VW scandal threatens case for €16bn diesel tax subsidy

A new report points out that the gap in taxes for diesel and petrol vehicles is currently 14 cents per litre, or 30% higher for diesel. [Erik Söderström]

An estimated annual ‘tax gap’ subsidy of some €16 billion for diesel over petrol has made Europe the world’s largest market for diesel cars – but the Volkswagen scandal has put the national tax schemes supporting this industry at risk.

“There is no reason to keep subsidising this sector,” Carlos Calvo, policy analyst at Transport & Environment, told EURACTIV on Monday (26 October). The efficiency of petrol-fuelled cars has improved significantly in recent years, while the diesel industry has reduced its nitrogen-oxide emissions only very slowly.

The European Commission has acknowledged that carmakers used tools to optimise their emissions test in the laboratory over the past few years, although officials argued that these techniques did not imply that the companies were using fraudulent software. However, the US Environmental Protection Agency (EPA) revealed that Volkswagen went beyond this optimisation, by installing “defeat devices” in their vehicles to cheat the laboratory tests.

>>Read: Dieselgate exposes member state opposition to emissions curbs

Diesel vehicles produce highly dangerous nitrogen-oxide emissions, on of the most carcinogenic substances to humans.

The Organisation for Economic Cooperation and Development (OECD) pointed out last year that taxes for diesel should be higher than for petrol, bearing in mind the higher level of emissions of both carbon dioxide and harmful air pollutants than gasoline. In addition to environmental considerations, this hike would be justified in light of other social costs, the Paris-based organisation said, as diesel vehicles travel further on a litre of fuel.

In a report published on Monday (26 October), Transport and Environment called for amending the Energy Taxation Directive to increase the minimum tax rate for diesel from 33 cents per litre. The organisation pointed out that a first attempt, in 2007, to increase the level to 38 cents failed because of rising oil prices and the “lack of recognition of the need to end diesel’s tax favours.” The review could also include guidelines to encourage member states to narrow the gap between petrol and diesel taxes for cars.

A Commission spokesperson said that the executive is “currently reflecting internally on how to proceed on the issue of fuel taxation”. The ultimate goal is to design an energy taxation system that helps to move away from economic dependence on fossil fuels, as well as to contribute to the goal of creating energy efficient, de-carbonised transport sector.

But some EU officials warned that the diesel industry was heavily-supported, precisely as a way to reduce CO2 emissions from petrol, in order to meet the targets set by the Kyoto agreement.

“The gap between petrol and diesel taxes in Europe is quite unique in the world, and is the chief reason why diesel engines have taken off in Europe and not worldwide,” the report said.

Transport and Environment point out that the tax gap between diesel and petrol vehicles is currently 14 cents per litre, or 30% higher for diesel. The indirect fuel subsidy per diesel car, assuming it consumes 15,000 litres of fuel over its lifetime, and including 21% average VAT, currently amounts to €2,600.

According to the European Automobile Manufacturers’ Association, around 11.6 million vehicles were sold in the 15 pre-accession EU member states in 2014, of which 53.6% were diesel (a total of 6.17 million cars).

Therefore, the national governments of those 15 member states could have given more than €16 billion in indirect subsidies to the new diesel cars in 2014 alone.

The review of the tax regime for vehicles is not among the Commission’s top priorities, as it is currently focused on the new ‘real condition’ tests to better assess diesel emissions.

>>Read: European Parliament calls for inquiry into Volkswagen scandal

However, some member states, including France, Belgium, Italy, Finland, Sweden and Austria have announced plans to reduce or eliminate the gap between diesel and petrol taxation. The differences vary from zero in the United Kingdom to 0.28 cents per litre in the Netherlands, which represents a 44% saving compared to petrol.

“Few months ago it would have been difficult to review the existing system”, Carlos Calvo confessed. But the recent steps taken in countries like Belgium and France illustrate that “something is starting to change”, he added.

US regulators found that Volkswagen designed software for more than 11 million diesel cars that gave false emissions data during the laboratory tests. Experts believe that tests on the road are more difficult to cheat.

In Europe, the European Commission and the national authorities are preparing more strict emissions limits for NOx in real driving conditions testing. 

Germany, Austria, Spain, Italy and most Eastern member states are reluctant to adopt stricter rules to limit emissions from diesel vehicles, despite watered down proposals from the Commission.

The Technical Committee for Motor Vehicles (TCMV), composed of national representatives and chaired by the European Commission, had a deliberation on the regulatory not-to-exceed (NTE) emission limits applicable in real driving conditions testing on 6 October. Scientists estimate that emission levels can increase by 400% when a vehicle is tested on the road.

The executive asked member states to formulate their positions by 16 October, with a view to a vote in the TCMV meeting on 28 October.

According to the Commission proposal, road tests will become mandatory for all new vehicles as of September 2017. But, contrary to an initial proposal made in 2012, the executive now plans to grant a 60% margin over the 80 mg/km limit over a period of two years (until September 2019) to facilitate the implementation of the new rules. 

However, a majority of member states still consider this proposal too strict and demand an extended phase-in period and more margin to adapt.

  • 28 October: Next meeting of the Technical Committee for Motor Vehicles, the comitology body involving EU officials and national experts in charge of setting the new rules.
  • January 2016: Car makers must start measuring NOx levels on the road.
  • September 2017: The new tests are taken into account to authorize the vehicles, although there will be a phase-in period with some leeway for the sector.
  • December 2019: Full implementation of the new rules.

Transport and Environment´s report on Europe´s tax deals for diesel.

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