Environmentally friendly cars

Norwegian passenger cars contribute 15% of the annual CO2 emissions. Given the introduction of new low-emission motor vehicles, including hybrids, a new taxation system to encourage consumers to select more environmentally friendly cars is needed.

In spring 2006, The Norwegian Board of Technology formed an expert group to discuss different fiscal measures to promote environmentally friendly motor vehicles in Norway.

Norwegian taxation for motor vehicles, currently includes registration tax, annual circulation tax, re-registration tax and fuel tax. The registration tax is calculated from car weight, engine volume and effect, and increases stepwise with these factors. If the change of tax measures results in more people buying more environmentally friendly cars with lower taxes, the state may face less income.

The Board’s expert group has made a list of 6 recommendations for a new tax system. The system should:

1. Set the same registration tax level for cars with similar CO2-emission
2. Tax diesel and petrol cars equally with respect to CO2-emissions
3. Be flexible with respect to new engine technologies
4. Increase the economic incitament to buy enironmentally friedly cars
5. Target taxes at the price segment where the majority of cars are sold
6. Prevent an increase in the number of cars per citizen

Today the annual circulation tax is equal for all passenger cars, regardless of CO2 emissions. By increasing it according to increasing emissions, this tax may promote environmentally friendly cars. An annual circulation tax based on emissions can also compensate any loss of income related to a restructured registration tax. The possibilities are huge since all of Norway’s two million cars pay the annual circulation tax, while the registration tax only applies to approximately 110 000 new cars annually.

Although environmentally good alternatives exist, the car park can still be improved, environmentally speaking. The registration tax for passenger cars should be based on weight and CO2-emissions. Norwegian authorities should also consider basing the annual circulation tax on CO2-emissions, says new report.

If the registration tax is based on car weight and CO2 emission, it will meet the six criteria the expert group formulated. One of these criteria is comparable registration tax for cars with the same level of CO2 emission.

But if the authorities accept reduced income, they will be more flexible when designing passenger car taxation that reduces the CO2 emissions from the passenger car park.

The policy brief will be followed up by an open meeting with introduction from stakeholders, politician and experts.