UK tax policies to control CO2 emissions from motor vehicles – early impacts and lessons for other European countries

Panel: Panel 3. Land use, transportation and mobility

Author:
Neil Wallis, Energy Saving Trust

Abstract

Road transport emissions of carbon dioxide represent 22% of total UK emissions and are thus an important focus for policies designed to help meet the UK’s climate change commitments.

Vehicle CO2 emissions are determined by the carbon content of the fuel, vehicle efficiency and miles travelled. Both Europe (through the European association of car manufacturers, ACEA) and Japan have made voluntary commitments to reduce new car fuel consumption by around 25%, and the US government has announced a programme with car makers to develop new technologies to help curb carbon emissions.

In Europe, the UK was the first country to introduce an explicit CO2 basis for taxation on vehicle ownership. Vehicle excise duty (VED), which is paid by car owners on an annual basis, is now graduated according to vehicles’ CO2 emissions. A revised company car tax (CCT), introduced in 2002, also levies tax based on vehicles’ CO2 emissions (with an adjustment for other pollutants).

The introduction of this new basis for taxation, and the expectation that tax rates between low and high carbon vehicles will get steeper in the future, has led to a spate of advertising – in both the trade and consumer press - focusing on vehicles’ carbon dioxide output in preference to speed, comfort or other factors.

This paper is intended to describe how these new taxes work, place them within their national and European contexts and provide early evidence of any observed impacts since their introduction.