Estonians love high-emission cars. Or do they? (4)
According to statistics, despite public opposition to fuel excise duty hike, the government's aim to direct people to buy more economic cars as a result, is not entirely misguided, as studies show that Estonians buy the least carbon-efficient cars in the EU. However, it's not all that black and white. Arno Sillat, CEO of the Estonian Motor Vehicles Sales and Service Companies, says the excise duty rise will only have an effect on those people who can afford to replace their cars. But most people cannot.
According to the recently published statistics, the average CO2 emission of new cars bought in the EU dropped to 123.4 grams per kilometer in 2014. With 140 grams per kilometer - down form 146 grams per kilogram in 2013 - Estonia and Latvia are still the worst offenders in that regard.
The high emission rate is seemingly down to Estonians' love for large cars. In March, for instance, the top five best-selling cars in Estonia were Nissan Qashqai (132 of 1,994 new registered vehicles), Honda CR-V (115), Scoda Octavia (90), Dacia Duster (88), and Toyota Avensis (77).
Four out of five top-selling car models were SUVs, with an average engine power of 98.8 kilowatts.
Although the total quantity of greenhouse gas emissions in Estonia is one of the smallest in the EU, the quantity per capita - 14,500 tonnes in 2013 - is one of the highest, 1.6 times above the EU average. So it is commendable that the government is trying to change the trend. However, some have questioned the motives behind the decision to rise fuel excise duty and whether it will have the expected effect.
The excise duty rise is unlikely to lower CO2 emission from new cars, Arno Sillat, CEO of the Estonian Motor Vehicles Sales and Service Companies, told ERR News.
According to Sillat, the bulk of the problem with emissions is that the car fleet is too old. The average age of the roughly 600,000 cars (of which 100-120,000 have lately been removed from the register) in Estonia is 15 years. Yet, only around 20,000 new cars are sold every year, that is around 10,000 short of what is needed to renew the ageing, uneconomical fleet. This is largely down to the fact that people cannot afford newer cars.
The old cars are often worth 500-600 euros. Even if it takes another 1000 euros per year to keep them running, that money is not even close to what is needed for a down-payment of a new(er) car, Sillat said. Banks, however, are usually not willing to lease cars older than 5-10 years.
Moreover, when people have to decide between a small new car, and an older but larger vehicle, the choice, for all practical purposes, usually falls on the latter. The same reasons explain the preference for SUVs.
According to Sillat, the increase in the sales of SUVs in the early 2000s coincided with the beginning of suburbanization in Estonia.
"An average buyer has a very professional approach," Sillat said. "When people come to the dealership they have often already calculated the costs and advantages very carefully. They are generally looking for a car that is universal, that can meet all their practical needs, and those needs include everything from surviving the rural roads to plowing snow."
All that comes down to the fact that most Estonian families can only afford one car. "There is currently no market in Estonia for the mini and micro cars that function as city cars in other EU countries, and lower their average CO2 emission rates," Sillat said, adding that the electric cars, when they were subsidies by the state, were quite popular here among companies.
A small cars is energy efficient, but not cheap enough to make up for the lack of other advantages. It is virtually useless in the countryside and thus unsuitable for a first car, Sillat explained.
What are the alternatives?
In Sillat's opinion, the luxury car tax, which has been proposed as an alternative to fuel duty rise, would be useless in Estonia, as only 0.3 percent of new cars, and 1-2 percent of the total car fleet, would be subjected to it under the current EU categorizations. It would simply kill the market completely or force people to find illicit ways around it.
What would help, in his opinion, is implementing a tax on used cars brought to Estonia from abroad, whether based on their CO2 output or engine power. According to Sillat, around 30,000 such cars are imported each year. And this is where they will stay, as there is no market for them either in Russia or other Eastern European countries, since these have already set up high duties. This has created a situation, where there are around as many cars per person in Estonia, as there are in Germany. Tens of thousands of such used cars just stand around, rusting away, polluting the environment.
Setting up an import takes on used cars would discourage large-scale import. Sillat said that the proposal was put to the government during debates on the VAT on company cars, but it led nowhere.
Another possibility is to implement a reasonable emission-based tax to all existing cars. This would, on the one hand, be cheaper for car-owners, and on the other, encourage people to remove the cars that they are no longer using from the register.