Is a uniform CO2 emission linked car taxation possible in the EU?

Sergio Marchionne, CEO of Fiat and President of the European Automobile Manufacturers Association (ACEA), on the right, and Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship.

Sergio Marchionne, CEO of Fiat and President of the European Automobile Manufacturers Association (ACEA), on the right, and Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship.

Motor vehicles have being for decades the easy target of many forms of taxation, especially in post WWII Western Europe. Taxes on acquisition, on ownership, on motoring, on licences are but a few. The initial idea behind, in the minds of politicians who supported the imposition of taxes on cars, was that private ownership of a car signified economic affluence for the owner. And they were absolutely right.

The problem is however that for decades now, car ownership has become a trivial issue, because everybody has one. Even this argument is trivial nowadays and governments in many European countries have changed their minds about taxation of cars, and now they try to link motor vehicles and alternative fuels taxes with the environment and more precisely with CO2 emissions. The problem is again that in many countries the new taxes on CO2 emissions are just added to the old ones, while only in a few EU member states the entire car tax burden is linked to the CO2 emission.

In total there is no clear cut EU policy on this issue. This is however another unfortunate outcome of the dreadful fact, that there is no an EU wide common policy on any kind of taxation. Income taxes, indirect taxation including TVA, special taxes on fuels and cars, taxes on wealth, tenancy or whatever differ widely within the EU. There are only some common upper or lower limits.

It is even more threatening that there are no indications at all, this is going to change some time in the foreseeable future. Taxation is considered a cherished political domain and every country, every political party, every politician, every small town major, every macro-economist and even every citizen, have their own ideas about taxation and they insist that theirs are the best and do not bargain. The European Union after fifty years of full scale function, covering today with its policies almost every detail of our daily lives, has failed to even touch the burning issue of harmonising taxation in the 27 member states. Huge discrepancies in tax legislation, factors and overall burden are tolerated, because there is not common EU policy on this burning issue.
What about the cars though? Europe today depends for its well-being on the production, exports and use of cars. In fact motor vehicles are the prime exportable items for core EU countries, like Germany, France, Sweden, Holland and others.

According to the European Automobile Manufacturers’ Association (ACEA), “the automotive sector contributes positively to the EU trade balance with a €114.1 billion surplus. This contribution is highly significant today as the EU economy as a whole struggles with a total trade deficit for goods of €152.8 billion. Some 11.6 million people – or 5.3% of the EU employed population – work in the sector. The 3.2 million jobs in automotive manufacturing represent 10.2% of EU’s manufacturing employment. Motor vehicles account for over €375 billion in tax contribution in the EU15. The sector is also a key driver of knowledge and innovation, representing Europe’s largest private contributor to R&D, with €26 billion invested annually”.

All that could be endangered, in the absence of a clear cut and uniform message from the European Union on car and alternative fuels taxation. In more detail the hot issues of the day are the possibilities to substitute all car and alternative fuel taxation, with ones linked to CO2 emissions. In some EU countries this is a reality. But the polyphony in this domain means, that there is no clear message to consumers within and without Europe. In short the huge automotive sector is without directions, because consumers receive no clear message or indications from their governments.

The car taxation cacophony in the EU 27 countries has to change soon however, given the huge size and the significance of the EU automotive industry, seen as a whole with its supportive manufacturing sectors. The European automotive industry itself advocates harmonised CO2-related taxation of cars and of alternative fuels in the EU. The issue is so urgent that European politicians have to attend to the matter, if they want to be seen as caring for the future of their voters. Directly or indirectly every EU citizen’s well-being depends on the health of the automotive industry.


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