Environmental Policy

Report on Auto-Related Environmental Taxes_6. Re-examination of Attempts to Cope with Global Warming in the Short-Term

6. Re-examination of Attempts to Cope with Global Warming in the Short-Term

The use of auto-related taxes as a preventive measure for global warming ("green taxation") had been studied at the Ministry of Transport, and a report was prepared at the Council for Transport Policy on May 20, 1999.
In this report, the Council presented the following recommendations.

  • In order to ensure emissions reduction that can meet the new fuel-efficiency standards under the Energy Conservation Law, it is necessary to take supportive measures on the demand side that encourage consumers to choose fuel-efficient vehicles.
  • While economic measures are desirable, subsidies alone cannot be enough to spread the use of environmentally-friendly automobiles. Utilization of auto-related taxes affecting all vehicles on the market is considered useful. In that case, taxation should be made revenue-neutral in consideration of the current financial situation.
  • Green taxation on the possession of automobiles is more effective in reducing CO2 emissions than green taxation on the acquisition of vehicles.
  • Although early introduction of the green taxation is desirable, economic conditions and other factors need to be fully considered, and thus, gradual introduction of the new system should be studied.
  • As a specific method of green taxation, the "fully proportional to fuel efficiency" method, i.e., that the amount of tax levied on all vehicles is proportional only to fuel efficiency, may be considered as one option. This taxation, however, changes the purpose and meaning of each tax. As methods that are in between the taxation of "fully proportional to fuel efficiency" method and the existing system, the following can be suggested. One is the "additional/reduced tax" in which certain amounts of tax are added to or reduced from the existing tax, regardless of the class, depending on how good or how bad the fuel efficiency is compared with the baseline efficiency. Another is a method that adopts the principle of "fully proportional to fuel efficiency" method to assess the tax amounts for vehicles within the same class, giving consideration to the current taxation that levies different amounts of tax for different classes.

In re-examining tax systems for the purpose of preventing global warming, the Panel, based on the ideas explained in Section 4 of this report, basically agreed with policies presented by the Council for Transport Policy concerning the following areas: the need to encourage the demand side, the utilization of auto-related taxes that are revenue-neutral, the effectiveness of a green tax regarding the possession of automobiles, and the time of its introduction.

In regard to the specific methods of green taxation, some Panel members strongly expressed the view that a tax "fully proportional to fuel efficiency" be adopted from the viewpoint of environmental conservation. Other members indicated that it was proper to apply the principle of proportional tax only to vehicles in the same class, in consideration of coherence with the existing tax systems and of various uses of automobiles.

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