James Nix: Volkwagen crisis provides pretext for overdue rise in tax on diesel
GBE’s Director James Nix is published in The Irish Times surrounding the need for re-balancing taxes on diesel and petrol in light of the recent diesel-gate.
Most European countries, Ireland included, reshaped their car tax systems around the time of the 1997 Kyoto protocol on climate change. At the time, scientific studies showed that diesel cars emitted 5-10 per cent less climate pollution and, in a bid to stem climate emissions, European governments rowed in behind diesel. From constituting less than 25 per cent of European car sales, diesel jumped to make up more than half of all new purchases across the EU in less than a decade and a half.
But long before details of Volkswagen’s deception broke, a slew of scientific studies had diesel in the dock. By 2010 the designs of petrol cars had improved and the direct climate emission savings of new diesel cars had been cut to 1.5 per cent. But this figure is based on laboratory tests. On the road, emissions from diesel cars can be 20 times worse than the lab results, according to research highlighted by the European Commission. And so diesel cars today are worse for the climate than petrol.
After researchers at Stanford University realised this, they observed that the “tax laws in all EU countries, except the UK, currently favour diesel, thereby inadvertently promoting global warming”. Reviewing the situation in 2013, the European Commission noted that the “economic policy on diesel fuel and diesel car sales” of EU governments ignored the new realities.
And so the tax changes regarding diesel taking hold across the EU are less a reaction to the Volkswagen scandal as such: governments simply now have the political space to bring taxes on transport fuel back into line with science. France will increase diesel tax by 17.5 cent over the next five years, raising it up to same level as petrol. Belgium will also equalise tax on transport fuel, raising diesel tax by 4 cent in 2016, another 4 cent in 2017 and 6 cent in 2018. In announcing France’s planned reform earlier this month, its government candidly acknowledged that taxing diesel 17.5 cent less led to more and more cars running on diesel and “triggered legitimate concerns among many French people about the impact on air quality”.
The same soot particulates mentioned above find their way into the lungs, and to a lesser extent, the brain and heart. About 470,000 people in Ireland suffer from asthma. The soot is also carcinogenic and implicated in a range of other ailments, and so the number affected rises substantially if other conditions aggravated by diesel-related pollutants are factored in.
In proportional terms, Ireland buys the most diesel cars in the EU. Some 73 per cent of all new purchases in 2014 were diesel, compared with an EU average of 53 per cent. The ‘dieselisation’ of a nation’s car fleet carries a cost in terms of hospitalisations, reduced quality of life, lost time at work, and premature death. While other EU countries seek now to stem new diesel car purchases, Ireland’s response remains uncertain. Ireland currently taxes diesel at about 12 cents lower than petrol per litre. In other words tax accounts for pretty much all of the price gap at the pump.
A litre of diesel is 20 to 25 cents cheaper today compared with 12 months ago due to falls in international oil prices. The signal sent out by closing the diesel/petrol tax gap in Ireland over the next three to four years would have an influence on new car purchasing – just as it will have in Belgium and France. But its financial impact on existing car owners will be modest – and this can be further reduced by dedicating the increased tax revenue to public transport.
Government could expect to raise somewhere in the region of €80 million annually with a 4 cent rise in diesel tax. Public transport in Ireland is under-supplied. Ireland has fallen particularly behind in not having any hybrid-electric or full-electric buses. Across the spectrum, from emissions that harm climate to those that damage health, hybrid buses cause one third less pollution. They also use one-third less fuel.
Closing Ireland’s diesel tax gap over the next four years will enhance health, deliver quality of life improvements for tens if not hundreds of thousands of citizens, support innovation and reduce climate emissions. With the Paris climate conference opening at the end of November, many countries are coming forward with, or preparing, national pledges which deliver multiple benefits. A pledge to bridge its diesel tax gap before 2020, and dedicate the revenue to unlocking sustainable transport, is a commitment Ireland may wish to consider.