Greenification via taxation gains popularity

As a consequence of the efforts in progress around the world for globally greening the air we breathe, several Member States in Europe are subtly playing with the tax levers available to them in order to keep (or bring to) a fragile balance between tax revenues and a greener car park.

To achieve the above goal, mainly two paths are being followed; on the one hand a repressive taxation of the most polluting vehicles and on the other hand a policy of granting incentives in respect of ‘green(er)’ vehicles – either with a tax relief or a cash back subsidy upon acquisition or a combination of both.

By ‘green(er)’, we refer to alternative powertrains, for instance alternative fuel vehicles (AFV’s), electric vehicles (EV’s), hybrid electric vehicles (HEV’s), plug-in hybrid electric vehicles (PHEV’s).

In respect of repressive taxation, it is to be noted that a CO2 emission tax based policy is widely used across the European Union, but with some slight variations.

In Romania, Croatia and Cyprus for example, the tax is only levied once upon registration of the car, meaning that the actual further use of the car will not be taxed on the basis of CO2 emissions.

In other Member States such as Denmark, Finland, Germany and Greece for instance, the CO2 emission based tax will be levied on a yearly basis (annual circulation tax) during the entire life cycle of the vehicle.

At the other end, countries like Belgium and the United Kingdom also link the taxation of the use of a company car on the basis of CO2 emissions.

On the incentive side, tax reliefs are granted to alternative powertrains vehicles such as EV’s and in some cases like Ireland also to HEV’s and other AFV’s.

In a nutshell, it is to be noted that (only) 20 Member States apply a CO2 based taxation scheme while incentives for alternative powertrains are available in 21 Member States.

Of all 28 Member States, 16 have both a repressive and an incentive approach. Sadly, still a few have none at all!

Restricted areas

Beside taxation aspects, also other incentives are still being granted to ‘green(er)’ vehicles in respect of access to restricted areas in more and (major) cities in Europe.

In e.g. Paris motorists will now, as from 16 January 2017 also need to display a “clean sticker” so police will be able to quickly see to what category (of which 6 exist) a vehicle belongs. The stickers will indicate the age of the vehicle, its engine and cleanliness on a scale of one to six.

In Antwerp, Belgium, also a low emission zone will be introduced on 1 February 2017, whereby (in principle all) vehicles will be banned from the city center (for diesel passenger cars this means that they will at least need to meet the Euro 3 norm, in which case they will need a particles filter). Compliance will be monitored via smart cameras and fines of 125.00 EUR per infraction will be imposed (as from 2018 these fines will be increased up-to 350.00 EUR per infraction in case of repeated offenses). Antwerp is the first city in Flanders to implement such system and it will most likely not be the last.

The future looks green(er)

The above clearly shows that more and more countries consider the greenification of their vehicle park as an integral part of their fight against climate change.

This is further being strengthened by announcement such as in the Netherlands, where it was stated that all cars sold will need to be “green” by 2035.

Another example of this is that the already mentioned measure in France forms part of the plan of the current mayor of Paris, Anne Hidalgo, to combat pollution in her city (and elsewhere in France). In this framework she also already declared that she wanted the capital of France to be free of diesel vehicles by 2020 and the whole of France even by 2025.

Although the intentions are good, it remains to be seen whether the currently (some say “artificially”) subsidized vehicles are actually green(er) than their traditional counterparts. The “cradle to grave” approach towards EV’s was already mentioned in previous publications, but more importantly we also see that e.g. big hybrid SUV’s get all sorts of tax benefits to make them more attractive for their audience.

However, in practice these vehicles are then often mainly driven using petrol, because their drivers do not want to be bothered with the hassle of charging it correctly.

In addition, as vehicle taxation has and will always form a vital source of government revenue, it is to be expected that as soon as the car fleet has become green(er)… some other form of taxation will be introduced, in order to keep the budgets balanced.

With the support of BDO