Greening the vehicle fleet: Norway's CO2-Differentiated registration tax

• Published in: Journal of environmental economics and management 2018-09, Vol.91, p.247-262
• Main Authors: Yan, Shiyu, Eskeland, Gunnar S.
• Format: Article
• Language: English
• Subjects: CO2 intensity; Fuel cost; Green tax reform; Greenhouse gas emission reduction; Low-emission vehicle; Vehicle registration tax
• ISSN: 0095-0696; 1096-0449
• DOI: 10.1016/j.jeem.2018.08.018

In 2007, Norway established its vehicle registration tax linked to vehicle CO2 intensities. In 2009, the tax was modified to a feebate structure but maintained its link to CO2 intensities. Using a panel dataset to exploit the quasi-experimental tax reforms, we estimate that a 1000-NOK (125-USD) tax increment reduces new vehicle sales by 1.06–1.58%. This result yields an elasticity of average CO2 intensity to CO2 price (implied by the tax) of −0.06. With a pass-through of the tax to car prices of 88%, the resulting elasticity of average CO2 intensity to average car price is −0.53. Thus, the tax significantly shifts consumers toward lower-emission vehicles. Our counterfactual simulations suggest that high-emission vehicle segments lose market shares and become less CO2 intensive, while low-emission vehicle segments gain market shares. •We study Norway's vehicle registration tax linked to vehicle CO2 intensities.•A 1000-NOK (125-USD) tax increment reduces vehicle sales by 1.06–1.58%.•The Norwegian policy shifts consumers to lower-emission vehicles.•The tax gives direct and continuous incentives for CO2 emission reductions.