The Effectiveness of Environmental Taxes in Reducing CO2 Emissions in Passenger Vehicles: The Case of Mediterranean Countries

Abstract

The transport sector is the biggest source of CO2 emissions in Europe. It is responsible for over a quarter of all greenhouse gas emissions. Passenger vehicles, alone, account for nearly 41% of these emissions, resulting in human health impacts. To meet the Paris climate commitments, cars and vans should be decarbonized until 2050. Such a transformation requires general changes, such as how the vehicles are owned, taxed, and driven. The European Federation for Transport and Environment revealed that Mediterranean countries tend to emit less per vehicle compared to the northern and central Europeans. Intriguingly, this does not necessarily correspond to motorization rates. In this article, we assess whether the observed reductions in CO2 emissions in the Mediterranean countries can be attributed to vehicle taxation on CO2 emissions. We apply panel data econometric techniques using data on annual registrations from 2008 to 2018 and model the demand for new-vehicle purchases and their responsiveness to changes in both CO2-based taxation and circulation tax. Our results show the determinants of new-vehicle demand and the change in the emissions rate in each country under the taxation currently adopted. We found that fiscal policies can have an important role in reducing the emission in the Mediterranean countries.