How to tax the EU towards a greener future

Two MEPs discuss the merits of passenger car taxation

Lower taxes would encourage people to buy new cars which are safer and produce less pollution, Karin Riis-J�rgensen

There are two aspects to the proposed legislation on passenger car taxation. First, we need an internal market for cars that results in a better deal for consumers and, second, we have to do the best that we can for the environment.

I receive a huge number of complaints from people who have been hit with double taxation when they buy a car in one member state and then transfer it to another and this should not be the case in a single market. People should be able to buy a car anywhere in the EU and not be penalised for doing so.

If in abolishing car registration taxes we can also do the best for our environment, by linking the remaining taxes to the level of carbon dioxide (CO2) emissions released by a certain vehicle then obviously this would be the best solution.

The problem with the European Commission�s proposal is that taxes are considered a national competence and any law requires unanimous approval by member states, which is likely to be very difficult to achieve.

I saw this when the Europan Parliament had its first exchange of views on the topic. Many member states have very differing views about it. For example, the British are unlikely to support it because they are opposed to any form of EU-level control on taxes, even though they do not have a registration tax and their car taxes are already partly linked to CO2 emissions.

In Denmark, too, the issue is likely to be very controversial because a large proportion of state income comes from the huge registration tax imposed there. The Commission�s proposal would, however, be particularly helpful in Denmark because at the moment the costly taxes mean that there is a much higher proportion of old cars on our roads. Low registration taxes would encourage people to buy newer cars which tend to be safer as well as having lower CO2 emissions.

But if any of the member states vetoes the proposal, we have then lost the chance to make a difference for consumers and the environment.

My solution would be to strive for agreement under the EU�s enhanced co-operation procedure. This is a procedure laid out in the Nice treaty, whereby at least eight member states which agree on a proposal can go ahead with it, provided that a majority of the 25 member states approve it.

To date this procedure has never been used, although L�l�v�, the taxation commissioner, has suggested that it perhaps should be used to secure agreement on a corporate tax base.

I think it provides the perfect solution to legislating in areas where unanimity is required at EU level and this cannot be achieved, but where there is a group of member states who do support a particular initiative and are prepared to sign up to it.

But if this is not possible for the car passenger tax proposal, then another solution would be to hive off the issue of double registration. This is a less controversial issue on which it would be relatively easy to reach agreement, and it is an important one because it is a serious barrier to the proper functioning of the internal market.

A second proposal could try to link taxes to CO2 emissions. If this were not possible, we could try to find another way to solve the environment problem, for example by concentrating on imposing requirements on the car sector to live up to their commitments to reduce harmful emissions via new technologies. I support the Commission�s proposal, but I see a real problem getting agreement on it in its current form. If this turns out to be true, then the Commission should seek alternatives that might reach a similar goal. What we should not do is let the best be the enemy of the good.

• Danish Liberal MEP Karin Riis-J�rgensen is a member of the Parliament�s economic and monetary affairs committee. She is lead rapporteur for the Parliament�s opinion on the Commission�s proposal on passenger car taxation.

Stronger incentives for industry are needed if the EU is to meet its Kyoto Protocol emission pledges, Jan Marinus Wiersma

Linking car taxes to CO2 emissions is a good idea. Our passenger cars pump considerable quantities of greenhouse gases into the air, and there is great room for improvements in efficiency. In fact, the European Commission�s proposals in this field are overdue. The strategy to reduce CO2 emissions from passenger cars was announced in 1996. But the proposal to implement the fiscal pillar of this strategy was only presented last year.

The other pillars of the strategy, in particular the car industry�s commitments to reduce CO2 emissions from new cars have yielded encouraging results. But stronger incentives are needed for the industry to reach the emission targets it has signed up to. This is crucial for meeting our Kyoto Protocol commitments. Also, improving the fuel efficiency of our car fleets - which is closely linked to CO2 emissions - will play an important role in any sustainable European energy policy.

But while differentiating circulation taxes according to emission levels is certain to make a positive contribution to both goals, abolishing registration taxes may have more ambiguous effect. It would open a Pandora�s box of discussion on European tax harmonisation. And that might endanger the chances of the proposal as a whole.

The share of transport in our energy-use and CO2 emissions is substantial to say the least. Transport accounts for more than 30% of Europe�s total energy demand and for almost 70% of Europe�s oil consumption, according to the Commission�s 2005 Green Paper on energy efficiency. Nearly half of transport-related CO2 emissions comes from passenger cars.

The basic argument for the proposals is that taxation should more accurately reflect real costs to our environment and resource base. The system should be as transparent as possible so that citizens can make informed transport choices. Introducing carbon-related car taxes will encourage the purchase of lighter and more efficient cars, which would result in reduced total emissions over time. The system should not favour any particular type of technology, while accompanying measures such as energy-labelling for cars would be helpful. This measure is also fully compatible with �innovative road charging systems�, for which plans are currently being made in various member states.

The proposal to abolish registration taxes where they exist is based more on internal market arguments than environmental considerations. Differing levels of registration taxes, the Commission argues, have a distorting effect on Europe�s car market. That may be so. But abolishing registration taxes altogether will just take away one more instrument to encourage the purchase of environmentally friendly cars. The Dutch government successfully used discounts on registration taxes to achieve a swift introduction of catalytic converters in the late 1980s. They are now being used to support fitting particle-filters on diesel cars and to enhance the attractiveness of exceptionally fuel-efficient cars. The proposed abolition would have the immediate effect of boosting the sales of bigger cars, only adding to the worrying "trend for bigger size, weight and power" as the Commission notes in its Green Paper.

If the aim is to reduce CO2 emissions, why not ask member states to make registration taxes related to carbon instead? Member states should be free to decide when and whether to scrap or reform their registration taxes. Or to use such a reform in the introduction of �pay per kilometre� schemes. Decisions on taxation have to be taken by unanimity, which makes the proposal�s chances slim anyway. Better to put our weight behind the most important part than risk losing or delaying the proposal as a whole.

As for the car industry�s competitiveness, which will, it is said, profit from the proposed abolition of registration taxes, strong incentives to step up innovation in fuel-efficiency will give Europe�s car industry a global edge as tight energy markets increasingly put a premium on economical cars. Consider it a blessing.

• Dutch Socialist MEP Jan Marinus Wiersma is a substitute member of the European Parliament�s transport committee and a shadow rapporteur on passenger car taxation.

Two MEPs discuss the merits of passenger car taxation.