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.

4 thoughts on “Regulatory factors in Europe, the US, and China – PART 2

  1. Very insightful! Any comparison on import taxes on cars? This is a real income generating business for governments and probably part of the protection car manufacturers enjoy around the world.

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  2. Dear ProfSasha

    Thank you for another very interesting and educational blog post. I find the table regarding global fuel prices fascinating. Why does the USA make it so accessible to own and drive a private vehicle ? surely there is something the government needs to do.

    In China, I have seen more and more Tesla cars everyday. Men, woman and all age groups are driving this wonderfully stylish car. I am based in Southern China where the huge concern around congestion on the roads in the major cities is not yet as critical, however the problem is certainly growing and becoming more and more important. Brands like BYD and Tesla and becoming very popular on the roads here. In China there is always the discussion amongst people in the big cities about license plates. In the major cities it’s almost a lottery now to get a new license plate when you buy a car, a very powerful tool the government uses to both control the use of personal vehicles but also to generate income.

    Another way in which China officials have been encouraging electric or hybrid car purchase is by exempting them from taxes and other fees. Since 2014, China’s State Council removed the 10 percent purchase tax on domestic-made electric or hybrids, which will continue until 2017. With the very high cost of cars in China and the challenges in China of buying second hand, this makes a big difference to consumer decision making. Several local governments, including Shanghai, have experimented with programs offering free license plates for new Tesla vehicles—a significant and one of the most attractive incentives, considering that Shanghai license plates themselves sell for RMB 74,000 ($11,959) a piece on average. Other local governments have also begun offering their own incentives for electric / hybrid purchases, matching the national subsidy RMB-for-RMB. These local incentives can go as high as RMB 60,000 ($9,696), providing a total RMB 120,000 ($19,395) purchase subsidy for qualified vehicles.

    I am certainly excited about these incentives and the growth of electric and hybrids in China. Seeing these cars on the road gives me hope that governments can influence consumers to make positive decisions.

    I have to give one final shout out to the USA, despite the low fuel prices, President Barack Obama set the goal for the U.S. to become the first country to have 1 million electric vehicles on the road by 2015. Hear ! Hear ! but let’s hope that 1 million electric cars are replacing 1 million traditional fuel driven vehicles and it is NOT in addition. His administration pledged US$2.4 billion in federal grants to support the development of next-generation electric vehicles and batteries.

    I look forward to your next post Profsasha as always this was a very interesting read. Thank you !

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  3. Fact correction. I have a Tesla Model S. I think this is a well written blog. I do think we can also look to Asia. I live in Hong Kong a city of 6 million and there have now been over 10,000 Model S sales in 12 months.

    Regulation has played a key role. Basically, there is a progressive tax for purchase of carbon cars, whereas for electric cars there is no tax. In this city this is important as the tax can be 100-200%.

    Fuel price is one thing – and electric cars are free at the point of use but tax changed the purchase decision making.

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