Emissions Matter, Not Size

Transportation Minister Wolfgang Tiefensee wants to "radically" reform the motor vehicle tax in Germany by the end of the year by introducing a levy system based not on the size of the vehicle but on the amount of carbon dioxide (CO2) and other dangerous emissions it produces.

Tiefensee's proposal has been met with enthusiasm from across the political spectrum, an indication that that it is long over-due.

CO2 tax nothing new

Indeed, Germany is far from playing the trend-setter in creating greener tax policies. Nine EU countries currently have a registration fee or motor vehicle tax contingent on CO2 emissions, according to the Association of European Car-Makers.

Austria, the Netherlands and Portugal reward owners of environmentally friendly cars with sliding registration fees. In Denmark, Sweden and Great Britain, the vehicle tax is determined by the level of CO2 emissions.

Car-owners with low-emission vehicles are given break on both the one-time registration fee and the annual vehicle tax in Belgium, France and Cyprus.

In Great Britain, owners of vehicles that emit less that 100 grams of CO2 per kilometer pay no tax at all, whereas the annual rate for diesel vehicles emitting more than 225 grams per kilometer is a hefty 320 euros ($421). France has a similar system for company cars.

In Sweden, drivers pay 1.62 euros for every gram of CO2 over 100 grams per kilometer that their vehicle emits.

Reaping the benefits

"Changing the tax in England has already had an effect on which new cars people buy," said Uwe Kunert, transportation expert from the German Institute for Economic Research. Sweden is experiencing the same effect.

In the Netherlands, tax revenues fell so dramatically that the government had to alter the tax reforms. Kunert is cautious not to count any chickens before they hatch, however.

"It's still difficult for most countries," he said. "There's hasn't been any overwhelming successes yet."

The price tag on the planet

In Germany, the success of reforms will depend on the affordability of environmentally friendly motors.

Low-emission models like Volkswagen three-liter Lupo disappeared from the market because they were too expensive -- but also because not enough advertising was done. Instead, German carmakers tend to advertise the massive gas-guzzlers, many of which are produced domestically.

As far as environmentally-friendly automobiles are concerned, the foreign competition is leagues ahead of the German carmakers. According to the German Association for Environmental and Natural Protection (BUND), German auto producers will have to reduce CO2 emissions by seven grams to fulfill the EU requirements by 2012, French producers by only three grams.