An article from Norwegian School of Economics (NHH)

France, Germany and Sweden have all changed their vehicle taxation systems in recent years. (Photo: Colourbox)

New tax scheme reduces emissions from vehicles

The more obvious is it to consumers how the taxes work, the better they respond, according to American economists who have studied vehicle taxes in Europe.

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Norwegian School of Economics (NHH)

NHH was founded in 1936. With its affiliated institutes SNF and AFF, NHH constitutes the oldest and largest centre for research and study in the fields of economics and business administration in Norway.

Joshua Linn is a researcher for the independent foundation Resources for the Future (RFF) based in Washington D.C., and was invited to the BEEER conference at the Norwegian School of Economics in May. He showed how vehicle taxes can be used to reduce emissions.

"Vehicle tax systems are changing, and taxes are now more linked to carbon emissions. The most prominent example of this is the French 'bonus-malus' programme from 2008," he said, and added:

"This had a significant impact on emissions in France."

According to the researchers' figures, the new vehicle tax system is responsible for eight per cent of the reduction in emissions from vehicles in France.

Directly linked to emissions
Joshua Linn from the Washington D.C.-based independet foundation Resources for the Future visited the BEEER conference at NHH in May. (Photo: Eivind Senneset)

Traditionally, vehicles have been taxed on the basis of variables such as production year, weight and engine output.

Taxes directly linked to the emissions from the different vehicle models are becoming more and more common, and the researchers have looked into the effects of the new taxes in France, Germany and Sweden.

All three countries have changed their vehicle taxation systems in recent years. Germany is the largest vehicle market in Europe, with three million vehicle registrations per year. The corresponding figure for France is two million.

"The more obvious it is to consumers how taxes work, the better they respond," said Mr Linn, and referred to the fact that the new taxation system received a lot of attention from the French media when it was introduced in 2008.

There is a definite change in the taxation pattern once new taxes have been introduced.

Previously, there was a certain link between the taxes and the vehicles' carbon emissions, because the size and performance of the vehicles are important in determining the size of their emissions.

However, after the restructuring, the taxes are directly linked to the emissions themselves, and not to other variables.

In other words, the incentives for consumers to choose environmentally friendly vehicles become stronger.

Coordination could pay

The EU has introduced compulsory standards, and vehicle manufacturers are fined if they fail to comply with them. Therefore, the researchers have also looked at the effect of the new taxes on the profit of the manufacturers.

"If you reduce emissions by five grams of carbon dioxide for a given vehicle model, the profit will decrease by approximately 20 euros per vehicle. But the fines imposed on the manufacturer would far exceed this amount," says Linn.

For Germany and Sweden, the researchers found that the new taxes could not explain the same proportion of the reductions.

"This suggests that different tax systems have different effects. Coordination of European taxes could be very beneficial," says the researcher.

Changes to Norwegian taxes

The Norwegian authorities have also introduced a vehicle taxation system which focuses more on emissions.

"In Norway, we have the carbon tax on fuel, and the registration tax is linked to carbon emissions. Several changes to the registration tax have been made in recent years in order to give greater emphasis to carbon emissions," says the Ministry of Finance's Head of Communications, Runar Malkenes.

In the national budget for 2012, the Government proposed to continue the "restructuring of vehicle taxes in an environmentally friendly direction".

A separate nitrogen oxide component in the registration tax was proposed, in addition to a stronger emphasis on carbon emissions. This means that taxes would be reduced for vehicles with relatively lower emission levels, also in Norway.

"The Government changed the registration tax in 2007 by replacing cubic capacity with carbon emission as a component in the tax calculation basis, among other things, in order to reduce carbon emissions from new vehicles," explains Malkenes.

"Carbon emissions have been further emphasised in recent years, and there is thus a strong financial motivation for choosing new vehicles with low carbon emissions. The annual motor vehicle tax was most recently changed in 2008, when a higher tax was introduced for diesel vehicles without factory-installed particle filters."

In Norway, as in the rest of Europe, the average emissions per passenger car has decreased in recent years.

Joshua Linn's research has been carried out in cooperation with Senior Economist Thomas H Klier of the Federal Reserve Bank of Chicago.

Bergen Economics of Energy and Environment Research Conference (BEEER) was held at the Norwegian School of Economics for the first time this year, and the plan is for this conference to become an annual event.

Translated by: Anneli Olsen

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