Chapter 2. Current Use of Environmentally Related Taxation

2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



A



ll OECD countries are seeking to better address environmental challenges. While there

are many ways to do this, one of the most interesting is the movement towards a “greening”

of government actions. Government fiscal policy – on both the revenue and expenditure side

– has a large impact on the economy. Movements towards a more environmentally conscious

approach to fiscal policy can translate into changed behaviours within the larger economy.

In particular, the tax system is seen as a medium where governments can have particular

influence on the decisions of firms and individuals. Governments have long been conscious of

the impact of the tax system on employment, business formation and expansion, and

consumption patterns and thus have generally tried to raise revenues without distorting

consumption patterns or inhibiting investment decisions. Many of the same ideas can be used

in the field of environmentally related taxation; however, a goal of environmentally related

taxation is to skew consumption and production patterns and reduce the size of the tax base,

which is quite different from the goals of most types of taxation.



2.1. Revenues from environmentally related taxation across countries

While the concept of environmentally related taxes has become more a part of

governments’ policy dialogue in recent decades, all OECD countries raise revenues through

environmentally related taxation and have for many years. Given the definition outlined in

Box 2.1, this encompasses a wide range of taxes, such as excise taxes on fossil fuels, motor

vehicle registration taxes, taxes on water pollution and waste. Significant differences do

exist across countries that reflect historical realties and variances within tax systems.

Figure 2.1 shows that environmentally related taxation is a small, but not insignificant,

revenue source for governments, averaging around 2% of gross domestic product (GDP).

It is clear that Denmark and the Netherlands lead OECD countries in revenue

generated from environmentally related taxation and their shares have been strong over

the twelve-year period, contrasted against the general decline for OECD countries. One

feature that stands out is the significant geographical differences present. All four

countries in the Americas generally have the lowest levels of revenues derived from

environmentally related taxation. Three of the four OECD countries in the Pacific have

levels below that of the arithmetic average. At the top end, European countries have the

most significant revenue levels from environmentally related tax bases. This is consistent

with European countries’ relatively high overall tax revenue-to-GDP ratios. In the case of

Denmark, its tax revenue-to-GDP ratio is the highest in the OECD.

An interesting case is that of Mexico, where the revenues from environmentally

related taxation were actually negative in 2008. As with most countries, the vast majority

of revenues are normally derived from taxes on motor fuels. The Mexican fuel tax has a

unique structure in that it can act inversely to rapid changes to oil prices. In 2002, oil prices

were quite low, thereby resulting in relatively high tax rates. By 2008, however, oil prices

had increased significantly, resulting in the effective fuel tax rate, and therefore the tax

revenue, actually turning negative.



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CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Box 2.1. Definition of environmentally related taxation

The OECD, the International Energy Agency (IEA) and the European Commission have

agreed to define environmentally related taxes as any compulsory, unrequited payment to

general government levied on tax bases deemed to be of partic

relevance. The relevant tax bases include energy products, motor vehicles, waste,

measured or estimated emissions, natural resources, etc. Taxes are unrequited in the

sense that benefits provided by government to taxpayers are not normally in proportion to

their payments. Requited compulsory payments to the government that are levied more or

less in proportion to services provided (e.g. the amount of wastes collected and treated) can

be labelled as fees and charges. The term levy covers both taxes and fees/charges.

Creating any definition of environmentally related taxes is inherently problematic. Taxes

may have been implemented for a number of reasons, most likely general revenue-raising,

with little to no consideration for the environment. Moreover, some taxes have likely been

implemented without stringent assessment of the costs and damages of the pollution,

leading to non-optimal rates. Attempting to differentiate taxes based on motivation of the

government or exclude some taxes because of their design would, of course, pose

significant challenges. Therefore, a broad definition has been used that considers only the

type of tax base, not the intention or appropriateness of the instrument.

It should be noted that broad-based taxes, such as value added taxes (VAT), whose tax bases

include those which may be environmentally related, are not included as environmentally

related taxation in this report. In addition, revenues from the sale of tradable permits and

revenues derived from natural resource royalties are not included.



Figure 2.1. Revenues from environmentally related taxation as percentage of GDP

1996



2002



2008



Per cent of GDP

5

4

3

2

1

0

-1



Un



M

i t e ex

d ico

St

at

es

Ch

N e C a il e

w na

Ze da

al

an

Ja d

pa

Sp n

a

Fr in

Au anc

st e

ra

Po li a

Sl

l

ov B e and

ak lg

Re ium

pu

bl

S w Ic e i c

i t z land

er

la

Gr n d

Ge eec

rm e

Un

i te Es any

d ton

Ki ia

ng 1

do

Ir e m

l

No and

rw

Lu Au ay

xe s t

m ria

bo

ur

Ko g

re

a

It a

Sw ly

e

Po den

r tu

Cz S g

e c lo al

h ve

Re ni

pu a

b

F i li c

n

Hu l a nd

ng

a

Is r y

ra

Tu el 2

De r ke

N e nm y

th ar

Ar

er k

la

ith

nd

m

s

W et

ei ic

gh av

t e er

d ag

av e

er

ag

e



-2



1. Estonia is an accession country to the OECD and has not been included in the averages.

2. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by

the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the

terms of international law.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317179



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2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Also when analysing the environmentally related tax revenue against total tax

revenues, which reflects the importance of the revenues to overall government budgets,

much the same trend can be seen in Figure 2.2. The geographic delineations are somewhat

less pronounced and the cross-country differences appear less severe. The reliance on

environmentally related taxation in some countries, such as Korea, which does

high tax-to-GDP ratio, is more pronounced. Turkey stands out for having significantly

increased its share of tax revenues from environmentally related bases such that these tax

revenues now account for close to 15% of overall tax revenue, well above all other OECD

members. This approach is part of a larger tax reform in Turkey to raise additional rev

from consumption and less from other sources, such as income and corporate taxes. Higher

fuel taxes have been a deliberate part of their national development plans which seek

development in a more sustainable manner, resulting in some of the highest motor fuel

prices among OECD countries. On the other hand, the relative level of environmentally

related taxation over the ten-year period in countries such as Greece, Mexico and Portugal

has been significantly reduced.



Figure 2.2. Revenues from environmentally related taxation as percentage of total tax revenues

1996



2002



2008



Per cent of total tax revenue

15

12

9

6

3

0

-3

-6



Un



M

i t e ex

Ne d S ico

w t at

Ze es

al

a

C a nd

na

Fr da

a

Be nce

lg

iu

m

Ch

il e

Sp

Ic a in

el

S w and

ed

Au en

s

No tr ia

rw

Po ay

la

n

Ja d

pa

n

Ge It al

rm y

a

F i ny

nl

an

G d

Sl A r e e

ov u c e

Un a k R s tr a

i te ep li a

d ub

K

l

S w in gd i c

i o

Lu t ze m

xe r l a

m nd

bo

E s ur g

to

Sl ni a 1

ov

Hu eni a

n

Cz P ga

ec or r y

h tu

Re g a

pu l

b

Ir e l i c

De l an

nm d

ar

Ko k

re

N e Is a

th r a

er el

la

n

Ar

Tu ds

ith

rk

m

ey

W et

ei ic

gh av

t e er

d ag

av e

er

ag

e



-9



1. Estonia is an accession country to the OECD and has not been included in the averages.

2. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by

the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the

terms of international law.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317198



The volatility in the figures between years can be accounted for by a number of

reasons. On the one hand, the actual level of revenues from environmentally related

taxation could have changed due to rate changes or changes in the quantity of pollutants

emitted. On the other hand, changes in other government revenues could have occurred,

such as income or corporate tax rates, or variations in the bases on which those taxes are

levied, such as an economic slowdown that could curtail corporate tax revenues.



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CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Despite this volatility, there is still an overall relative decline in revenues over time, as

evidenced by the averages in Figure 2.1 and Figure 2.2. A number of issues contribute to

this trend:

●



Over this period, oil prices have risen significantly, reducing demand and thereby

contributing to downward levels of revenues from these sources compared to other parts

of the economy.



●



As the construction of environmentally related taxes – typically excise taxes – are levied

per unit of product (e.g. EUR 0.10 per litre of petrol), inflation can work to reduce the impact

of the tax over the longer term. The nominal value of the tax rate may stay the same but

the real value declines, which differs from other tax revenues that are percentage-based

(e.g. value added taxes on consumption or income tax rates). Political resistance to tax

increases can exacerbate these declines, leading to tax levels that are likely misaligned

with the initial rationale for the level of the tax rate. Years of no nominal change in the tax

rate can result in significant increases over a short period to compensate.



●



The rise of emissions trading systems (which have similar properties to taxes) have

meant that some countries are introducing these systems while simultaneously

reducing taxes on similar bases. As outlined in Section 2.5, the revenues from auctioning

tradable permits are not yet included in the figures of environmentally related taxation.

So far, such revenues are modest.



●



In the same light, some countries have moved away from taxes in favour of fees (which

are similarly not included in the above figures) on the same bases, especially in the

transportation area.



●



Finally, there is the possibility that some of the impact can be attributed to effectiveness of

the taxes themselves in reducing the amount of the pollutants (and therefore tax revenues).



As a counteracting measure, a number of European countries have instituted

inflation-adjusted tax rates. These actions remove the political necessity of instituting

inflation-related rises and create smoother tax rates across years. Denmark, for example,

as part of their 2009 budget process, instituted automatic inflation indexing of energy

(including motor fuel) taxes.

It should be noted that the level of revenues raised from environmentally related taxation

should not necessarily be taken as a measure of the “environmental friendliness” of a country

or of their overall tax system. First, taxes can be non-optimally designed such that they do not

necessarily bring about desired behaviour change, and their rates can be set non-optimally,

such that they do not necessarily reflect the environmental damage that they cause, despite

the fact that they may raise significant revenues. A number of countries have taken to making

their environmentally related taxes better designed without necessarily increasing revenues.

Additionally, countries may place a greater emphasis on the utilisation of other instruments to

address environmental challenges and thereby achieve similar environmental results without

the revenues that environmentally related taxation can generate, although often at a higher

cost than if well-designed environmentally related taxes had been used. Finally, structural

differences across countries’ economies can play a role (e.g. some countries may have more

emission intensive industries due to location-specific activities).



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2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



2.2. Taxes on specific pollutants

Environmentally related taxes have evolved over many decades. In this timeframe,

many different events at the local and international level have impacted environmental

policy. The result is that, in most OECD countries, there exists a wide range of taxes and

charges which may not always be in line with the relevant damages. Different pollutants

result in different damages to the environment. High tax rates sometimes occur on some

more benign pollutants while more damaging pollution is not taxed. In addition, some

pollutants are taxed radically differently based on the source or emitter of the pollution.

The vast majority of environmentally related tax revenues are derived from taxes on

energy – of which taxes on motor fuel constitute nearly all of those proceeds. As seen in

Figure 2.3, the revenues from these energy taxes account for about two-thirds of the total

revenues. In addition, the “other” category, although small, has relatively grown over the

period compared to the other categories.



Figure 2.3. Composition of environmentally related tax revenues in the OECD

Energy products



Motor vehicles and transport



Other



Per cent of GDP

2.0



1.5



1.0



0.5



0

1994



1995



1996



1997



1998



1999



2000



2001



2002



2003



2004



2005



2006



2007



2008



Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317217



The composition of environmentally related taxation varies across countries as well,

as seen in Figure 2.4. Countries such as Poland, the Slovak Republic and Luxembourg1 rely

heavily on energy taxes. Taxes on motor vehicles constitute a significant part for total

revenues for Denmark, the Netherlands, Ireland and Norway. Finally, the Netherlands

stands out for its relatively large usage of “other” environmentally related taxes.



2.2.1. Motor fuel and motor vehicle taxes

Motor fuel

Excise taxes on fuel have been around for many years, originally being motivated by

non-environmental needs alone (such as general revenue generation or sometimes

earmarked for specific infrastructure projects). The revenues raised from these taxes are

quite high, a result of the significant level of consumption in OECD countries. Figure 2.5

presents the different excise tax rates on petrol and diesel in OECD countries for years 2000

and 2010. Much like the overall analysis above, clear groupings by geographic area are

present. North America has the lowest petrol taxes, followed by OECD countries in Asia and



36



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CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Figure 2.4. Composition of environmentally related tax revenues by country

Energy



Motor vehicles



Per cent of GDP (2008)

5

4

3

2

1

0

-1



Un



M

i t e ex

d ico

St

at

es

Ch

N e C a il e

w na

Ze da

al

an

Ja d

pa

Sp n

a

Fr in

Au anc

st e

ra

Po li a

Sw l

i t z and

er

l

Sl

ov B e and

ak lg

Re ium

pu

b

Ic li c

el

an

Gr d

Ge eec

rm e

Un

a

i te Es ny

d ton

K i ia 1

ng

do

Ir e m

la

No nd

rw

Lu Au ay

xe s t r

m ia

bo

ur

Ko g

re

a

It a

Sw ly

e

Po den

r tu

Cz S g

e c lo al

h ven

Re i

pu a

b

F i li c

n

Hu l and

ng

a

Is r y

ra

e

Tu l 2

De r ke

N e nm y

th ar

er k

la

nd

s

Av

er

ag

e



-2



1. Estonia is an accession country to the OECD and has not been included in the average.

2. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by

the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the

terms of international law.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317236



Figure 2.5. Tax rates on motor fuel

Petrol 2010



Diesel 2010



Petrol 2000



Diesel 2000



EUR per litre

1.00

0.80

0.60

0.40

0.20

0



Un



M

i t e ex i

d co

St

at

e

Ne Ca s

w nad

Ze a

al

an

d

C

A u hil e

st

ra

Ic li a

el

an

Po d

la

n

Ja d

pa

Ko n

Es rea

to

ni

a1

Sp

Hu a in

ng

ar

Lu Au y

xe s t r

Cz m ia

ec b

h ou

Re r g

pu

Sl bli c

ov

S

Sl w i t en

ov ze i a

ak rla

Re nd

pu

bl

Is i c

ra

S w el 2

ed

Ir e e n

la

nd

It a

Be ly

lg

D e ium

nm

Po ar k

r tu

g

Fr al

an

Gr c e

ee

No ce

rw

Un

i t e F in ay

d

K i land

ng

G dom

N e er m

th an

er y

la

nd

Tu s

rk

ey



-0.20



Notes: Rates are as at 01.01.2010 and 01.01.2000 and converted using the average exchange rate for 2009. Data for the United States and

Canada include average excise taxes at the state/provincial level. VAT is not included.

1. Estonia is an accession country to the OECD.

2. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by

the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the

terms of international law.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317255



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2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



the Pacific, with European countries having significantly higher tax rates. Compared to other

tax rates within the overall economy, the level of taxation for petrol re

very high, with the total burden typically exceeding 100% of pre-tax

should be seen in the context of the underlying price (which can vary between countries due

to factors such as transportation) and the presence of other taxes, such as VAT.

For almost all countries, tax levels on both fuels have increased over the ten-year

period, with Turkey witnessing significant increases. Iceland moved from zero taxation on

diesel in 2000 to a tax rate near parity with petrol in combination with changes in the

taxation of diesel vehicles. Greece has also seen significant increases in tax rates,

especially on petrol. These principally occurred between 2009 and 2010 as a means to help

consolidate government revenues in response to strong budget pressures. Finally, Mexico

is the only OECD member country with an effective negative excise tax rate due to high

international crude prices in 2009. It should be noted that the tax levels are the posted

(so-called “headline”) rates and do not reflect that there may be multiple rates or

exemptions for specific uses or users.

It is interesting to note, in addition, that the excise taxation levels for diesel fuel are

significantly lower than those for petrol. Only two countries – Switzerland and the

United States – have a higher level of tax for diesel than petrol; Australia and the

United Kingdom’s rates are the same for both fuel types. The majority of diesel rates are

situated within the 70-80% of petrol range, with New Zealand not levying any excise tax on

diesel.2 From an environmental point of view, this is peculiar, as diesel consumption in

vehicles has a much larger environmental impact than unleaded petrol, largely due to the

significant differences in NOx and particulate emissions. With more stringent motor

vehicle regulations, the difference is becoming less distinct. The differences in fuel taxes

can also have an important impact on consumer behaviour, as seen in Box 2.2.



Box 2.2. Turkey’s taxes on motor fuels

Turkey has the highest tax rate on petrol in OECD countries and these tax rates have

been increased significantly over the last decade. Turkey had a level of per capita

purchasing power parity in 2007 of only 37% of the OECD average, yet its level of

environmentally related taxes is among the highest in the OECD. It is interesting to

note that Turkey has increased these taxes on motor fuels alongside tax rates on many

luxury goods. Turkey’s economy is much less dependent on personal vehicles than other

OECD countries, with only 117 vehicles per 1 000 people in 2005, compared to the OECD

average of 606 vehicles per 1 000 people (World Bank). As such, fuel taxes may form a

progressive means of taxation (unlike in higher-income countries where energy taxes are

generally seen as regressive).

In Turkey, petrol is taxed significantly more than either diesel or liquefied petroleum gas

(LPG), having important influences on consumption patterns. Coupled with a lower ex-tax

price per litre of LPG, lower tax rates have encouraged a significant shift towards

LPG-fuelled vehicles. Between 2003 and 2007, the number of cars outfitted to run on LPG

more than doubled from 800 000 to over 1.8 million. There was also a significant shift in

more standard fuels, with total petrol consumption remaining quite flat while diesel

consumption increased significantly. As a percentage of GDP, petrol use declined

significantly. The trends suggest that taxes (and underlying prices) can have an important

impact on consumer behaviour.



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Within these broad categories of petrol and diesel, tax rates also vary based on the fuel

characteristics. When leaded petrol was still widely available, governments typically taxed

this at a higher rate than unleaded petrol. In the present context, a number of countries

differentiate their tax rate based on other criteria related to the characteristics of the fuel,

such as the level of sulphur content and the proportion of renewable fuels present.

While Figure 2.5 outlines the actual level of taxes on petrol in OECD, it is difficult to

know if these are at the correct level. A multitude of factors go into determining the rate – the

environmental damage, the use of roads, the cost of vehicular accidents and the general

need for governments to raise revenues. Box 2.3 outlines what one study suggests should be

the optimal petrol tax for the American state of California.



Box 2.3. Multiple externalities and an optimal tax for California

A prescient example of the multiple externality issue is the calculation of optimal petrol

taxes. These taxes obviously have a significant environmental impact, both global and local,

although they are levied for a range of reasons. However, determining an “optimal” tax

requires looking at all the various impacts that fuel use can have. First, governments need to

raise revenue from a variety of sources to fund public services. Since economic theory

suggests that changing consumers’ preferences leads to some welfare loss, taxes should be

focused on those goods that are rather invariable to price changes – that is, those that are

price inelastic. Motor fuels meet this criterion. In addition, “optimal” fuels taxes should try

to correct negative externalities, which are unwanted effects that accrue to others from an

individual’s actions. In the case of the environment, one person’s combustion of fossil fuel

releases pollutants that negatively affect others (without them being compensated).

Therefore, taxes should encapsulate the various environmental externalities. Finally, there

are other externalities associated with motor fuels. By driving, for example, accidents occur

which impose a cost on to taxpayers and congestion reduces the welfare of other drivers. In

total, the “optimal” motor fuel tax should incorporate all these various features in the setting

of the rate. Therefore, environmentally related taxes go beyond just the environmental

considerations, since the focus is on the base.

In their analysis related to the US state of California, Lin and Prince (2009) find an

optimal tax rate for petrol of USD 0.36 per litre outside of sales taxes. Most of the tax is

based on externalities (USD 0.22 per litre), of which only USD 0.02 is for global pollution

(e.g. climate change)* and USD 0.04 is for local pollution. The rest is related to congestion,

accidents and oil dependence. The single largest component (USD 0.14 per litre) is due to

the attractiveness of taxing petrol because its demand is quite price inelastic – so-called

Ramsey taxation.

The climate change component is very small. Even using a different methodology that

placed greater emphasis on the damage from climate change would likely not have a

significant impact on the overall optimal tax rate. As a means of comparison, the current

excise tax is less than a third of this “optimal” level. While the environmental component

of the petrol tax is low, it is worth noting that when the overall excise tax rate is lower than

the optimal, there will be overconsumption, which induces excess environmental damage.

As noted in OECD (2006), the tax rates on petrol in some European countries, however, may

be above their optimal level.

* The climate change component is taken from another study. Using different values for the environmental

damage would affect the magnitude of this variable but is unlikely to have a large impact on the overall

optimal level of the tax, given its small relative contribution.



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2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



The general increase in nominal tax rates outlined in Figure 2.5 does not address how

these taxes measure against the real impact that they have on influencing consumer

behaviour and on government revenues. Figure 2.6 shows the real percentage change of the

total tax rate on petrol (excise taxes, no VAT or general sales taxes) across OECD economies

over the period 2000-10. While several jurisdictions have seen significant increases in real

taxes on petrol, the majority have not. Australia, for example, cut its nominal rate of

taxation on petrol. The United States’ federal rate remained nearly fixed in nominal terms

over the period, while Greece significantly increased petrol taxes as a revenue raiser in at

the end of 2009. Nevertheless, these rises did not keep up with inflation, leading to

significant declines in the real effect of the tax rate. The average real change in the tax rate

on petrol over the period was –8.1% (11.0% decline in the arithmetic average).3 This, along

with rising oil prices bringing about declining consumption, can have an impact on the

total environmentally related revenues collected by governments.



Figure 2.6. Real changes in tax rates on petrol

Between 2000 and 2010

Per cent

50

40

30

20

10

0

-10

-20

-30

-40

-140



Gr

e

Po ec e

r tu

g

Ir e a l

la

n

Tu d

rk

S e

Ne we y

w de

Ze n

al

an

d

Ja

pa

Ge n

Lu rm

xe a n

m y

bo

ur

Un

i te Po g

la

d

K i nd

ng

do

Fi m

S w nl a

i t z nd

W N e er l a

ei th nd

gh er

te la

C z d a nds

e c ve

h r ag

Re e

pu

bl

Un B el i c

i t e giu

d m

St

a

De tes

nm

Ar

ith

a

m Au r k

et

ic s tr

av i a

er

ag

Ic e

el

an

Fr d

an

ce

Sp

ai

n

It a

Ca ly

n

Hu ad a

ng

a

Sl

ov No r y

ak r w

Re ay

pu

bl

ic

Ko

Au re a

st

ra

M li a

ex

ic

o



-50



Note: Tax rates constitute all excise taxes levied on petrol as at 01.01.2000 and 01.01.2010. Rates for the United States and Canada include

rates at the sub-central level. The weighted average is weighted by revenues from petrol taxes.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317274



Motor vehicles

Along with motor fuels, taxes on motor vehicles are a major source of revenue for

OECD governments. These taxes are generally divided into two categories: those that are

one-off (that is, levied on the initial or subsequent sale or import into the country) and

those that are recurrent (that is, those that are levied on an annual basis). While

theoretically less efficient than taxes on fuel or actual emissions from an environmental

point of view, these taxes can nevertheless play a large role in affecting levels of car

ownership and the composition of a national fleet of vehicles. In addition, such taxes,

particularly those of the one-off kind, can provide a “sticker shock” effect regarding the

environmental impact that other taxes may not, as seen in Figure 2.7.



40



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CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Figure 2.7. One-off motor vehicle taxes

Small vehicle



Medium vehicle



Large vehicle



EUR (000s)

160

140

120

100

80

60

40

20



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Ca



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la

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ke

Tu

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0



Notes: As at 01.01.2010. One-off taxes on new vehicles only. “Small” refers to a petrol-based car with 53 kW of power, 6.5 l/100 km, 821 kg,

1 000 cc engine, EUR 12 000 pre-tax price; “medium” refers to a petrol-based car with 132 kW of power, 9.4 l/100 km, 1 468 kg, 2 400 cc engine,

EUR 25 000 pre-tax price; “large” refers to a petrol-based car/SUV with 300 kW of power, 16.8 l/100 km, 2 587 kg, 6 200 cc engine,

EUR 45 000 pre-tax price. Countries with CO2 components in their taxes on motor vehicles are calculated based on fuel efficiency. For countries

with sub-national governments that levy applicable rates, the following jurisdictions are used: New South Wales (Australia), Ontario (Canada),

and California (United States). These tax levels do not include non-environmentally related taxes, such as VAT, nor environmentally related tax

components that vary significantly between vehicles of a similar size, such as those based on NOx emissions from each vehicle.

Source: OECD/EEA database on instruments for environmental policy.



1 2 http://dx.doi.org/10.1787/888932317293



The manner in which such motor vehicle taxes are being administered has been

changing. OECD countries are evermore basing such charges on the characteristics of

the vehicle with environmental features being prominently utilised – fuel efficiency,

CO2 emissions per kilometre, engine power, and weight.4 In a number of cases, more than

one of these factors is used to derive a total tax burden per vehicle. This is the case in

Norway, where CO2 emissions, vehicle weight, and engine power are all used to determine

the tax level. Coupled with high tax rates for each item, the result is that Norway has

substantially higher one-off tax levels on large vehicles than most elsewhere in the OECD,

while Denmark has higher taxes for small and medium-sized vehicles, as seen in

Figure 2.7. In some cases, the tax burden, especially for larger and more polluting cars, can

represent several hundred per cent of the net-of-tax price of the vehicle.

The construction of some of these taxes exacts a significant toll on heavily emitting

vehicles. Many countries’ taxes involve formulae with many different variables. Figure 2.8

shows only the component of the tax burden (or subsidy level in some cases) on vehicles

related to their CO 2 emissions (or fuel efficiency) in OECD countries. OECD (2009b)

demonstrates that these taxes can be highly progressive with increasing emission rates,

such as in Norway and Portugal. In addition, four countries’ CO2-based component – Austria,

Finland, Ireland, and Spain – is dependent on the pre-tax price of the vehicle and in several

countries, the tax rates differ between petrol- and diesel-driven vehicles.

Figure 2.9 translates these tax levels solely from the CO 2 component into an

equivalent value per tonne of CO2 emitted over the lifetime of the vehicles, assuming that

each vehicle is driven 200 000 km. A uniform rate per tonne of CO2 would provide a

constant tax on emissions, consistent with the damage done to the environment. Fuel

TAXATION, INNOVATION AND THE ENVIRONMENT © OECD 2010



41



2. CURRENT USE OF ENVIRONMENTALLY RELATED TAXATION



Figure 2.8. CO2 component of one-off taxes

Petrol-driven motor vehicles, 2010

Austria



Belgium (Wallonia)



Denmark



Netherlands



Canada



Finland



France



Norway



Portugal



Ireland



Spain



United States



EUR per vehicle

70 000



EUR per vehicle

8 000



60 000



6 000



50 000

4 000

40 000

30 000



2 000



20 000



0



10 000

-2 000

0

-4 000



-10 000

-20 000



-6 000

1



1



71 101 131 161 191 221 251 281 311 341 371 400

Gram CO 2 emitted per kilometre driven



71 101 131 161 191 221 251 281 311 341 371 400

Gram CO 2 emitted per kilometre driven



Notes: The CO2 tax components for Spain, Ireland, Finland and Austria are also dependent on the pre-tax price of the vehicle; for this

exercise, a EUR 10 000 vehicle has been used. Note that the axes of the two panels are of a different scale.

Source: Updated data based on OECD (2009b).



1 2 http://dx.doi.org/10.1787/888932317312



Figure 2.9. Implicit carbon price and motor vehicle taxes

Derived solely from CO2 component of one-off, petrol-driven motor vehicle taxes

Austria

Denmark

France



Norway



EUR per tonne CO 2 emitted during the vehicle’s lifetime

1 000



Finland



Spain



Portugal



Belgium (Wallonia)



Canada



Netherlands



United States



Ireland



EUR per tonne CO 2 emitted during the vehicle’s lifetime

150



800

100

600

50

400

200



0



0

-50

-200

-150

-400

-600



-100

51



81



111 141 171 201 231 261 291 321 351 381

Gram CO 2 emitted per kilometre driven



51



81



111 141 171 201 231 261 291 321 351 381

Gram CO 2 emitted per kilometre driven



Notes: The CO2 tax components for Spain, Ireland, Finland and Austria are also dependent on the pre-tax price of the vehicle; for this exercise,

a EUR 10 000 vehicle has been used. Vehicle lifetime is assumed to be 200 000 km. Note that the axes of the two panels are of a different scale.

Source: Updated information based on OECD (2009b).



1 2 http://dx.doi.org/10.1787/888932317331



42



TAXATION, INNOVATION AND THE ENVIRONMENT © OECD 2010