Environmental Policy

Report on Auto-Related Environmental Taxes_5.Short-Term Agenda for the Re-examination of Air Pollution Controls

5.Short-Term Agenda for the Re-examination of Air Pollution Controls

5-1 Areas to be Covered

Air pollution has been serious particularly in urban areas, as explained in Subsection 1-2. To utilize taxes to improve the condition of heavily polluted areas, it may be useful to levy taxes according to the severity of air pollution. However, judging from the present state of failing to meet environmental quality standards with regard to SPM and photochemical oxidants, efforts to reduce the environmental burden are required not only in particular areas but also throughout Japan.Since automobiles travel everywhere, new tax systems aimed at controlling air pollution should be adopted on a national scale without making particular graphic distinctions.

5-2 Classification Criteria for Taxation

To utilize taxes to reduce per-vehicle emissions as an air pollution control measure, it is useful to determine such taxes using the volume of pollutants in a vehicle's exhaust gases as the classification criteria. In doing so, rather than focusing on a limited number of substances, all those that are subject to automobile exhaust regulations, e.g. nitrogen oxides, hydrocarbons, carbon monoxide and particulate matter, must be taken into account during the classification.
When introducing the new tax systems, the government needs to be selective in deciding which classification methods to adopt by carefully examining both the advantages and disadvantages of each method. Possible methods of classification are as follows.
It must be noted that to ensure coherence with the existing taxation scheme, new classification criteria designed to measure the emissions volume must be utilized along with existing methods of determining the tax rates.

(1) Classification by Model
Under this method, the volume of emissions is assessed based on the model of the automobile, and the assessed volumes determine the tax rates.
Since this method requires complicated work to be done before it is put into practical use, further examination will be necessary.

(2) Classification by the Year of Regulation Enforcement
This method classifies automobiles by the year in which regulations were put into force. The method uses emission gas regulation standards as a marker to help classify and evaluate different levels of emissions in a clear and simple manner. Automobiles that emit less exhaust gases than stipulated in the latest regulation standards will be assessed using the technical guidelines for low emission vehicles set forth by the Environment Agency as technical guidelines to designate superior emissions performance of automobiles.
This classification method has a certain issue that needs further consideration. Regulations for gasoline passenger cars have become increasingly stringent as years have passed, from 1973 regulations to the ones in 1975, 1976, and 1978. And in the year 2000, new regulations are expected to be introduced. The question here is how to deal with vehicles conforming to 1978 regulations, which account for over 90% of total gasoline passenger cars now in use. Particularly, some types of vehicles conforming to the 1978 regulations have significantly superior emission performance to others. It is a matter for discussion, therefore, whether it is appropriate to treat these superior cars along with other vehicles under a single category of 1978-regulation conforming vehicles. As for diesel vehicles and gasoline trucks/buses, on the contrary, the regulations establish different times for enforcement for vehicles of different weights and structures. For these vehicles, it needs to be considered whether the amount of tax shall be differentiated in accordance with every subcategory of vehicle, or be applied to larger groupings of vehicle categories. When planning concrete tax systems using this assessment method, the government needs to address these issues in light of the contents of the regulation standards and the actual situation.

(3) Classification by Vehicle Age
This method assesses the volume of emissions on the grounds of how old the automobile is, rather than the year of regulation enforcement to which it conforms. Similar methods are employed in the variable taxation scheme of the Tokyo Metropolitan Government. Underlying this method is the idea that older cars meet only older emission regulations and have poorer emission performance.
This method is simple, but the fact that emission performance corresponds less exactly to the age of vehicles than to the year of regulation enforcement must be carefully considered.

If any of these methods are adopted in classifying auto-related taxes, car owners are going to have levied upon them differentiated amounts of taxes that they could not have predicted at the time of acquisition, despite the fact that their cars do meet the emission regulations being enforced at the time of production. This is to be considered legally and socially acceptable with no major problems for the following reasons: because the taxation is based on the idea that the polluters should, in principle, pay the cost of the environmental load they cause, as explained in Subsection 4-1, and because this system does not require the owners to have the tax imposed retroactively or to be punished.

Diesel cars, trucks and buses account for about 20% of the entire vehicle ownership in Japan, but are responsible for about 80% of aggregate nitrogen oxides emissions as well as almost all SPM emissions from all types of vehicles. In principle, the amount of taxes should correspond to the levels of load each vehicle imposes on the environment. Therefore, it is reasonable to impose heavier tax on diesel vehicles as is done in several OECD countries, or on any automobiles conforming to less strict regulation standards, regardless of their model or fuel types. Some Panel members suggested, however, that this issue needs careful examination with regard to the following areas: that diesel trucks hold an important position in current traffic, particularly in the physical distribution sector; that alleviation of the environmental burden can not be immediately expected unless alternatives to diesel fuel become available; that this issue is linked to fuel taxation.

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