Fiscal instruments favouring electric over conventional cars are greener

This briefing summarises the results of a study performed by the European Topic Centre on Air Pollution, Transport, Noise and Industrial Pollution [1] for the EEA. The study assessed the impacts of taxes and incentives on real-world emissions of CO₂ and air pollutants from new passenger cars over the period 2010-2017. It follows up on a previous EEA study, published in 2018, that looked at the effects of vehicle taxation on the type-approval emissions [2] of new cars in seven European countries (France, Germany, Greece, Ireland, the Netherlands, Norway and Poland). These countries were selected because of their different approaches to taxation and consumer incentives for the purchase of low-CO₂-emitting vehicles. The same countries were selected for the present study. The analysis considered the cumulative fleet of new vehicles registered every year from 2010 to 2017. The results are presented in terms of the emissions savings for all new passenger cars registered between 2010 and 2017.

This study focused on emissions related to only the use phase of vehicles. The comparative impacts of electric cars and conventional cars on climate change, air quality, noise and ecosystems were analysed in an EEA report published in 2018.

Appropriate taxes and incentives encourage purchases of new cars with lower type-approval CO₂ emissions

Average type-approval CO₂ emissions from new passenger cars have dropped in all European countries over the past two decades, from above 170 g CO₂/km in 2001 to around 118 g CO₂/km in 2017. This corresponds to a total reduction of around 30 %, or an average annual reduction of 2 %. This decrease was particularly pronounced in countries where a range of taxes, subsidies and other incentives were used to encourage consumers to purchase low- or zero-CO₂-emitting vehicles. CO₂ emission reductions were also observed in countries where the market share of diesel vehicles increased.

In the Netherlands and Norway, new passenger cars emitted on average 38 % and 54 % less CO₂ in 2017 than in 2001, respectively. These reductions were due to the electrification of the fleet, driven by policies that favoured low-emitting vehicles.

In Ireland, the dieselisation of the fleet led to a 31 % decrease in type-approval CO₂ emissions over the period 2007-2017 [3]. This is because diesel cars emit comparatively less CO₂ than petrol cars.

By contrast, in Germany and Poland, where only limited taxes and incentives were in place, the uptake of low- or zero-emission vehicles was low. The reduction in average CO₂ emissions from new passenger cars in these countries between 2001 and 2017 was below 30.

The increasing gap between reported type-approval and real-world CO₂ emissions has reduced the effectiveness of taxation schemes based on the type-approval CO₂ emissions of conventional cars

The gap between type-approval emissions, based on the NEDC, and real-world emissions has increased over the years. This gap depends on fleet characteristics (such as vehicle category, vehicle mass, engine capacity segment and manufacturer), as well as driver behaviour and environmental conditions. Consequently, it varies considerably among countries.

In Ireland, a registration tax and an annual circulation tax based on type-approval CO₂ emissions have been in place since 2008. Because diesel cars generally emit less CO₂ than petrol cars, this caused a rapid dieselisation of the fleet (from 27 % of new cars in 2007, to 65 % in 2017). Between 2007 and 2017, the CO₂ emissions saving based on type-approval conditions was around 8 %. However, during that period, the difference between real-world and type-approval values grew relatively more for diesel cars (from 30 to 40 g CO₂/km) than for petrol cars (from 20 to 30 g CO₂/km). This particularly pronounced divergence of type-approval and real-world values for diesel cars, together with the share increase of diesel cars, resulted in a saving of only 0.4 % in terms of real-world CO₂ emissions over the period 2012-2017 [4] (Figure 1).

Poland did not implement any tax explicitly based on CO₂ emissions during the period 2010-2017. Although its vehicle registration tax is based on engine capacity, its categorisation does not give additional incentives to purchase a more efficient car. Since 2010, Polish consumers have bought increasingly heavier and more powerful new cars. The average mass of a new car in Poland increased from 1 317 kg in 2010 to 1 410 kg in 2017. This has contributed further to increasing the gap between type-approval and real-world emissions. In fact, average real-world CO₂ emissions of new passenger cars registered in Poland show a slightly increasing trend: although there was a saving of 7.5 % based on type-approval emissions, real-world emissions increased by 1.7 %. In 2017, new diesel and petrol cars emitted on average 2 % and 1.5 % more CO₂ than in 2010, respectively, in terms of real-world emissions (Figure 1).

Over the period 2010-2017, the purchase of a car was not taxed in Germany. However, since 2009, there has been an annual circulation tax in place that increases linearly with engine capacity and the CO₂ emissions rate. The level of this tax is so low, however, even for high-emitting cars, that it has had little effect on consumer choices. In 2017, Germany had one of the highest type-approval CO₂ emissions in the EU: its fleet is significantly heavier, larger and more powerful than the EU average (1 454 versus 1 388 kg, 1 696 versus 1 577 cm³ and 111 versus 96 kW, respectively). Real-world emissions show a slight downward trend: they dropped by 2 and 4.5 g CO₂/km, respectively, for diesel and petrol cars, in the period 2010-2017. These reductions contributed to a 1.5 % decrease in overall CO₂ emissions over the period (Figure 1). Under type-approval conditions, the CO₂ emissions saving would have reached 10 %.

Incentives that promote the purchase of electric vehicles have clear climate-related and environmental benefits

Where strong incentives that promoted the uptake of electric vehicles were in place, clear reductions in overall real-world CO₂ emissions from new passenger cars were seen.

Among the seven countries studied, Norway had the highest sales of electric vehicles. In 2017, 39 % of the fleet was electric (21 % BEVs and 18 % PHEVs), while, in 2010, electric vehicles represented only 0.3 % of new cars. Policies promoting zero- or low-emitting vehicles (BEVs and PHEVs), implemented since the 1990s, have had a clear role in reducing CO₂ emissions from new passenger cars. Such policies include the exemption of these vehicles from VAT, registration tax and annual circulation tax, as well as additional local benefits such as free parking and no road charges. Registration and circulation taxes in Norway, which normally apply to conventional vehicles but not to electric vehicles, are among the highest in the world and bring the purchase cost of an electric vehicle to the same level as a comparable conventional vehicle. These taxes have favoured the uptake of electric cars, leading to a cumulative CO₂ emissions saving of 16 % for new passenger cars registered between 2010 and 2017.

The Netherlands case provides a good illustration of the strong links between consumer preferences, the uptake of electric cars and the tax regime. This country applied a tax system that favoured electric vehicles and low-emission conventional vehicles in the period 2010-2017. Over the years, the tax system became more stringent and focused on the introduction of zero-emission vehicles. Fiscal incentives for PHEVs were gradually reduced to the same level as those for regular cars:

• from 2010 to 2013, PHEVs were exempt from taxation
• in 2014 and in 2015, company PHEV drivers were taxed 7 %
• in 2016 this rose to 15 % and in 2017 to 22 %, which is the same level of taxation as that for conventional cars.

As a result, PHEV sales declined from 9.2 % in 2015 to 0.3 % in 2017. Over the same period, the proportion of BEVs increased from 0.7 % to almost 2 %. Overall, the electrification of the fleet reduced CO₂ emissions by more than 3 % over the period 2010-2017.

Figure 1. CO₂ emissions savings within the fleets of newly registered cars in Germany, Poland and Ireland, and in Norway and the Netherlands where the uptake of electric vehicles has been promoted most

Diesel vehicles may be better than petrol cars in terms of CO₂ emissions, but cannot compete with electric vehicles in terms of air pollutant emissions

According to the 2018 EEA report Electric vehicles from life cycle and circular economy perspectives, an electric car in Europe produces on average less greenhouse gases and air pollutants than its petrol or diesel equivalent, across its life cycle.

BEVs and PHEVs offer air quality benefits because of zero or low exhaust emissions of air pollutants such as NO_x and PM. For example, the introduction of electric cars to the Norwegian fleet resulted in cumulative NO_x and PM emissions savings of 17 % and 6.6 %, respectively, over the period 2010-2017.

Because diesel vehicles have lower CO₂ emission levels than petrol cars, the uptake of diesel vehicles has been incentivised in the past to meet CO₂ emissions targets. However, the dieselisation of fleets has led to negative effects on air quality. In Greece, the proportion of diesel cars in the fleet increased rapidly. This was due to the lifting, in 2012, of a long-standing ban on diesel cars in the two largest cities, Athens and Thessaloniki, and the lowering of taxes on diesel fuel. While these measures are thought to have resulted in large CO₂ emissions savings (3.7 % in the period 2013-2017), they have also had adverse effects on air quality, as NO_x and PM emissions increased drastically during the same period (by 44 % and 4 %, respectively).

The introduction of Euro 6 emissions standards meant stricter limits, which led to a reduction in the NO_x emissions of the newly registered fleet. For all countries, the transition from Euro 5 to Euro 6 standards for conventional cars had a positive effect on NO_x emissions: from a 4.3 % reduction in emissions in Norway to 10 % reductions in Ireland and Greece. For PM, the EU emissions standards were the same for Euro 5 as they are for Euro 6.