Well-To-Wheel Fiscal Systems Can they accelerate the introduction of alternative fuels?

Energy research Centre of the Netherlands Amsterdam-Sloterdijk Petten 25-8-2019

Efficiency & Infrastructure ECN Policy Studies provides knowledge and strategies that matter for a sustainable energy future Policy Studies 65 researchers Backgrounds in a variety of disciplines such as social science, engineering, economics and environmental sciences Addressing energy and climate policy challenges using quantitative tools and qualitative analysis Solar energy Biomass Efficiency & Infrastructure Wind energy 25-8-2019 3

Content INTRODUCTION ALTERNATIVE FUELS SIDE-EFFECTS CONCLUSIONS, QUESTIONS & DISCUSSION 25-8-2019

DIFVER A. INTRODUCTION 25-8-2019

Fiscal policy affects both economy and environment A. INTRODUCTION Fiscal policy affects both economy and environment ENV. CHALLENGES CO2 emissions lead to climate change NOx, PM emissions deteriorate air quality POLICY INSTRUMENTS CO2 norms Fuel standards Mandatory ren. energy share National obligations & subsidies ‘COMMON GROUND’ NL vehicle and fuel sales, vehicle stock & vehicle use POLICY INSTRUMENTS Fiscal policy Rules & regulations for the financial sector ECON./FIN. CHALLENGES Budgetary balance Strong economic structure 25-8-2019

The fiscal system has gradually become ‘greener’, with effect on sales A. INTRODUCTION The fiscal system has gradually become ‘greener’, with effect on sales 2007 2009 2008 Sales by energy label Bonus/malus energy labels 2006-2009 CO2 charge (‘slurptax’) 2008-2009 Exemption BPM/MRB 2008-… Source: Ecorys (2011), Fiscale stimulering (zeer) zuinige auto’s 25-8-2019

A. INTRODUCTION The existing fiscal systems already includes elements that are based on (TTW) emissions Tax base Registration tax (BPM)1), 2) Fuel type TTW CO2 emissions Ownership tax (MRB)3) Deadweight Excise duty (“accijns”) This study has investigated how WTW-elements can be introduced 1) The replacement of the list price component by the CO2 based component has been assumed complete. 2) The discount for diesel vehicles emitting less than 5 mg of PM10 per kilometre has been ignored in this study. 3) In addition, the MRB differs per province. Note: Value-added tax (BTW) applies to vehicle and fuel. It is left unchanged and is therefore omitted here, but is included in all results. 25-8-2019

A. INTRODUCTION The relative impact of TTW-emissions is expected to decline in the future WTT-emissions [~15%] TTW-emissions [~85%] Increase in ratio WTT/TTW expected Increase expected, due to alternative fuels (e.g. biofuels, electricity) Decrease expected, due to more efficient vehicles alternative fuels 25-8-2019

A. INTRODUCTION WTW-elements make ‘the polluter pay’ and prepare the fiscal system for the future Note: Based on the emissions of a new, medium-sized, average efficiency passenger car Only direct emissions have been taken into account! 25-8-2019

A. INTRODUCTION WTW-elements make ‘the polluter pay’ and prepare the fiscal system for the future The WTT-part of these fuels may increase in the future The use of these fuels will likely increase They are barely taxed, despite the fact they do produce (WTT-)emissions Note: Based on the emissions of a new, medium-sized, average efficiency passenger car Only direct emissions have been taken into account! 25-8-2019

Introducing WTW-elements prepares the fiscal system for the future A. INTRODUCTION Introducing WTW-elements prepares the fiscal system for the future current fuels expected future fuels Note: Based on the emissions of a new, medium-sized, average efficiency passenger car Only direct emissions have been taken into account! 25-8-2019

A. INTRODUCTION Feasibility fully WTW-based system questionable, two alternatives have been designed Properties of the existing and alternative systems Existing system BPM/MRB TTW g/km Fuel specific Excise duty Separate tariffs for all fuels WTW-elements to be introduced in all taxes 25-8-2019

A. INTRODUCTION Feasibility fully WTW-based system questionable, two alternatives have been designed Properties of the existing and alternative systems Existing system Alternative 1 BPM/MRB TTW g/km Fuel specific WTW g/km Generic Excise duty Separate tariffs for all fuels Single tariff (g/km WTW) Based on average over all fuels Difficult to establish actual WTW-emissions Will lead to lower petrol excise duties >> increase in travel demand 25-8-2019

A. INTRODUCTION Feasibility fully WTW-based system questionable, two alternatives have been designed Properties of the existing and alternative systems Existing system Alternative 1 Alternative 2 BPM/MRB TTW g/km Fuel specific WTW g/km Generic Excise duty Separate tariffs for all fuels Single tariff (g/km WTW) Based on average over all fuels Based on current petrol tariff ‘Excess’ income compensated by lower BPM & MRB 25-8-2019

A. INTRODUCTION The proposed changes in the Autobrief influence some of the conclusions in the present study 25-8-2019

DIFVER B. IMPACT ON ALT. FUELS 25-8-2019

B. IMPACT ON ALT. FUELS Three groups of alternative fuels have been analysed for an average user GASEOUS FUELS CNG Biogas LIQUID BIOFUELS E85 Biodiesel ZERO EMISSION PHEV* BEV FCV * PHEVs are only truly zero-emission vehicles when operated in all-electric mode. New vehicle Average efficiency 15,000 km/yr 25-8-2019

B. IMPACT ON ALT. FUELS The graphs on the next slides can be interpreted in the way illustrated below Costs considered in the scope of this study ** ** Fully depreciated over 8 years. 25-8-2019

B. IMPACT ON ALT. FUELS Gaseous fuels DIFVER B. IMPACT ON ALT. FUELS Gaseous fuels 25-8-2019

B. IMPACT ON ALT. FUELS The position of CNG is better than in the existing system in Alternative 1, similar in Alternative 2 User costs for CNG in the three fiscal systems Low WTW-markup leads to lower taxation -15% -22% -13% Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

B. IMPACT ON ALT. FUELS The position of CNG is better than in the existing system in Alternative 1, similar in Alternative 2 User costs for CNG in the three fiscal systems -15% -22% -13% AUTOBRIEF Higher CNG excise duties, but fuel costs minor share > Competitive position CNG similar to original analysis Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

B. IMPACT ON ALT. FUELS A minimum share of biofuels is guaranteed by an obligation for fuel distributors > 4.25% < 95.75% fuel distributor 25-8-2019

B. IMPACT ON ALT. FUELS Under the obligation, fuel distributors are required to supply proof of biofuel sold biotickets > 4.25% biotickets < 95.75% fuel distributor government 25-8-2019

Biotickets are tradeable B. IMPACT ON ALT. FUELS Biotickets are tradeable biotickets biotickets > 4.25% € < 95.75% fuel distributor fuel distributor 25-8-2019

B. IMPACT ON ALT. FUELS Theoretically, the value of a biotickets equals the cost difference between conventional and biofuels biotickets biotickets > 4.25% € < 95.75% fuel distributor fuel distributor NB: Biotickets only have value up to obligation share! cost/value petrol bioticket E85 25-8-2019

B. IMPACT ON ALT. FUELS Under the biofuel obligation, CNG and biogas are approx. equally expensive in the alt. systems User costs for CNG and biogas in the three fiscal systems, including biotickets +7% -2% Use (additional 7500km) -1% Use (7500km) Ownership Purchase Note: Subsidy for the production of biogas (SDE) has not been taken into account 25-8-2019

B. IMPACT ON ALT. FUELS Beyond the obligation, biogas is more expensive than CNG in all systems User costs for CNG and biogas in the three fiscal systems, excluding biotickets +18% +9% +10% Use (additional 7500km) Use (7500km) Ownership Purchase Note: Subsidy for the production of biogas (SDE) has not been taken into account 25-8-2019

B. IMPACT ON ALT. FUELS Liquid biofuels DIFVER B. IMPACT ON ALT. FUELS Liquid biofuels 25-8-2019

B. IMPACT ON ALT. FUELS Even beyond the obligation, FFVs are attractive (w.r.t. costs) in the alternative fiscal systems User costs for FFVs in the three fiscal systems +7% -26% -1% Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

B. IMPACT ON ALT. FUELS Even beyond the obligation, biodiesel is attractive (w.r.t. costs) in the alternative fiscal systems User costs for 100% biodiesel in the three fiscal systems +5% -25% -4% Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

B. IMPACT ON ALT. FUELS Zero-emission vehicles DIFVER B. IMPACT ON ALT. FUELS Zero-emission vehicles 25-8-2019

B. IMPACT ON ALT. FUELS Expected cost reductions will make zero-emission vehicles attractive options in all fiscal systems Expected user costs for zero-emission vehicles in the three fiscal systems in 2020 Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

B. IMPACT ON ALT. FUELS However, efficient conventional vehicles have approximately equal costs Expected user costs for vehicles 40% more efficient than average in the three fiscal systems in 2020 Other fuels/vehicles are also approximately equally expensive 25-8-2019

B. IMPACT ON ALT. FUELS However, efficient conventional vehicles have approximately equal costs Expected user costs for vehicles 40% more efficient than average in the three fiscal systems in 2020 AUTOBRIEF Exemption limits are lowered substantially > Incentives for very efficient vehicles decrease > (Relative) attractiveness of alternative fuel vehicles increases 25-8-2019

c. SIDE-EFFECTS & FEASIBILITY DIFVER c. SIDE-EFFECTS & FEASIBILITY 25-8-2019

C. SIDE-EFFECTS The alternative systems may lead to side-effects and impact on other policy goals Favourable position for diesel vehicles in alt. systems can lead to an increase of the share of diesel vehicles Diesel share increase Tariff increases Substantial tariff increases will be required in all systems to keep tax revenue stable Higher MRB older veh. MRB tax burden shifts to older vehicles in alt. systems Travel demand Passenger car travel demand may increase (esp. Alt. 1) Security of supply Impact on security of supply is limited Adm. complexity Both alternative systems are administratively complex Air quality Effects on air quality are uncertain 25-8-2019

DIFVER D. conclusionS 25-8-2019

D. CONCLUSIONS WTW-based fiscal systems provide a stronger fiscal incentive for some alternative fuels… WTW-based systems seem to provide a feasible alternative WTW-based systems stimulate different alternative fuels than the existing system, more in line with ‘polluter pays’ Gaseous fuels Biogas more attractive Liquid biofuels Much stronger incentive for all biofuels Zero-emission Less attractive than in existing system 25-8-2019

…but come with some side-effects and caveats D. CONCLUSIONS …but come with some side-effects and caveats A shift to diesel vehicles can be expected in the alternative systems The incentive for efficient conventional vehicles is about equal to the incentive for alternative fuel vehicles But Autobrief adjustments will mitigate this issue The alternative systems… …may increase passenger car travel (alternative 1) …are administratively complex …have uncertain effects for air quality 25-8-2019

D. CONCLUSIONS The changes announced in the ‘Autobrief’ alter some of the original study conclusions Many efficient conventional vehicles are no longer tax exempt, and are therefore more expensive than BEVs, FCVs, and PHEVs MRB tax burdens for vehicles with relatively low emissions are higher (between the new and old exemption limits) Costs for CNG and flex-fuel vehicles in the alternative systems are higher 25-8-2019

DIFVER ADDITIONAL SLIDES 25-8-2019

Calculation of WTW-emissions in the context of this study BACKUP SLIDES Calculation of WTW-emissions in the context of this study Calculated JRC, Concawe, EUCAR (2007) - Well- from: to-Wheels Analysis of Future Automotive Fuels and Powertrains in the European Context and: ECN/PBL reference projections Derived from: JRC, Concawe, EUCAR (2007) - Well-to-Wheels Analysis of Future Automotive Fuels and Powertrains in the European Context 25-8-2019

BACKUP SLIDES Tax revenue is kept stable by adjusting tariffs and tax brackets to efficiency improvements 25-8-2019

BPM tariff structure in the three fiscal systems BACKUP SLIDES BPM tariff structure in the three fiscal systems Existing system Alternative 1 Alternative 2 25-8-2019

MRB tariff structure in the three fiscal systems BACKUP SLIDES MRB tariff structure in the three fiscal systems Existing system Alternative 1 Alternative 2 25-8-2019

Excise duties in the three fiscal systems BACKUP SLIDES Excise duties in the three fiscal systems 25-8-2019

BACKUP SLIDES Fiscal incentives for zero-emission vehicles are strongest in the existing system User costs for zero-emission vehicles in the three fiscal systems Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

BACKUP SLIDES Expected cost reductions will make zero-emission vehicles attractive options in all fiscal systems Expected user costs for zero-emission vehicles in the three fiscal systems in 2020 Use (additional 7500km) Use (7500km) Ownership Purchase 25-8-2019

BACKUP SLIDES Incentive for very efficient vehicles approximately similar to incentive for alternative fuels Expected user costs for vehicles 40% more efficient than average in the three fiscal systems in 2030 25-8-2019

BACKUP SLIDES More favourable position for diesel vehicles in alt. systems can lead to an increase of diesel share User costs for conventionally fuelled vehicles Currently, ~80% of vehicle stock are petrol vehicles 25-8-2019

BACKUP SLIDES The alternative systems produce fairer tax burdens with respect to CO2 emissions Tax burden in relation to CO2 emissions [g/km] 25-8-2019

BACKUP SLIDES Substantial tariff increases will be required in all systems to keep tax revenue stable Indexation of tariffs required to keep tax revenue stable (2010 = 100) 25-8-2019

BACKUP SLIDES Diesel is the cheapest option in the alternative systems, irrespective of annual distance User costs by annual distance for the three fiscal systems Existing system Alternative 1 Alternative 2 25-8-2019

BACKUP SLIDES Average annual distance of private passenger cars in the Netherlands is 15000 km per year Breakdown NL vehicle stock by annual distance Source: ECN/PBL reference projections 25-8-2019

The alternative systems take WTW-emissions of CNG into account BACKUP SLIDES The alternative systems take WTW-emissions of CNG into account Differences in user costs between the three fiscal systems for different production pathways for CNG 25-8-2019

The alternative systems take WTW-emissions of E85 into account BACKUP SLIDES The alternative systems take WTW-emissions of E85 into account Differences in user costs between the three fiscal systems for different production pathways for E85 25-8-2019

The alternative systems take WTW-emissions of biodiesel into account BACKUP SLIDES The alternative systems take WTW-emissions of biodiesel into account Differences in user costs between the three fiscal systems for different production pathways for biodiesel 25-8-2019

BACKUP SLIDES The very low MRB exemption limit impacts the MRB structure in the new analysis MRB structure in the original and new (including ‘Autobrief’ changes) analyses 25-8-2019