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The European tax policies that are fuelling the shift to electric vehicles

Photo: Su Wei/Dreamstime
Photo: Su Wei/Dreamstime

Taxing petrol cars more than electric ones has proven to be an effective way to fuel the transition to electromobility, according to a new analysis by Transport & Environment, a non-profit that advocates for cleaner mobility.

Through a ‘carrot and stick’ approach, European governments are sparking a move to electric vehicles (EVs) while also maintaining fiscal balance, Transport & Environment says in a note alongside the launch of its car tax analysis tool.

“There is no one single approach to how European governments have turned these principles into policy, but rather a great diversity of car tax recipes to sample from across the continent.”

Nevertheless, what’s clear is that “you don’t need to be rich… to have good policy.”

Malta, for instance, ranks second in southern Europe in the transition to zero-emissions cars — partly because it has the region’s highest tax differential between combustion-engine and electric models. All-electric models accounted for 17.3% of the country’s new car registrations in 2023.

On the one hand, Malta offers €11,000 purchase grants for EVs — the highest in Europe.

On the other hand, those subsidies are funded by purchase and ownership taxes on combustion-engine vehicles, which further incentivises the transition. The total tax burden for a small petrol-powered car is roughly €6,800 over ten years, according to Transport & Environment’s calculations.

This interpretation of the “polluter pays” principle is what propelled Norway’s world-leading EV shift, analysts say.

One unique aspect of Malta’s policies is that the petrol vehicle acquisition tax is also based on vehicle length, Transport & Environment says, noting that the country is trying to tackle road congestion at the same time.

“Smart taxation, in wealthy countries or not, can go a long way in helping to raise EV uptake,” the NGO adds. “Portugal and Greece are other examples of countries with a big tax differential between fossil and electric cars — helping to incentivise the uptake of EVs.”

Meanwhile, some countries are targeting corporates as well.

“Recognising its corporate car culture, the Belgian government has targeted corporate cars to lead the transition to electromobility,” Transport & Environment says.

In 2021, the Belgian government announced that the ability of companies to write-off the depreciation of cars would be phased out for polluting models, before ending completely in 2026.

The reform has already had a meaningful impact, with Belgium seeing the fastest growth in electric vehicle adoption across Europe in 2023.

“The corporate sector led this charge, with battery electric vehicle uptake four times higher among corporate registrations than private households.”

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