False car emission ratings cost EU billions of pounds in tax

Tax systems across Europe are failing to incentivise a shift to low-emission vehicles, resulting in billions of pounds of lost revenue and detrimental effects for public health and the environment.

A new report from the Greens/European Free Alliance reveals that 11 EU member states would have collected €46bn (£41bn) more between 2010 and 2016 if car taxes were based on real-life CO2 emissions rather than lab tests.

The UK accounted for €8bn of the lost tax revenue, with the findings coming after official government data revealed how transport became Britain’s most polluting sector for greenhouse gas emissions in 2016.

“Taxation based on the polluter pays principle has the potential to gear up the transition to a low-carbon economy,” Green Party MEP, Molly Scott Cato, said. “It can encourage a shift from cars to public transport and active travel.

“Instead, the shocking loss in potential tax revenue from cars has been matched by an air pollution health crisis in our cities and increasing CO2 emissions driving climate breakdown.”

The research involved analysing real-world CO2 emissions and their impact on taxes in Austria, Belgium, Denmark, Finland, France, Germany, Luxembourg, Spain, Sweden, the Netherlands and UK.

These countries account for more than 60% of total car registrations in the EU, and would have collected an additional €10bn in 2016 alone if their tax systems were based on more realistic emissions.

In the UK, the research also highlights how a freeze in fuel tax has seen revenue from this fall from 1.9% of GDP to 1.4% between 2001 and 2016.

At the same time, the cost in real terms of motoring has fallen by 14% between 1980 and 2014, while the cost of travelling by rail has risen 63% and by bus 58%.

“Much of the fault therefore lies with regulatory inaction on the part of the EU, national governments and their authorities,” Greens/European Free Alliance tax justice spokesperson, Sven Giegold, said.

“We finally need car emission tests that deliver real-world CO2 emissions. Until car taxes are based on reality, they won't provide incentives for moving towards cleaner forms of transport.”

The report argues that a combination of energy taxes, a carbon tax, and ‘intelligent’ road charging systems will be the most effective ways to drive down CO2 emissions from transport and encourage a switch to alternatives.

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