Policy     Economics     Technologies

Encouraging fuel-efficient cars via Vehicle Purchase Tax

A comparison of alternative tax schemes

At the request of the Netherlands’ Environment Ministry the environmental effectiveness of eight alternative Vehicle Purchase Tax (VPT) schemes was investigated. There were essentially three variants:
  1. A basic VPT indexed to net catalogue value.
  2. Schemes whereby the basic VPT is combined with discounts and forfeits, calculated on the basis of the vehicle’s energy label, its relative CO2 emission (compared with the vehicle-class average) or its absolute CO2 emission.
  3. BPM schemes indexed to absolute vehicle CO2 emission. In this case there can be either a flat rate or a progressive tariff per gram CO2/km. In addition, two progressive schemes were examined in which there is also a discount for vehicles with an ‘efficient’ (A, B or C) label.

These alternative schemes were compared on two counts: the (financial) incentive to consumers to buy a more efficient vehicle, and the estimated CO2 emission cuts to which they might lead. In both contexts allowance was made for the scheduled phase-out of VPT in the Netherlands prior to introduction of road pricing.

The study indicates that the progressive VPT schemes indexed to CO2 emissions create the greatest incentive to buy a more efficient vehicle. With these schemes the estimated CO2 reduction in 2020 relative to today is an additional 0.3 to 0.5 Mt, assuming 100% phase-out of the current VPT. With 25% phase-out of VPT, the CO2 reduction is 0.9 to 1.2 Mt. The progressive VPT schemes owe their effectiveness to the fact that they provide a strong incentive for buying a smaller vehicle as well as for buying a more efficient vehicle in the same size bracket. In addition, these schemes create an incentive to purchase a vehicle fitted out with fuel-saving technologies at additional cost. This contrasts with a VPT indexed to net catalogue value, which in this context creates precisely the wrong kind of incentive.

Authors

Martijn Blom
Arno Schroten

Delft, May 2009

report

This report is only available in Dutch.

Tweets by @cedelft

Press release - ITS Market Watch: Valuable insights from 4 case studies across Europe https://t.co/DsOKxNKeuM… https://t.co/ohIOjwq46l
23-11-2017 09:21

Press release - Strong EU-post-2020 CO2 regulations for cars and vans beneficial https://t.co/SyRhBQVHTR
21-11-2017 14:44

Column Frans Rooijers - Overdag, als niemand thuis is, schijnt de zon. "Frictie tussen zomer en winter" op Energiep… https://t.co/hxYYdo4JDG
15-11-2017 10:11

Rapport - Energiebesparing in verkeer en vervoer: factsheets ten behoeve van de Nationale Energieverkenning 2017 https://t.co/fW2zzVRkQp
25-10-2017 14:28

Rapport - #Biobased #plastics in a #circular #economy. Policy suggestions for biobased and biobased biodegradable p… https://t.co/nL8CksIC6F
25-10-2017 14:11