The document suggests that while the rates are subject to debate, these averages could provide a ballpark overview.

"Our proposal is to lay down a first registration tax for new and used vehicles with CO2 emissions of over 120 grams per kilometer and for vans with a maximum authorized weight of 3.5 tons with emissions of over 180 g/km with an average rate of €1,800-2,000 per vehicle.

This would promote the import of more economical cars. There is no plan to tax new vehicles the emissions of which are below 120 g/km of CO2.

Examples of possible registration tax rates:

The annual, monthly or daily tax component for the same categories of vehicles would amount to €100-120 on average per year.

The agency believes that a motor vehicle tax could follow the familiar motor insurance system where users can pay for using a vehicle for a day, week, month or year. An annual tax ticket would have a more favorable rate than a day ticket. A similar system is in use in Finland.

"It would also be practical to tie the ownership tax to insurance policies, meaning that if a person wants motor insurance for a month, the Motor Insurance Bureau (LKF) would first check whether the tax for that period has been paid," the memo reads.

To motivate people to buy more environmentally friendly vehicles, the Transport Administration deems it sensible to tie the tax rate to CO2 emissions of vehicles.

Example of possible annual taxation component rates:

If the government wants to additionally tax luxury vehicles, this component should be untied from CO2 and apply both to more expensive EVs and internal combustion engine vehicles.

The memo recommends defining a luxury car as a vehicle registered new and costing at least €60,000 + VAT. The upper limit of the tax should coincide with that of the CO2-based component.

Because the system would entail the risk of owners registering vehicles in other countries, the administration recommends tying the tax to mandatory insurance, which would remain beyond the reach of those who have not paid the tax.

The agency concludes that these measures could render the Estonian fleet of passenger cars and vans 15-25 percent more fuel efficient by 2030 and reduce transport sector emissions by up to a fifth.

Tax revenue would amount to €120-140 million for the first months, while no further forecasts are provided. The average CO2 emissions of the fleet dropping would also lower revenue from the car taxes.

The Transport Administration's memo suggests that the aim of the system is to motivate consumers to choose more fuel efficient and less polluting vehicles, while not forcing current owners of vehicles to give up driving.

"If we focus primarily on first registrations and taxing cars with well above-average CO2 emissions we can limit the tax's negative effect on people who have no alternative to owning a car," the administration finds.

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