars.

This figure has increased slightly over the number of countries involved three years ago, when it stood at only 17. Some countries have decided to go the whole hog and tax their car drivers entirely based on the CO2 their vehicles emit and others have based their calculation only in part on CO2 emissions. The countries included in the list are: Austria, Belgium, Croatia, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Romania, Slovenia, Spain, Sweden and the United Kingdom.

While there is support for this growing trend towards taxing cars according, at least in part to the CO2 they emit, there is some frustration amongst experts in the car industry that the participating countries haven’t managed to find a one-size fits all approach. The car industry as a whole in Europe is seeking a tax that is based entirely on CO2 emissions and that is technology and budget neutral, as well as being linear.

While there are few countries in the European Union that wouldn’t support wholeheartedly the notion that reducing car CO2 emissions is a priority, where they place that priority depends, at least to some extent, on the other issues they are facing. While the European Commission and the trade associations in the car industry managed to get major car manufacturers to agree to making a reduction in CO2 emissions a priority for new vehicles, there is less consensus across the states as to how to deal with vehicles that are already in circulation. That said, there has been some benchmarking agreed in the overall regulation agreement (EC Regulation No 443/2009).

Two of the most significant moves are:

  • That they would target an overall European fleet average of 130g/km of CO2 emissions by 2015.
  • Each manufacturer will aim to deliver this result based on vehicles sold, rather than across each vehicle in their range.

What this means is that there should be a shift amongst certain car manufacturers to significantly improve their performance with regard to CO2 emissions in the future. The aim is that they will be able to do this without losing competitive edge in the markets where some vehicles are less attractive in this regard. What it does mean though is that car manufacturers, in the not too distant future are likely to make it more attractive for consumers to choose cars with lower emissions in order to achieve their targets. This could mean that some of the luxury car brands could have some attractive, low emission vehicle deals on offer.

Whether or not an EU-wide policy is likely to be on the cards in the not too distant future is unknown, but like all things tax related, in some ways it has to be accepted that each country has different priorities, different economies and different populations, so in some respect, this is understandable.