Changes to the congestion charge scheme from July 2013 will mean that only pure electric vehicles or vehicles that emit 75g/km or less of CO2 and meet the Euro 5 emission standard for air quality will qualify for a 100% discount.
The Mayor of London, Boris Johnson confirmed the changes following a 12-week consultation on the proposals, which sought the views of Londoners, businesses and key stakeholders.
He expects the changes to help spur the use of the cleanest possible vehicles in the capital.
The new Ultra Low Emission Discount (ULED), which takes effect on July 1, will replace the current Greener Vehicle Discount (GVD) and the Electric Vehicle Discount.
Anyone registered for the Electric Vehicle Discount will automatically be transferred to the new ULED.
Cars currently registered for GVD will not meet the criteria for the new ULED.
However, the Mayor and TfL recognise that many drivers made the decision to purchase a low emission car in order to benefit from the existing discount. Therefore, in response to a number of comments made during the consultation, the current owners of cars registered for the GVD will continue to receive a full discount for that vehicle for a ‘sunset period’ of three years – an increase from the two years proposed in the consultation.
The sunset period for the owners of vehicles currently registered for the GVD will end on June 24, 2016.
The Mayor also announced two further changes to the scheme - the removal of the option to pay the charge in shops (which is now used for only 6% of payments) and an increase in the level of penalty charge from £120 to £130.
The increase in the penalty charge will take effect on May 20, 2013.
TfL said that it will "bring the penalty charge in line with other moving traffic, bus lane and parking penalty charges within London".
The option to pay the congestion charge by cash in shops will be removed from July 26, 2013.
Drivers will still be able to pay the congestion charge using a wide range of other means including online, by phone, by text message or by CC Auto Pay.
Commenting on the new ULED, Matthew Pencharz, the Mayor of London’s advisor on the Environment, said: “These changes are in line with the Mayor’s aim to improve air quality in London by reducing emissions from private vehicles and promoting the further development of low emission vehicles.
"We want to encourage the continued development of these technologies, while also protecting the benefits to traffic flow in the centre of London that the charge provides.”
While the ULED is technology neutral, no diesel car is currently available that would meet the criteria for the discount and this is unlikely to change in the immediate future.
One of the aims of making the changes is to help tackle the increasing dieselisation of London's car fleet.
Over the past decade diesel car sales have increased from around 10% to 50%, partly as a result of low carbon vehicle incentives.
However, a Euro 4 diesel car emits about 22 times as much particulate matter as the equivalent petrol car.
John Mason, Transport for London’s director responsible for Congestion Charging, said: “We were pleased with the level of response from Londoners, businesses and stakeholders which has helped us and the Mayor shape our decisions. We’ve listened to the responses and have decided to extend the sunset period for current GVD registered vehicles by an additional year. We are confident that these changes will make the scheme greener and more efficient.”