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:
- A basic VPT indexed to net catalogue value.
- 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.
- 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.