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Other relevant issues

Measures to reduce car CO2 emissions 

On 23 June 2016, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation. The outcome of these negotiations will determine what arrangements apply in relation to EU legislation in future once the UK has left the EU.

Car manufacturers are continuing to take action to reduce COemission in order to meet binding targets set by the European Commission and government has taken a number of fiscal steps to encourage the move to ULEVs and more fuel-efficient conventional vehicles.  This includes changes to Vehicle Excise Duty (VED or ‘car tax’), Company Car Tax, and incentives including purchase grants for ULEVs.  

In 1998, the European Commission and industry associations of the major motor vehicle manufacturers agreed to reduce the average CO2 emissions of new cars. This voluntary agreement aimed to cut the average CO2 emissions of new cars by over 25% by 2008/9 to 140g CO2/km, and as a result to see a 25% improvement in average fuel consumption.
In 2009 a European Regulation setting binding targets to reduce the CO2 emissions of new cars (EC Regulation No. 443/2009) entered into force.  The main features of the Regulation are as follows:
  • The target is for an overall European fleet average of 130g/km of CO2 emissions from 2015 (phased in from 2012);

  • In order to meet this average, manufacturers are set a specific emissions target to meet, based on the types of vehicles they actually sell in any given year — rather than requiring each individual vehicle to be less than 130g CO2/km.  This allows a broad range of vehicles to remain on sale with manufacturers deciding where they make improvements to ensure compliance;

  • The 'type' of vehicle is currently determined by its mass.  Manufacturers that sell predominately heavier cars will have a higher grams of CO2/km target and vice versa;

  • There are different arrangements for manufacturers that produce <300,000 and <10,000 cars in any year, so as to protect the diversity of the market;

  • There is a further target for improvement from 2021, set at 95g CO2/km (95% fleet phase in from 2020, with future targets to 2030 to be determined).

  • Failure to meet their individual target sees manufacturers receive a fine; from 2019 this will be €95 per gram of exceedance per vehicle registered in the calendar year.

There are several facts to bear in mind for anyone owning or driving a car who is wondering how the Regulation will affect them:

  • The regulation is purely a matter for manufacturers.  It will not directly require drivers or car buyers to do anything different.  However, manufacturers might encourage sales of their more fuel-efficient models in order to ensure that they meet the target that they have been given;

  • It works on an average basis.  It does not require individual cars to meet a particular threshold for CO2 (unlike air quality legislation) or ban cars on the basis of their CO2 emissions;

  • It only applies to new cars.  It does not mean that older, higher-emitting, cars have to be taken off the road;

  • It applies to all new cars registered in the EU, Norway, Liechtenstein and Iceland.  It does not just apply to European manufacturers;

  • It is not about setting different targets for different countries.  Whilst manufacturers may, of course, choose to vary what they offer between countries, the targets are for the EU as a whole;

  • It does not tell governments how to set vehicle-related taxes.  This will continue to be a matter for each country.

In the UK, a number of fiscal steps have been taken to promote the purchase and use of more fuel-efficient vehicles:

  • In the March 2001 Budget the Chancellor announced the extension of the lower rate of Vehicle Excise Duty (VED) to cover cars in the Private and Light Goods (PLG) taxation class with an engine size of 1549cc or less;  

  • Since March 2001, a system of Graduated VED has been in operation for new cars based primarily on their level of CO2 emissions. The system is currently comprised of 13 CO2 bands. Since April 2010, a different rate of tax applies to a vehicle at first registration (first licence).  The standard year rate applies in subsequent years. Zero emission vehicles are exempt from all VED;  

  • Since April 2002, company car tax has been based on the COemissions of the vehicle provided to an employee for their private use;

  • From January 2011, the Government has offered a grant off the price of certain Ultra Low Emission Vehicles (ULEV) – the Plug in Car Grant.  Currently most pure electric vehicles and range extended electric vehicles receive a grant of £3,500.   

  • Since April 2013, news cars emitting less than 95g COper km can qualify for a 100% first-year allowance. Cars that are leased do not qualify;

  • Electric vehicles are also exempt from the fuel benefit charge, as electricity is not classed as a fuel.


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