Car Taxes and CO 2 emissions in EU. Summary. Introduction. Author: Jørgen Jordal-Jørgensen, COWI

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1 Car Taxs and CO 2 missions in EU Author: Jørgn Jordal-Jørgnsn, COWI Summary Th ful fficincy of passngr cars is oftn mphasisd as on of th most significant aras of action in trms of limiting th transport sctor s CO2 mission lvls. This could b achivd ithr on th supply sid through th tchnological dvlopmnt of cars, or through dmand-sid masurs such as influncing first tim buyrs choic of car. Th aim of this articl is to prsnt a modl for analysis of th dmand sid, mor spcifically th rlation btwn th CO 2 missions from nw cars and th car taxation rlatd to nw car purchass in EU. Th purpos of th modl is twofold. Firstly, it should b usd to analys th CO 2 fficincy of th car taxation in ach mmbr stat. Scondly, rsults from modl calculations should b usd to illustrat what ar th possibilitis for th individual mmbr stats to rduc thir CO2 missions from nw cars. It should b notd that this papr mainly covrs mthodological aspcts and rsults, sinc no CO 2 rduction rsults ar availabl at this stag. Th modl is basd on a rvisd and nhancd vrsion of th Danish Car Choic modl from 1997 combind with car charactristics, socio-conomic data and car taxation data from th EU mmbr stats. Introduction Th Europan Council and th Europan Parliamnt hav adoptd a targt to rduc CO 2 missions from nw passngr cars to 120 gram pr kilomtr by 2005, or by 2010 at th latst. In th yar 1999, th avrag lvl of CO 2 missions from nwly rgistrd cars producd by mmbrs of ACEA, JAMA and KAMA, was grams pr kilomtr. Hnc, th 120 g/km targt adoptd by th Commission may indicat that thr is quit a long way to go with rspct to rducing CO 2 missions. An important stp is, howvr, that th agrmnts btwn th Commission and th car manufacturr, ACEA, KAMA and JAMA, rspctivly, is supposd to rduc avrag nw car CO 2 missions, mainly through tchnical dvlopmnts down to 140 grams pr kilomtr by 2008/2009. Still, th quantitativ targt of th agrmnt with th industry on achiving 140 g/km for nw cars by yar 2008/09 dos lav a gap of anothr 20 g/km in ordr to accomplish th EU policy targt of 120 g/km. Trafikdag på Aalborg Univrsitt

2 Th purpos of this study is to analys th CO 2 fficincy of th national taxation systms using a "common yardstick", and thrby nabling individual Mmbr Stats to assss thir own possibilitis to improv th nrgy fficincy of nw cars through fiscal masurs. Th analysis is carrid out undr th guidanc and suprvision of th EU DG-ENV, th EU DG-TAUD and a Sub Group consisting of xprts from th mmbr stats. Th work was initiatd lat yar 2000 and it is xpctd that th Commission will publish th rsults from th study in th bginning of yar Analysis framwork Th purpos of th analysis is to provid th mmbr stats with information on th rlation btwn th car tax structur and th CO 2 fficincy of nw cars. To do this, th tax systm in ach in ach individual country is analysd in a systmatic mannr in a scnario approach. Th scnario approach applid to ach country consists of th following lmnts: - Studying th potntial for CO 2 rductions - CO 2 ffctivnss of th xisting national taxation systms - Gnral modification of th national tax structur - CO 2 basd tax structur - Country spcific calculations Studying th potntial for CO 2 rductions In ordr to illustrat th tchnical conditions, undr which th fiscal masurs will oprat in th national nvironmnts, two calculations illustrating th potntial for CO 2 rduction ar mad: - Th tchnical potntial - Brak-vn for disl cars Non of ths calculations includ th bhavioural ffcts of th fiscal masurs, but only illustrat th maximum potntial for CO 2 rduction. Th starting point is th bas cas 2008 and th associatd CO 2 missions. In th first calculation it is assumd that th missions of all cars within ach catgory (Mini, Small, Lowr mdium, tc) attain th ful fficincy lvls of th bst prforming vhicl within th catgory. This calculation is only illustrativ, sinc it would not b possibl to chang consumrs bhaviour so radically by using only fiscal incntivs. It also has nothing 78 Trafikdag på Aalborg Univrsitt 2001

3 to do with masuring markt distortions. Howvr, it illustrats th purly tchnical possibilitis for incrasing th ful fficincy of th nw car purchas. It is within this rang, that th fiscal masurs can oprat, and th tchnical potntial has to b largr than that ndd to rach th CO 2 targt. CO 2 ffctivnss of th xisting national taxation systms Th scond wav of scnarios concrns th CO 2 ffctivnss of th xisting national taxation systm. In ths scnarios th tax bas and basic structur of th xisting national taxation systms ar unaltrd, but th lvl of taxation is incrasd. Thr ar two typs of calculations in ths scnarios. In th first st of calculations, th xisting taxs ar incrasd, using th xisting diffrntiation of taxs according to.g. wight or valu. In th scond st of calculations, th diffrntiation of th xisting taxs is altrd to improv th CO 2 incntivs of th taxation systm, but still using th xisting paramtrs. For xampl, in th first st of calculations a national wight tax could b incrasd with a crtain prcntag for all cars, using th xisting wight catgoris. Th scond st of calculations could b a stpr diffrntiation according to wight, as this would b likly to improv th CO 2 fficincy of th nw car purchass. Inclusion of CO 2 lmnt in xisting tax structur In th third wav of scnarios, th xisting national taxation systms ar supplmntd with a diffrntiatd CO 2 lmnt for ithr th rgistration tax or th circulation tax. Using th xampl with wight tax mntiond abov, th starting point would b th currnt national wight tax (without incrass or incrasd diffrntiation). A CO 2 diffrntiation circulation tax could b addd to this xisting tax. Th tax would thn b a combination of a wight tax and a CO 2 basd tax. CO 2 basd tax structur Th fourth wav of scnarios compris scnarios whr it is assumd that th xisting national taxation systms ar compltly rplacd by a taxation systm with CO 2 prformanc of th cars as th tax bas. Th CO 2 diffrntiatd taxs could b introducd for both rgistration tax and circulation tax. Th tax structur will b dtrmind in a CO 2 optimal way for ach national tax systm. In ths scnario of calculations, a CO 2 incntiv will also b includd. Th CO 2 incntiv will provid a subsidy for th most nrgy fficint cars, and b balancd against a CO 2 basd tax for th lss CO 2 fficint cars. A calculation on a simultanous chang in rgistration tax, circulation tax and CO 2 incntiv will b carrid out as a part of th wav of calculations. Trafikdag på Aalborg Univrsitt

4 Country spcific calculations Furthr to th gnral principls for modifications of th tax structur, mmbr stat spcific calculations will b carrid out, to th xtnt that such rqusts hav bn put forward by th national authoritis. Boundary conditions Th CO 2 fficincy of th national taxation systm is studid with a viw to support th dmand for (mor) CO 2 fficint cars whil at th sam tim taking into considration crtain spcifid boundary conditions. Th study thrfor also includs scnario runs in ordr to illustrat th fficincy of th idntifid fiscal options. Th boundary conditions includ considrations as rgards th blow issus: - Flt composition nutrality (i.. no downsizing), - Rvnu nutrality, - Th shar of disl cars. Analysis is carrid out through an itrativ procss, sking to maximis CO2 rductions subjct to th boundary conditions. In practic this is don by making small changs to th taxs and rcording th marginal changs in CO2 missions rlativ to th costs in trms of boundary conditions. Th modl itslf dos not includ such a tool. In th calculation this is carrid out in a co-run btwn xcl and accss. Analytical tool, th car choic modl Th analysis tool is basd on a furthr dvlopd vrsion of th Danish Car Choic modl (prsntd at Trafikdag 1999). Improvmnts - Modlling allocation btwn company cars and privat cars - Inclusion of company car taxation - Nw modl implmntation - Validation Th following subsction dscribs th rvisd modl. Aftr that a fw xampls of th modl validation is givn. Th rvisd car choic modl Th modl stimats th ffct of fiscal masurs on CO 2 missions from passngr cars. This is don by calculating th dmand for passngr cars in ach of th 15 EU Mmbr Stats and comparing a bas scnario with altrnativ scnarios whr fiscal masurs ar usd to altr th incntivs at play whn choosing btwn diffrnt vhicls. 80 Trafikdag på Aalborg Univrsitt 2001

5 Th car choic modl framwork Th car choic modl consists of thr sub modls. Privat/company split Th Privat/Company modl allocats th cars into privat and company cars. Th driving forc in this modl is th bnfit th consumr gts from choosing a spcific car as a company car instad of a privat car. Privat car modl Privat / Company allocation Company car modl This bnfit is closly connctd to th taxation ruls for acquisition and us of company cars which is varying a lot btwn th EU mmbr stats. Th paramtrs for this modl hav bn stimatd basd on data from Dnmark 1997 and Grmany and th appropriat taxation ruls in ths two countris. Th Privat/Company split modl taks ach spcific car and calculats th bnfit of having this car as a company car, i.. th cost of having th car as privat car minus th cost of having it as company car. Basd on this masur and othr charactristics, th modl calculats th probability that this car would b chosn as a company car. Th modl is a binary discrt choic modl, with th following formulation: V P ( Companycar) = V V = β*b + α*c + 1 Whr V is th utility of having th car as a company car which is a function of th bnfit (B) and th physical charactristics of th car (C). Th privat car modl Th privat car modl allocats th dmand on th spcific cars. Th driving forc in th privat car choic modl is th following - Pric of th car (inclusiv tax and VAT) - Running cost (ful and circulation tax) - Siz of th car (lngth) and Luggag capacity - Acclration Furthrmor th modl includ a hom-markt paramtr to account for th fact that consumrs tnds to choos cars producd in thir own country. Th probability for choosing car i is basd on th xplanatory variabls. P( i, j) = P( j) P( i j) = θ log j J i J V i θ log i J Vi * Vi i J Vi (Nstd logit) Trafikdag på Aalborg Univrsitt

6 Company car modl Th company car modl allocats th dmand on th spcific company cars. Th driving forc in th company car choic modl is th following - Cost of acquisition (Company cost and Prsonal company car taxation) - Running cost (including company car taxation) - Siz of th car (lngth) and Luggag capacity - Acclration and Hors powr Furthrmor th modl includs a hom markt paramtr to account for th fact that consumrs tnds to choos cars producd in thir own country. Vi ( = (Simpl logit) Vi P i) i I Validation Th tsts hav comparrd rsults from modl calculations with rcordd data in ordr to assss th modls ability to calculat th actual dmand within a tolrabl lvl of accuracy. Th following thr paramtrs hav bn considrd: - CO 2 mission lvls - Nw car rgistrations - Estimats of paramtr (lasticitis). Th validity of th modl paramtrs has bn tstd against similar paramtrs at EU lvl (i.. considring 11 Mmbr Stats (as many as thr wr data availabl on at th tim of tsting). Ths tsts and mor dtaild tsts confirmd th gnral validity of th modl. CO 2 mission lvls Th following figurs show th rsults of th validation tsts for both ptrol- and dislfulld cars, rspctivly. Th calculations hav bn mad sparatly for company cars and privat cars du to th diffrnc in mission lvl trnds among ths two groups. Figur 1. Modlld CO 2 missions compard to obsrvd CO 2 missions for ptrol cars in Grmany and Dnmark (1999/2000) g CO 2 /km, wighd avrag D DK Modl, privat car Obsrvd Modl, company car 82 Trafikdag på Aalborg Univrsitt 2001

7 Figur 2 Modlld CO 2 missions compard to obsrvd CO 2 missions for disl cars in Grmany and Dnmark (1999/2000) g C02/km, wighd avrag D DK Modl, privat Obsrvd Modl, company As shown, th modl calculats largr CO 2 missions from company cars comparrd to privat cars. This corrlats vry wll with th fact that company vhicls gnrally tnd to show rlativly lowr rats of nrgy fficincy). Th obsrvd CO 2 mission lvls lis btwn th calculatd lvl for company a car and th calculatd lvl for a privat car. This applis both to Dnmark and Grmany, and is in lin with what could b xpctd. Nw car rgistrations Th following figurs show rsults from a mor dtaild validation tst. On an ovrall lvl, th numbr of rgistrations calculatd by th modl corrlat wll with obsrvd data. Howvr, thr ar also som dviations from th obsrvd data that cannot b xplaind by th modl. For xampl, Figur 3 shows that th modl calculats too many rgistrations in th rgion of 165g of CO 2 pr km. Ths unxplaind dviations ar largly causd by country-spcific prfrncs that th modl cannot captur. Howvr, th ffcts from such country spcific prfrncs ar assssd to b minor in th contxt of this study. Figur 3 Numbr of rgistrations as a function of CO 2 missions for ptrol cars (g pr km) in Grmany Numbr of rgistrations 25% 20% 15% Forcast Dmand 10% 5% 0% CO 2 Trafikdag på Aalborg Univrsitt

8 Figur 4 Numbr of rgistrations as a function of ngin siz volum (ccm) for ptrol cars in Grmany Numbr of rgistrations 30% 25% 20% Forcast Dmand 15% 10% 5% 0% cm 3 Input This sction givs a short dscription of what is ndd to run th modl. - Socio-conomic data for car purchasrs - Car charactristics - Taxs rlatd to acquistion and us of car Socio-conomics Th modl is basd on sparat modls for diffrnt typs of familis. To nabl th modl to rsmbl th situation in ach country, information on family structur combind with incom distribution in ach country is ndd. Car charactristics As mntiond abov th driving forc in th modl is th following paramtrs: - Pric of th car (inclusiv tax and VAT), - Running cost (ful and circulation tax), - Siz of th car (lngth), - Luggag capacity and - Acclration. Th modl nds information on ths charactristics for ach car on th markt in ach country. Taxs Taxs constitut an important part of th both running costs and car prics in most countris. Th following tabl provids an ovrviw of th rgistration tax in th Mmbr stats. 84 Trafikdag på Aalborg Univrsitt 2001

9 Rgistration tax Tabl 0.1 Tax bas on rgistration tax of passngr cars. Cm 3 Valu Ful Fixd Non Irland Blgium Spain Grc Portugal Austria Dnmark Nthrlands Finland Grmany Franc Italy Luxmbourg Swdn Unitd Kingdom Thr is no uniformity rgarding th actual dsign of th rgistration tax among Mmbr Stats, as can b sn from th tabl abov. In som cass th rgistration tax is rlatd to th physical charactristics of th car (.g. cylindr capacity or ful consumption) whras in othr cass it is rlatd to th pric of th car. Circulation tax From th following tabl it can b sn that all Mmbr Stats impos som form of circulation tax on passngr cars. This tax is lvid annually according to a varity of critria among,.g. wight, cylindr capacity, ful consumption and ngin prformanc of th vhicl. Tabl 0.2 Tax bas on circulation tax of passngr cars yar Irland Portugal Austria Grmany Luxmbourg Unitd Kingdom Blgium Spain Grc Franc Italy Finland Nthrlands Swdn Dnmark Cm 3 HP Wight Ful (x) Plas not that this tabl shows xisting circulation taxs in yar In th UK a nw schm cam into forc in March In this schm, th tax is basd on CO 2 missions. Th Dutch circulation tax has also bn changd to a mor CO 2 rlatd tax sinc yar Trafikdag på Aalborg Univrsitt

10 Rsults Thr ar thr typs of rsults from th study: - Can th Danish modl b usd to analys car dmand in othr countris? - How should th study b structurd in ordr to provid comparabl rsults and at th sam tim tak som of th political constraints into account? - To what xtnt is it possibl to improv th CO 2 fficincy of nw cars by fiscal masurs? At this stag th analysis has shown that th rvisd modl is capabl to stimat car dmand in othr countris than Dnmark with a rasonabl accuracy, givn that th modl is supplmntd with th rlvant data (socio-conomics and car charactristics). Furthrmor, th study has dvlopd a scnario approach whr a spcial routin sks to maximis CO 2 rductions subjct to a st of boundary conditions. This approach improvs th comparability of th rsults btwn diffrnt countris. Finally, at a latr stag, whn th analysis hav bn finalisd it should b possibl to giv answrs to qustions such as: - Is it possibl to rduc CO2 missions substantially without, at th sam tim, crating downsizing - Can w obtain significant CO 2 rductions using th xisting tax structurs (tax bas),.g. by incrasing taxs. - Is th rgistration tax a mor fficint mans to obtain CO 2 rductions than th circulation tax - How high a lvl of CO 2 diffrntiation is ndd to obtain significant rductions. 86 Trafikdag på Aalborg Univrsitt 2001