Effects of the UK Vehicle Tax System on GHG Emissions

WASHINGTON—Transportation accounts for about 14 percent of global greenhouse gas (GHG) emissions and 23 percent of carbon dioxide (CO2) emissions. Policymakers long have considered vehicle and fuel taxes to reduce transportation greenhouse gas emissions. To date, however, there is little evidence on the relative efficacy of different approaches. In a report posted today by Resources for the Future (RFF) called, Charging Drivers by the Pound: The Effects of the UK Vehicle Tax System, researchers examine a carbon-based tax system that the United Kingdom has used since 2001. This system, known as the Vehicle Excise Duty (VED), sets annual registration taxes according to a vehicle's carbon emissions. This approach to vehicle taxation has become increasingly common in Europe, and this study compares its effectiveness with other approaches such as taxing fuels.

The report’s authors are Joshua Linn, RFF Senior Fellow; Davide Cerruti, a researcher at ETH Zurich, and Anna Alberini, from the University of Maryland. According to their findings, “The VED increased the adoption of low-emissions vehicles and discouraged the purchase of very polluting vehicles, but it had a small effect on aggregate emissions.”

Among the findings:

• Under the VED, a vehicle’s annual registration tax depends on its carbon dioxide (CO2) “band,” with higher taxes imposed on high-emitting vehicles.
• Using highly detailed new car registration data, we find that CO2-based vehicle taxes increase registrations of low-emitting vehicles.
• The VED has primarily affected registrations of the very lowest- and highest-emitting vehicles, only slightly reducing average emissions rates across all new car sales.
• Comparing the actual VED with hypothetical alternatives, the VED is more effective at reducing emissions than a proportional vehicle tax, but is less effective than a carbon tax.

Read the full report: Charging Drivers by the Pound: The Effects of the UK Vehicle Tax System