Effectiveness of CO2-based feebate systems in the European passenger vehicle market

Published: 2014.03.28

Cambridge Econometrics

The ICCT commissioned Cambridge Econometrics to carry out this analysis of the effectiveness of CO2-based vehicle taxation in reducing passenger-transport CO2 emissions.

The study sought to identify the extent to which the observed reductions in CO2 emissions rates in the Netherlands and the UK can be attributed to CO2-based vehicle taxation. Econometric techniques were applied to model demand for new-vehicle purchases, using detailed data on quarterly registrations.

In particular, the study sought to identify the responsiveness of new-vehicle demand to changes in CO2-based taxation. In the Netherlands, there is now a CO2 component to both the registration and circulation tax, with the upfront registration tax by far the largest price on CO2. In the UK, there is only a circulation tax, payable each year on the CO2 emissions rate of vehicles on the road

The analysis estimates the change in the emissions rate in each country that would have been brought about by the taxation currently in place, in comparison to a state of the world with no CO2-based taxation. This is then compared to the reductions in CO2 emissions actually exhibited in the data.

It shows that CO2-based vehicle taxation has contributed to reductions in new-vehicle emissions rates. The contribution was larger in the Netherlands (-6.3 gCO2/km) than in the UK (-3.6 gCO2/km). This compares to total reductions in the rate of 46.8 gCO2/km in the Netherlands and 32.5 gCO2/km in the UK.

The results are of a similar size to those reported by Klier and Linn (2012) in their analysis of France, Germany and Sweden although the comparison is not quite like-for-like owing to the fact that the results reported in this study are estimated over a longer time period, where the supply of vehicles cannot necessarily be assumed to be fixed. To that extent, the results of this analysis are more long-term in nature and may include some supply-side influences.