Green the new black for car buyers

The Sunday Times
May 17, 2009

Tax incentives drive consumers towards cars with lower emissions

Colin Gleeson

Henry Ford famously sold them in black but Irish car buyers are going for green. More than four out of five cars bought in the past nine months are ranked as among the least polluting in the country.
Under changes introduced in July last year, the amount that car owners pay in vehicle registration tax (VRT) and road tax now depends on CO2 ratings instead of engine size.
New statistics show that buyers are voting with their wallets and avoiding cars that do not perform well in environmental terms. Some 83% of cars purchased since the change are in grades A, B and C, those with the lowest emissions.
Almost 55% of the cars bought fell into the A and B bands. Most of those (47%) were in the B category where the choice of cars available includes diesel-fuelled, family and medium-sized models which produce low emissions.
The new system rates vehicles in seven bands, ranging from A to G. The A band is the lowest, emitting less than 120g of CO2 per km, while G is the highest, emitting more than 225g per km.
Under the new system, the three old rates of VRT, a tax applied to the purchase of new cars, changed from 22.5%, 25% and 30% depending on engine-size to a range of 14% to 36% based on carbon emissions.
The motor tax charges for the three lowest bands range from €100 to €290, while the levy on G-rated cars is €2,000.
The figures show sales of cars in the G category are much lower than others. Almost 5,700 cars with engines of between 1901cc and 2000cc fell into the A and B bands while just eight were in the higher G category.
This suggests that buyers faced with a choice of two otherwise similar cars of the same size and engine power are opting for the one that produces less emissions because of the lower purchase price and running costs.
John Gormley, the minister for the environment, said that the figures “clearly show” that there has been a “fundamental shift” in car-buying behaviour.
He said: “The overwhelming majority of people are now opting for lower emission vehicles because they are cheaper to buy, cheaper to run, and better for the environment. It clearly shows that the changes to VRT have not put people off buying cars, they are just buying different types.”
Alan Nolan, the director general of the Society of the Irish Motor Industry, disagreed. He said the government’s tax incentive was “a waste of time” and renewed calls for a scrappage scheme to be introduced.
“Incentivising people to buy environmentally-friendly cars is a waste of time without a scrappage scheme,” Nolan said. “The vast majority of new cars being bought are environmentally-friendly and have low CO2 outputs, but people are not being encouraged to replace older vehicles with environmentally-friendly ones.
“If you do this, you can deliver a substantial difference on CO2 emissions. All that the government has done is devalue used cars. No replacing means no change. We are moving backwards. This has been a missed opportunity.”
Conor Twomey, the editor of Car Buyers Guide, said that the increase in the sale of eco-friendly cars was due to government incentives.
“I don’t know that it has too much to do with the environment,” he said. “Nothing was happening until the government decided to incentivise people to drive cars with low emissions. CO2 has always been there as a problem.”
Conor Faughnan, a spokesman for the Automobile Association, said: “I hope that when the economy recovers. . .we will keep buying green. In a few years’ time, the CO2 being produced by Irish cars will be way down on what it has been.”
Prices driven up and down
Small car manufacturers stood to gain significantly when the changes were introduced. Toyota’s entry-level Aygo range, for example, qualifies as band A, as does the Yaris range. A 1.4-litre D-4D diesel Yaris, previously ranked as a medium-engine car, dropped in price by €1,745 last July because it emits just 119g/km.
Large-engine diesel cars also benefited because they generally produce fewer emissions than petrol equivalents. Ford’s Mondeo diesel range went down by €3,600 because it fell into the B category with VRT of 16%. Previously it would have attracted VRT of 30%.
Cars with large engines and high emissions shot up in price under the new regime. Toyota’s Land Cruiser increased by €5,450-€6,810 because its emissions of about 240g/km made it a category G car, attracting the top VRT rate of 36%. A buyer of this car would also have to pay €2,000 a year in motor tax.
The news was bad for some sports cars too. The price of the Mazda MX-5 Roadster, in band G, jumped by €1,100-€1,400.