The Effect of Norwegian Emission Tax on Emission from Car and on Consumer Behavior
Introduction
Back in 2007, the government of Norway reformed the tax regime of the vehicles with the goal of reducing emission of CO2 by cars (Ciccone, 2015). This followed after the tremendous increase in purchase of vehicles that appeared to be fuel inefficient. It was recorded that transport industry was responsible for approximately 23% of carbon emissions in the atmosphere. On the other hand, it was perceptible that the sector ranks in the second position among the industries that exhibit high energy consumption. After assessing the emission of CO2, the government of Norway identified that approximately 75% of the carbon emission from the transport industry come from road transport especially from personal cars and heavy duty trucks (Ciccone, 2015). Precisely, Norwegian government considered several approaches of reducing emission of carbon to the atmosphere by the transport industry. Some of these approaches included producing fuel efficient vehicles, utilizing renewable sources of fuels such as biofuel, electricity and hydrogen, and enhancing public transport to lower vehicle travel demand (Ciccone, 2015). The alternative approach for reducing carbon emission by vehicles was economic incentives such as carbon taxes together with command and control regulation. However, it is factual that these approaches tend to be interrelated and complement each other. For instance, European economies have enacted carbon emission regimes which target producers of passenger vehicles to make sure that they manufacture fuel efficient and technologically advanced vehicles (Ciccone, 2015). At the same time, some of the countries in Europe have implemented fiscal approaches such as taxes in order to lower the demand of carbon emitting vehicles and promote production of fuel efficient cars. Therefore, it is factual that this has influenced the consumer behavior together with the level of emissions from the vehicles. This paper will focus on how the Norwegian emission tax has affected emission from vehicles and the overall consumer behavior.
The Purpose of the Research
The purpose of this research is to assess the impact of Norwegian emission tax on the consumer behavior and carbon emission from the vehicles. Therefore, the research will cite from the results that were recorded in Norway after implementing the reformed vehicle registration tax.
Research Question
What is the effect of Norwegian emission tax on emission from car and on consumer behavior?
Literature Review
Of all the approaches that were available for the Norwegian government, they settled on Vehicle Registration Tax (VRT). VRT accounted for about half the retail price of the vehicles in the Norwegian economy. The objective of inflicting this tax was to reduce the intensity of carbon emission and facilitating purchase of fuel efficient vehicles. However, the registration tax in 2007 was a reform which substituted the early regime which focused on the engine size as a component for measuring carbon emission intensity. Therefore, after the tax, the sensitivity increased especially to carbon emission by vehicles. After the enacting of the tax, it was exhibited that consumers who went for fuel efficient cars saved approximately 10,000 Norwegian currency where those who went for fuel inefficient cars expensed an increase of approximately 50,000 Norwegian currency (Ciccone, 2015). In estimating the effect of the reformed vehicle registration tax, the government considered variables such as intensity of carbon emissions by the new vehicles, market share of the old vehicles, and the change in pollution after introduction of the reformed registration tax. According to the report that was released by Norwegian Road Federation (OFVAS), the tax resulted to the reduction of carbon emission intensity by approximately 7.5 gCO2/km. This was estimated to be 4.3% reduction of the overall emission which accounted for a standard deviation of 20%.
Precisely, after 2007, the intensity of CO2 decreased from 173 to 160 gCO2/km (Ciccone, 2015). As a result, it is perceptible that the overall impact of the reformed tax accounted for half of the overall reduction of CO2 emission intensity. The overall reduction of the emission includes factors such as increase of fuel efficiency, and increase supply of the fuel efficient vehicles in the market. Additionally, the tax resulted to the increase of demand for the fuel efficient vehicles together with the increase of market share for the diesel vehicles. Correspondingly, the reform resulted to the decrease of the market share for the high emitting vehicles that emitted more than 180 gCO2/km by approximately 12% points (Ciccone, 2015). For the diesel vehicles, the reformed tax promoted an increase of their market share from 19 to 21% points by the turn of 2008. However, it was exhibited that the reformed tax did not impose the new sales effects.
From the Norwegian case, it is factual that prior to implementing the fiscal approach to reduce carbon emission by cars, it is recommendable to consider the effectiveness of the approach based on different factors (Aasness, Bye & Mysen, 1995). Different countries have embraced the implementation of these instruments where they execute them differently with regard to their objectives and economic status. However, it has appeared that economic and environmental effects of fiscal instruments implementation is complex and had to assess. This is based on the fact that in different countries which have executed the instruments, they always derive conflicting conclusions (Aasness, Bye & Mysen, 1995). According to some studies, it is asserted that fiscal instruments of controlling carbon emissions are effective because they tend to counterbalance consumer nearsightedness by estimating future costs. This is argued on the fact that consumers appear to consider prices and taxes of the product rather than considering the expected future costs (Aasness, Bye & Mysen, 1995).
Conversely, other studies infer that fuel taxes appear to affect the sales of the new vehicles whereas fuel taxes affect sales of both new and old vehicles. This draws to the conclusion that the effectiveness of the fiscal instruments depends on the types of taxes imposed. This is to mean that fuel taxes are the most effective elements of fiscal instruments citing from the fact their impact is double-dimensioned (Aasness, Bye & Mysen, 1995). Precisely, fuel taxes discourage carbon emission from transport activities and facilitate purchase of fuel efficient vehicles. Regardless of the fact that it is yet to be agreed on the most effective policy of reducing carbon emission by vehicles, it is undeniable that taxation of fuel inefficient vehicles can result to significant reduction of carbon emission in the transport sector (Ciccone, 2015). Generally, the most effective policy in ensuring reduction of carbon emission intensity is use of differentiated vehicle taxes to increase the magnitude of the desired results. In countries such as France, reforming vehicle registration tax resulted to a decrease of carbon emission by 5% and a corresponding increase of new vehicles sales by 13%. The increase in the new cars sales created corresponding revenues of approximately €285 million to the national budget (Ciccone, 2015).
In other countries such as Germany and Sweden which implemented the differentiated vehicles taxes, the effects of the carbon emissions intensity were not perceptible which means that they were very minor. For the whole of the European continent, studies exhibit that 1% increase in vehicle registration taxes sensitivity imposes a corresponding reduction of CO2 emission intensity by approximately 0.06 to 0.13% (Ciccone, 2015). Therefore, it is factual that the impact of the taxes is very small for the economy to depend on it for the desired results. However, the difference in the results obtained by different countries as exhibited by France and Germany can be cited from car production in the country. Therefore, in comparing the impacts for different countries, the appropriate country to compare with Norway is Ireland because none of them holds a car production industry. From this fact, it is factual that policies of these countries consider the demand of the vehicles in the market. Coincidentally, Ireland reformed the vehicle registration tax and recorded similar results as Norway did. Regardless of the fact that Ireland differentiated their tax, they recorded an equal reduction of carbon emission intensity with Norway which is 13%. Generally, it is noteworthy that Norway and Ireland record short term impact on the reduction of CO2 emission which can be cited from the shift to the diesel-fueled vehicles.
Methodology
The research will involve both primary and secondary data collection while using both qualitative and quantitative research. Precisely, primary data collection will encompass survey and interview to the randomly selected respondents. The respondents will be staff members in car production companies and some from Norwegian Road Federation. The total number of selected respondents will be 50-60 who will participate in the survey where only 20-25 of them will be interviewed. On the other hand, secondary data collection will encompasses gathering information from the internet sources. The selection of internet sources will be based on the reliability and validity of the sources. Some of the valid sources that will be selected include peer reviewed journals, similar research articles and text books. The research will qualitatively assess the effect of the emission tax and quantitatively determine the impact using statistical figures to represent the data.
Conclusion
Generally, after Norway reformed their vehicle registration tax, they recorded a considerable reduction in the CO2 emission which could not be achieved earlier. Citing from the fact that, transport industry was among the sectors that contributed to CO2 emission, implementing a policy in the sector guaranteed considerable change. This was the reason why the overall CO2 emission reduced by 12% after the reformed tax. However, in order to increase the effectiveness of the policy, it is recommendable to differentiate the taxes in the policy since different elements have different impacts.
References
Ciccone, A. (2015). Environmental effects of a vehicle tax reform: empirical evidence from Norway. The research council of Norway, University of Oslo. Retrieved from http://www.cree.uio.no/publications/2014_9/Evidence_from_Norway_Ciccone_CREE_WP09_2014.pdf
Aasness, J., Bye, T., & Mysen, H.T. (1995). Welfare effects of emission taxes in Norway. Statistics Norway research department. http://www.ssb.no/a/publikasjoner/pdf/DP/dp_148.pdf
