The Important Role of Economic Instruments

1. The Important Role of Economic Instruments • Taxes • Vehicles • Fuels • Incentives

2. Control Measures promoted by: • Limit values set by law • In Use Compliance Testing • Inspection and Maintenance • Financial incentives, promoting earlier introduction of cleaner vehicles and retrofiting • Public awareness e.g. German Blue Angel

3. Economic Instruments • Increasingly Important As Market Based System Introduced • Short Term Opportunities • Fuel Quality • Encourage Tighter Standards (if Fuel is Available) • Other…

4. Leaded Gasoline Leaded gasoline was phased out in Germany only by tax incentives making leaded gasoline more expensive than unleaded much earlier than EU required by directive

5. Cleaner Vehicles Cleaner vehicles were and are promoted in Germany by tax incentives making making high polluting vehicles more expensive and cleaner vehicles less expensive.

6. Annual Emission Related Vehicle Tax in Germany (in DEM/100 ccm per ano) Economic Instruments to Reduce Emissions from the Transport Sector

7. It was possible to qualify to the tax reduction by retrofit to the same emission standards as for new cars About 1 million cars are retrofitted with closed loop catalyst up to now

8. Example: Gasoline car with a engine volume of 2000 ccm meet Euro IV: Annual tax in 2002 : Exempted up to 250 €, afterwards 100 € per year until 2003 from 2004 135 € 2. Without catalyst: Annual tax: 500 € per year Difference in 5 years: about 2500 €

9. Example 2 Diesel car with a engine volume of 2000 ccm Meet Euro IV: Annual tax in 2000: Exempted up to 600 €. Afterwards annual tax: 280 € until 2003, from 1.1.2004 310 € per year; Not meeting Euro I: in 2000 570 €, from 2001 until 2004 670 €, from 2005 740 €. Difference in 5 years: 2640€

10. Fuel Quality is Critical • Very Low Sulfur Levels • Enhances All Catalyst Technology Performance • Necessary To Use Advanced Technologies • Other Benefits • Other Fuel Properties Also Important • Detergents • MMT • Etc.

11. Higher fuel tax (+ 1.5 €ct/Litre)for low sulphur gasoline and diesel fuel with more than 50 ppm Sulphur from the 1.1.2001 • Higher fuel tax (+ 1,5 € ct/Litre)for gasoline and diesel with more than 10 ppm Sulphur from the 1.1.2003(< 10ppm = sulphur free) • additionally the so called Eco tax reform from 1999 to 2003 was imposed. Every year the fuel tax was raised by 1.5 €ct/litre Fuel Taxation in Germany

12. Sulphur “Free” Fuel From 1st of January 2003 1.5 €ct per litre tax incentive for sulphur content less than 10 ppm for both gasoline and diesel fuel ( Onroad and offroad ! ).Market changed completely within weeks. Today the average sulphur content is about 3-5 ppm!!!

13. Heavy Duty Road Tax in Germany From the 1st of January 2005 a heavy duty road tax is imposed. Heavy duty trucks with a gross weight of more than ten tons have to pay 12 € cts/ km on German autobahns. Trucks meeting EURO III, EURO IV or EURO V norms have to pay less, trucks meeting only EURO I or less have to pay more! Due to the recent introduction the effects cannot estimated.

14. Heavy Duty Road Fee in Switzerland The fee depends on three factors: -        the distance driven on the Swiss road network (all roads) -        the laden weight of vehicle and trailer -        the emissions of the vehicle (there are three emission classes) The fee was introduced on 1 January 2001 at a rate of 1.0 Ct/tkm. In parallel, the weight limit was raised from 28 to 34 tonnes. From January 1st 2005 the rate was increased to 1.6 ct/tkm and the weight limit to 40 tonnes.

15. Change in mileage 1997 – 2003 3'000 2'500 transit 2'000 import/export mio. v-km 1'500 1'000 domestic 500 0 1997 1998 1999 2000 2001 2002 2003 After a strong increase between 1997 and 2000, mileage in freight transport (measured in vehicle-km) was reduced remarkably in the years after the introduction of the fee.

16. European Tax Incentives Schemes To Encourage Low Sulfur Fuels Source: IFQC

17. GASOLINE Ex. France - Prices In Current € / Litre DIESEL All Taxes Included Before Tax Significant Amount Of Transport Fuel Taxes - More Than 170 G€ / Year - Charged To The Consumers At The EU Level

18. Differential Tax Levels Have A Strong Impact On Engine Choice & Fuel Demand Patterns : Tax Level Excluding VAT, July 2000 €/m3 • Less Than 10% Of Vehicles With A Diesel Engine In 1985 In France, Spain, Italy & UK • In 2000, Proportion Of Diesel Engines (New Cars) Is : 50% In Spain, 45% In France, 30% In Italy Merely 15% In UK UK Gasoline 700 France 600 Netherlands Germany Italy 500 Belgium 400 Spain 300 Diesel 200 €/m3 200 300 400 500 600 700

19. Tax Incentives for Low Emission Vehicles and High Fuel Economy Vehicles (2004-2005) Emissions+ ☆☆☆☆: 75% lower emission vehicles ☆☆☆: 50% lower emission vehicles Fuel economy *25% annual tax reduction *200,000 yen purchase tax deduction Vehicles: achieving fuel economy standard in 2010 No incentives *25% annual tax reduction *200,000 yen purchase tax deduction *50% annual tax reduction *300,000 yen purchase tax deduction Vehicles: 5% higher fuel economy than the standard in 2010 +: compared to the new long-term standard in 2005

20. Vehicle Excise Duty (VED) • Annual tax on ownership • Raised £4.5 billion in 2000/2001 • For new cars from 1 March 2001 • twelve tax classes • ranging from £90 to £160 • by CO2 emissions and type of fuel used

21. Usage Taxes • Fuel duties • Lower for more environmentally friendly fuels

22. Fuel Duties 1 • In Budget 2001:all fuel duties were frozen in cash terms • duty on ultra-low sulphur petrol, ULSP, was cut by 2 pence per litre; • duty on ultra-low sulphur diesel, ULSD, was cut by 3 pence per litre • Now only new grades of fuel available

23. Fuel Duties 2 • Fuel duty raised £ 22.4 billion in 2000-01 • UK fuel duty rates are highest in the EU. • Collected by Customs and Excise

24. Fuel Duties 3 • Tax due when leaving refinery or import warehouse • Few large companies only • Paid monthly • Cheap and easy to collect

25. Fuel Duties 4 • To further help the environment • duty on road fuel gases was cut by 3 pence per litre • new very low duty rate for biodiesel coming • Green Fuels Challenge

26. Ownership and Usage Taxes • Total collected in 2000/2001- £26.9 billion • Higher proportion collected from usage (fuel duty) than ownership (VED).

27. Aims of the New Regime • remove the incentive to drive unnecessary, extra business miles to get a tax break • protect the environment by giving an incentive to choose greener cars • encourage manufacturers to produce cars with lower CO2 emissions • reduce local air pollutants

28. Features of the New Regime 1 From April 2002 • no discounts for business mileage • or older cars

29. Features of the New Regime 2 From April 2002 • % of the car’s price charged will depend on level of car’s C02 emissions (in g/km) • maximum 35% of the car’s price, minimum 15% - or lower with discounts • graduated by 1% of car’s price for every 5g/km above level of C02 emissions which qualifies for the minimum charge

30. Phasing in Minimum Level of C02 Emissions • 2002/03 165g/km C02 • 2003/04 155g/km C02 • 2004/05 145g/km C02 + 1% for every 5g/km over that, up to maximum 35%

31. Diesel Cars • lower CO2 emissions mean lower tax charge • 3% supplement to account for higher emission of local air pollutants • supplement to be removed for Euro IV standard diesels

32. Discounts for Alternative Fuels • to take away tax disincentives • discounts for cars powered by • gas • electric • hybrid

33. Summary • Design taxes that are easy to understand • Simple to administer • Minimum record keeping • Minimum reporting • Allowing compliance checks • Maintain tax yield • Give environmental message