Climate minister: Current car tax model does not meet environmental aims

Kristen Michal.
Kristen Michal. Source: Raigo Pajula/Office of the President

According to Estonian Minister of Climate Kristen Michal (Reform), the proposed car tax does not meet environmental objectives. In order to do so, Michael believes the tax needs to give significantly more consideration to the environmental impact of cars, including CO2 emission levels, and pay less attention to their age.

In a response to Minister of Finance Mart Võrklaev (Reform), climate minister Michal wrote that Estonia needs to significantly reduce its CO2 emissions, with the road transport industry providing the greatest scope for this change to occur.

However, the minister also said that, if the tax is implemented according to the models thus far proposed, it would not have a significant impact on reducing CO2 emissions.

According to Michal, whether or not Estonia is able to meet national climate targets will depend more on how much and what kinds of fuel are consumed in Estonia as well as the emissions produced from vehicle use.

Michael wrote, that if Estonia does not act to reduce the emissions produced by road transport, it will likely cost the state tens of millions of euros to purchase additional quotes in order to compensate for its high CO2 output.

The climate minister supports the introduction of a tax at the point when vehicles are first registered. However, in his view, the tax should only be based on CO2 emissions, with exemptions allowed for vehicles which produce low amounts of CO2.

The models, which have been proposed so far, also include taking into account the weights and ages of vehicles in order to calculate the amount of tax paid at the point of first registration.

According to the minister, the age-based approach to the registration tax encourages the import of older, less environmentally-friendly cars.

Michal said that the climate ministry also supports the introduction of a periodic car tax, but believes the amount charged must also be dependent on CO2 emissions. The climate ministry proposes an additional tax for vehicles above a certain gross weight, irrespective of CO2 emissions, which ought to encourage people to choose smaller vehicles.

When it comes to the annual component of the proposed tax, the climate ministry is also in favor of a system which takes the age of vehicles into account, so as not to adversely impact people with lower incomes. However, the ministry wants a review of the planned age limits to ensure they are more clearly targeted. One option it proposes is to explicitly connect the age of vehicles to emissions requirements that have changed over the years.

Michal also suggested that the periodic tax be paid in several instalments, meaning people would not be charged a single large sum in February for instance, when monthly utility bills are usually at their highest. It could also potentially be partly paid using income tax refunds.

Reform Party honorary chair Siim Kallas has also spoken out against the proposed car tax, estimating that it could end up being around ten times higher than the amount the government has so far proposed.


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Editor: Michael Cole

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