Six years of CO2-based tax incentives for new passenger cars in The Netherlands: Impacts on purchasing behavior trends and CO2 effectiveness

Abstract

There is growing evidence that consumers respond more effectively to upfront price signals, such as vehicle purchase taxes and feebate policies, and to tax incentives that are more salient than others, such as company car taxes graded by CO2 emissions. This paper examines tax changes in The Netherlands, which are among the most stringent and most salient in Europe, and assesses the ex-post purchasing impacts and CO2 effectiveness of six years of CO2-based tax incentives for low-carbon cars in The Netherlands. Dutch tax incentives resulted in 13g/km, or 11% lower average CO2 emissions in 2013. The Netherlands has moved from the 12th position before the tax changes in 2007 to become Europe’s number one in terms of the lowest average new car CO2 emissions and highest share of electric vehicles in 2013. Tax incentives for new cars sold between 2008 and 2013 have resulted in 4.6 million tons of potential lifetime CO2 abatement at the cost of a drop in tax revenues of 30–50%. However, when corrected for the Dutch policy-induced increasing real-world fuel-economy shortfall and leakage of carbon reduction potential through vehicle export of low-carbon cars, only 3.5 million tons or 75% of the CO2 reduction remains. CO2-based tax incentives for company cars seem to have contributed the most to the observed turnaround in purchasing behavior towards lower CO2-emitting passenger cars.