Taxes and Fees Not Included: Governments Choose Cars and Fuels
Most Americans believe they are already paying too much for gasoline, but drivers in most of the rest of the developed world are paying a lot more. Over many decades, most European countries and Japan have introduced heavy taxes on gasoline and on cars themselves, making it much more expensive to own and drive a car than in the United States.
Consider the above chart, (easier to read in this presentation) representing retail gas prices in November 2010, when Brent crude was still only $81 a barrel, against $114 today. The average U.S. price for gasoline is shown as 76 cents per liter, which translates to $2.88 a gallon.
If you look to the right of the chart (where it says “Country Category 4″), you’ll see that Romania has almost the least expensive gasoline in the European Union, at almost twice the price in the U.S. If you keep looking further right you’ll see how high gas prices already were in much of Europe before crude went up more than 40 percent in just three months.
Gas is taxed at roughly 15 cents per liter in Brazil, making it relatively expensive and providing the main incentive for the rapid switch to ethanol- and butanol-based fuels. In the United States, tariffs, subsidies, and a federal mandate ensure that a blended ethanol-gasoline mix finds its way into nearly every gas tank.
In passing, also note that Norway, despite its massive oil reserves, taxes cars and their fuel as heavily as any other country in Europe. No sign there of the fuel subsidies prevalent in other oil producing countries like Saudi Arabia, Kuwait, or Venezuela.
Driving State Revenue, Incentivizing Not Driving
In Europe, car taxes were initially created to cover the cost of building and maintaining roads, but over the years they would grow to cover hospitals, police, etc, and now typically fund much more. Then came the additional objective of suppressing the number of private vehicles by heavily taxing both their use and purchase. In most European countries, there is a ‘special car tax’ in addition to the VAT or sales tax. (No other consumer product is obliged to carry such a tax.)
As an example of how the retail prices of cars vary within Europe, consider this: In the UK, a MINI Cooper has an on-the-road price of around $24,000—already pretty expensive compared with a price of around $20,000 in the U.S. However, a similar car in Denmark would cost more than $55,000, with most of that difference due to its initial ‘registration fee.’
Up against heavily-taxed conventional cars, electric vehicles should prove very competitive in Denmark even without subsidy—provided the Danish government continues to exempt them from the registration tax. With this in mind, it’s no wonder that Better Place has set up shop in Copenhagen.
Diesel Tax Conspiracy?
Diesel is taxed less heavily than gasoline in many European countries, despite it having been EU policy for years that there should be parity. Bear in mind that a gallon of diesel produces more CO2 than a gallon of gasoline, so there is an environmental argument for a higher level of tax on diesel, which several countries have implemented. Consequently, in Switzerland the diesel premium is roughly the same as it is in the U.S., while France, Germany and others persist with significantly lower levels of tax on diesel.
This tax anomaly has the effect of distorting the cost justification for buying a diesel car. On current French numbers, diesel starts with an 11 percent advantage over gasoline even before taking account of the relative fuel consumption. It’s hardly surprising that so many French cars have diesel engines.
It has been suggested that the main reason France and Germany have kept diesel taxes relatively low is to help their own manufacturers compete with foreign imports. As the case for diesel cars is less strong in most of the greater global market, foreign manufacturers might put less effort into developing diesel engines in the coming years. It’s probably one reason why Honda has announced it will still launch a new small diesel engine in Europe next year, despite reportedly giving up the development of larger diesels.
A Hybrid for All Seasons
Battery-only cars could very well be outpaced in the global market by plug-in hybrid platforms with the capacity to add or subtract battery modules depending upon the individual needs of different regions.
A hybrid running on low-tax biobutanol for example should produce stunningly low overall emissions and be relatively cheap to buy and run in most countries. Throw in the option of a few 20-mile plug-in battery modules—say, two in France, none in Brazil, one in the UK—and you have a scalable platform capable of benefiting from high-volume production discounts while also being able to provide the right amount of all-electric range for any market.
The reality is that most cars worldwide will still be running on liquid fuels all or most of the time in 2020 and for years beyond. Carmakers need to minimize overall fuel consumption as rapidly as practical by implementing solutions that are, above all, broadly affordable, rather than just providing a niche product for the wealthy.
Subsidies have been useful in getting plug-in vehicle production flowing, but few governments will feel able to afford to subsidize real volumes for more than a few years. In addition, some are already seeking ways to replace the tax revenues lost from reduced fuel consumption by creating road fees for drivers of electric cars.
Will battery costs drop quickly enough to allow manufacturers to build market momentum before governments decide they can no longer afford to subsidize plug-ins? We shall surely find out.