Regulatory factors in Europe, the US, and China – PART 2

In the previous post, vehicle emission standards in Europe, the US, and China and how they evolved were explored. Given population rise and the estimated growth in passenger cars, emission standards alone will not allow humanity to reduce CO2 emissions to sustainable levels. In this post, we will explore a variety of other regulatory factors in place in Europe, the US, and China to reduce pollution from passenger cars and light commercial vehicles. These include fuel prices, taxation on cars, and congestion charges. Contrasting fuel prices is easier than other regulatory levers, such as taxation on cars and congestion charges:

  • Fuel prices: Apart from countries where fuel prices are subsidised, such as Saudi Arabia and Venezuela, the United States has by far the lowest fuel prices in the OECD. The figure from The Economist below contrasts fuel prices in selected European countries and the US, and while the actual fuel cost (production, refining, distribution and retail) is, apart from Japan and Canada, roughly the same, the major difference is taxes and duties. Easy rides
  • Following the 1973 and 1979 oil price crises, European drivers started buying smaller, more fuel-efficient cars, and the Japanese car manufacturers started making major inroads in Europe, and were considered the most fuel-efficient cars until about the turn of the century. European car manufacturers have since made a significant comeback with even the luxury brands offering, so-called ‘citadines’ and a spectrum of full electric, hybrid, and efficient ICE powered cars. It is also interesting to note that China has fuel prices that are similar in comparison to Europe (http://www.bloomberg.com/visual-data/gas-prices).
  • Taxation: Road tax is an annual tax that is levied on cars that are matriculated. In most countries, this tax is linked to the fuel efficiency of the car. Many European countries also have a circulation tax, a one-off payment when the car is purchased. Again, the circulation tax is linked to the efficiency of the engine. For example, the circulation tax on a Maserati Quattroporte (Julian J) could easily exceed EURO 5,000 depending on the country, while a BMW i3 or a Tesla, would be exempt from circulation taxes in many European countries. Another interesting taxation issue in Europe is that very efficient cars, such as electric vehicles, could be amortised at 120% of the purchase price, when purchased in a company. In the US, the annual registration fee, which varies from state to state, is typically substantially below European road taxes. In 2011, China adopted an annual road tax to promote energy conservation. While road taxes existed before, they where significantly increased and today vary between USD 10 and 900 depending on the engine size.
  • Congestion charges: Congestion charges are currently only applied in certain cities – London, Milan, Singapore, and Stockholm – to regulate congestion in cities. Congestion is considered to be a negative externality and a congestion charge makes users conscious of these externalities. At least in theory.

Some people may not appreciate the role of the regulator in making personal mobility clean, but the facts are clear. Cars in Europe are far cleaner, much more advanced technology wise, and much more practical in daily use. They are even faster and safer than their US counterparts. Smart regulation (in close partnership with industry) has provided the incentives for the European automotive industry to emerge from the ashes and be at the forefront of innovation and sustainability.