Average company car emissions have plunged since the introduction of the new system, but the private car sector has not followed suit.
Now a new proposal aims to change that by introducing a change to the charge made when vehicles are registered. Such a move could dramatically affect fleets and leasing companies, as the owners of new vehicles and the ones who pay registration fees.
The proposal – for a scheme known as ‘feebate’ – was one of several presented by the Low Carbon Vehicle Partnership after its Low Carbon Road Transport Challenge.
Launched in 2005, the challenge threw down the gauntlet to academics, think tanks and anyone else who could construct an innovative policy proposal to promote low carbon vehicles and fuels.
Financial incentives hold the key to a successful scheme
The scheme is the brainchild of Malcolm Fergusson, Ian Skinner and Eleanor Mackay, all from the Institute for European Environment Policy.
The concept of feebates is that car manufacturers are given financial incentives to improve the average fuel efficiency of their vehicles.
The system works with a benchmark emissions figure, with rebates for over-compliance and fees for non-compliance.
So, if the benchmark was 120g/km of CO2 and the incentive is £50 per vehicle per g/km of CO2, then a manufacturer selling a 140g/km vehicle would pay a fee of £1,000, while a manufacturer selling a 110g/km vehicle gets a rebate of £500.
The beauty of the system is that it can be made revenue neutral – central authorities do not get overall revenues – which avoids problems over who receives the money and what should be done with it.
This can be done by setting the benchmark at the fleet average, meaning total fees will always cancel out the total rebates.
Such a system would have a direct bearing on the purchase price of cars.
A feebate scheme has already been developed by the Dutch government that will link car registration tax to the Netherlands’ existing energy labelling bands.
When it is launched, probably at the end of this year, the registration feebate could give discounts of €1,000 for low emission vehicles and increases of up to €500 for higher emission band vehicles.
How it would work
In light of the slowing sales of the most carbon-efficient cars and the minimal impact of VED on high CO2 vehicles, the scheme would be likely to focus on the top and bottom ends of the new car market, while leaving the majority of cars in the middle unaffected.
This would also minimise costs for fleets.
The fee element would focus on the highest emitters and the rebate on the low CO2 bands.
‘For this, the existing VED bands may be too crude,’ the authors say.
‘It would be worth considering whether the fee might be a direct function of the actual emissions rate within the top band, or whether a higher band might be added, or both.
‘For example, a new VED band might be introduced at, say, 250g/km and within this band a tax or charge equivalent to £5 per g/km above 200km could be levied on all new cars.
‘Thus a car of 300g/km would pay a charge of £400, for example.
‘This charge could be added to the existing registration charge. Different charge rates or thresholds could increase or decrease the amount of revenue collected.’
Fergusson, Skinner and Mackay say that around 120,000 cars would be affected by such charge, which would bring in revenue of about £50 million a year.
The money collected would need to be distributed as rebates, perhaps in a similar way to the incentive grants administered by the Energy Saving Trust.