A ‘carbon tax’ on cars makes sense if done properly

By Leith van Onselen

Environment Minister, Josh Frydenberg, has moved quickly to hose down reports the government is planning to introduce a new “carbon tax” on cars that will see the price of some popular vehicles soar by up to $5000. From The Canberra Times:

The Department of Infrastructure and Regional Development has released proposed new fuel efficiency standards for consultation, which car sellers have slammed as “unrealistic and ill-considered”.

Many of the country’s most popular models – such as the Toyota HiLux, Corolla, Hyundai i30 and Ford Ranger – would not meet the new guidelines, which aim to reduce the average national fleet emissions to the equivalent of 105gCO2/km from around 335gCO2/km in 2015.

Mr Frydenberg on Wednesday said: “This story is a beat up.

“The government has no plans to introduce a carbon tax on the family car – it’s about as likely as Elvis coming back.”

While disputing the terminology of a “carbon tax” on cars, Mr Frydenberg acknowledged the government had been consulting with the vehicle industry on new fuel standards since 2015…

Mr Frydenberg said 80 per cent of the world’s light passenger vehicle fleet – including countries such as the United States, the UK and Canada – have fuel efficiency standards but Australia does not.

Bringing Australia’s fuel efficiency standards into line with other developed nations makes sense. Moreover, there could be ways of implementing the new rules without punishing consumers with higher car prices.

At the same time as the new standards are introduced, why not also:

  • abolish the 5% tariff on automotive imports;
  • scrap the the luxury car tax, which is set at 33% on the marginal cost of vehicles above $60,316, and serves as a defacto tariff designed to raise the cost of more expensive imports and make local models, such as the Fairmont Ghia, more attractive; and
  • Scrap Australia’s unique technical standards in favour of global rules, thereby opening the market to a wider array of foreign cars and reducing overall import costs.

With the local automotive manufacturing industry shuttering in October, there is no longer any justification in maintaining the above policies and, in the process, punishing Australian consumers with over-inflated car costs.

The new fuel efficiency standards should be introduced as part of a package of automotive tax/regulatory reforms.

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  1. In Ireland cars are taxed based on emission standards and engine capacity. Which makes sense. Larger vehicles that emit more carbon are taxed more heavily and each year has stricter standards to meet. This means cars above 2.0ltrs in engine capacity are quite expensive to register compared with smaller cars like a Toyota Corolla.

    We need a Porsche Cayenne tax to claw back some of those windfall gains the wealthy have enjoyed via increased equity mate! Too many big SUVs in the inner west that only carry kids to school and back.

  2. We should also scrap the tax on importing second hand cars, as there is no longer a local industry to protect.

    • FiftiesFibroShack

      The local dealer networks are a protected species. The “reforms” we got after this was last considered showed that.

      • DominicMEMBER

        It’s been great to be a car dealer these past few decades, thanks to .Gov protection (for the few) at the expense of the many. Just another legalised protection racket — what government does best.

        Car dealerships, on top of .Gov protection also spend their time royally shafting their customers by selling them over-priced OEM parts they don’t need and charging grotesque sums for changing the oil.

        In a genuinely free market, a simpleton who owns a local car dealership, could not make themselves wealthy in the process.

      • drsmithyMEMBER

        Dealer networks or importers/manufacturers ?

        Are there regulations preventing someone opening up a car dealership (like, say, there are around pharmacies) ?

  3. I totally disagree.

    The 5% import tax should actually be increased to 20% – with hybrid and electric cars set at 0%.

    What do you think India exports cars and not computers? Because India has a 0% import tax on computers but a decent import tax on cars – thus forcing Ford, GM, Toyota, Nissan, VW, Fiat to make cars there.

    And forcing BMW, Audi, Merc, JLR, to assemble cars there using CKDs. (AUS used to do this).

    The luxury car tax should be raised to 50%. I have never purchased a new car and that tax is one of the few taxes that the rich comply with.

    The car registration fees on fully electric cars should be slashed. $800/year is outrageous.

  4. Cut the bullshit.
    Re-index fuel excise.

    The CAPEX on a car that does 100k km/y is the same as one which does 10k km, yet the carbon impact is 10x more for the former.
    The OPEX should also be roughly 10x.

    Any savings on OPEX would be largely due to *better efficiency* which is roughly equal to *lower emissions per km*.

    Tax the OPEX, dumbasses.
    Upping fuel excise is the simplest, logical answer.

    • Yep. Instead of “ban this, ban that”.

      Put a massive import tax on oil – thus raising the price of petrol and encouraging oil to be extracted locally.

  5. adelaide_economistMEMBER

    Well sure it makes sense but this is a government that happily consigned the local auto industry to the dust bin of history while simultaneously protecting the salary sacrifice industry on the basis that they were helping the local automotive industry. That is, coherent policy is not exactly a strong point. Unless your metric is whether it benefits coalition backers in which case everything they do is very coherent.

  6. ResearchtimeMEMBER

    This website loves taxes… the panacea for all ills! Tall poppy syndrome?

  7. I have no problem with a tax on cars plenty of countries do this but I do have a problem with these somewhat silly pollution/ efficiency standards
    Part of the reason causing engine efficiency to plateau is the simple fact that most people just don’t want these “efficient” cars.
    From an engineering perspective it is hard to improve combustion efficiency without increasing the operational temp. (so called Carnot cycle) unfortunately higher temp combustion produces more Nitros oxides and they are considered very bad so we are deliberatly reducing combustion temp to contain the NOx problem
    The other way to improve mpg efficiency is to simply reduce the weight of the engine/car. Unfortunately this change comes with consequence Look no further then the recent Ford Kuga engine problems in South Africa (that have killed several people). It looks like these new light weight engines will crack the cylinder head if they overheat AND spew hot oil onto the exhaust manifold causing an uncontrollable fire. All in the name of reduced engine weight. Personally that’s not an optimization corner that interests me but it’s the one that we’re indirectly pointing the engineers at when we demand higher efficiency.
    A second relate issue is the lifetime of the engine. Most of us expect to get somewhere in excess of 200K km out of a small 4 cylinder engine, that’s what 2000 era cars delivered so it’s kind of our base line, well hate to tell you this but many of these higher efficiency engines will be lucky to last 100Kkms. Theres a huge environmental cost associated with producing cars that need to be replaced every 5 years instead of every 10 (as it stands today) assuming 20kkm/year average usage.

      • thanks Nick, I’ve read Euan Mearns before on the Oil Drum, he always worth a read for a sensible systemic take on the latest stupidity to pass itself off as brilliance.

        If we look at the total operating costs for a car where the engine needs to be replaced at 100KKm we would incur a cost of say $10K to replace the engine so that the car itself maintained a useful service life of 200KKm. (10 to 20 years depending on your driving habits)
        At $10K engine cost every 100kkm we have an average engine usage cost of 10c/km which is almost exactly the same as the cost for Petrol assuming a generic 10l/100km @ around $1/l fuel economy figure.
        Lets assume this new hyper efficient engine achieved 5l/100km (or about 5c/km) that’s $5K per 100kkm at which point we’d need to pay $10K for another engine and another $5K petrol to reach the cars design life. Total costs $20K over 200Kkm which is exactly the same total cost as would be incurred if we all drove much heaver less efficient 2000 era 2l motors in a 1800kg car for its entire design life.
        I know which solution I’d prefer.

    • ResearchtimeMEMBER

      A magnesium-lithium alloy weighs half as much as its aluminium equivalent, and yet is up to 70% stronger than high-tensile steel… Magnesium now has durability without structural peer. It is non-toxic, non-magnetic, has high impact strength, is able to be welded, easily machined, able to be forged, easily substituting for other materials such as aluminium that is twice the weight than the Mg-Li alloy. ore over, recent metallurgical breakthroughs have fixed its Achilles heel – corrosion [Xu, W. et al. (2015) “A high-specific-strength and corrosion-resistant magnesium alloy.” Nature Materials – http://www.nature.com/nmat/journal/v14/n12/full/nmat4435.html%5D

    • drsmithyMEMBER

      Not going to try and comment on the manufacturing aspect, but just a note that the average annual distance for a vehicle in Australia is about 15,000km, and I suspect that number is dragged up by a relatively small number of people doing relatively high kilometres, so the “typical” annual distance is probably closer to 10k.

    • That’s an extraordinarily ignorant piece from Euan Mearns. I was really quite shocked, having followed his work on The Oil Drum. I for one would not be betting against Elon Musk.

      • I thought he had some good points to make and added to them in his comments section which I really enjoyed the views of others and where someone put the troubles with some Tesla cars up for people to see and I read Euan Mearns to say that Tesla is currently over valued and that when other more experienced car makers really got going with electric cars if they prove worthwhile Tesla would face real competition and don’t forget that Tesla is expensive for ordinary people and when subsidies are removed Tesla sales are slow but I guess we will have to give it time.

        I would be keen to know what you think Euan Mearns was ignorant about to expand my views if you get time thanks.

      • Oh Tesla is most certainly overvalued, it was his ignorance of the technology that shocked me.