EU Financial Incentives: Road Transport Vehicles

Guidelines on financial incentives for energy-efficient car
Guidelines on financial incentives for energy-efficient car

In February 2013, the European Commission published its “Guidelines on Financial Incentives for Clean and Energy Efficient Vehicles” covering road vehicles; cars, vans, buses, trucks (to include two and three wheelers and quadricycles) in relation to incentives can take many forms: some may be purely financial, including grants, loans, tax deductions etc, with others being legal in the sense of regulation, standard setting or even prohibition.

The European Commission believes that there are market distortions created by some of the existing incentives. The Guidelines have been produced to help address this and to provide Member States with clearer rules on what incentives should and should not do. Fleet operators (private, public, retail, rental, logistics, etc), manufacturers, procurement professionals and the like may be particularly interested in the Guidelines.

In the 2010 European Communication “Europe 2020: A strategy for smart, sustainable and inclusive growth” the European Commission set out its plans to enhance competitiveness and energy security of the European economy by more efficient use of resources and energy. This was followed in 2011, by the White Paper “Roadmap to a Single European Transport Area – Towards a Competitive and Resource Efficient Transport System” which ambitiously seeks to break road transport’s dependence on oil and develop a sustainable alternative fuels strategy along with appropriate infrastructure. The White Paper set a target of 60% greenhouse gas (GHG) emissions reduction from transport by 2050 by, amongst others, “increasing the efficiency of transport and of infrastructure use with information systems and market-based incentives”. The Commission pledged to “move towards full application of “user pays” and “polluter pays” principles and private sector engagement to eliminate distortions, including harmful subsidies, generate revenues and ensure financing for future transport investments”.

The intended incentives apply to vehicles which meet pre-set performance criteria, the European Commission believes that incentives should as far as possible seek to employ:

(1) a pull-effect to enhance consumer demand; and

(2) a push-effect to stimulate manufacturer supply.

with recognition of the trigger the push/pull effect in the EU market, which the European Commission feels it is important that Member States coordinate and harmonise the design of their financial incentives so as to create critical mass on a pan-European basis.

Mandatory principles
The Guidelines refer to a number of mandatory principles in the design of financial incentives enshrined in existing EU legislation and include:

Non-discrimination: Incentives must not favour a specific manufacturer or a particular Member State.

Community type-approval legislation: Incentives must be compatible with the Community type-approval legislation, which provides for mandatory technical requirements
for new vehicles.

State-aid rules: Obviously incentives must be compatible with Treaty provisions on State Aid and the notification obligations under the State aid rules will have to be met.

Public procurement: The incentives will be required to take into consideration the provisions of Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles (which is itself a legal incentive in that it sets rules, which favour clean and energy-efficient vehicles in procurements by the public sector). This Directive requires that lifetime energy consumption, emissions of carbon dioxide (CO2), emissions of oxides of nitrogen (NOx), non-methane hydrocarbons (NMHC) and particulate matter (PM) be monetised and taken into account as part of the procurement process.

Recommended principles
The Guidelines provide that certain recommendations should also be taken into consideration whenever new financial incentives are being considered.

Technological neutrality and Common-performance criteria:
Incentives should not be limited to vehicles equipped with a specific technology. This would discriminate against other technology that would provide the same environmental performance. Indeed rather than technology-based criteria, incentives should be available on environmental performance criteria.

It is recommended that any incentives should be proportionate to the environment performance of the vehicle. So for instance, an incentive which allowed for substantial benefits only in the event that the vehicle achieved a CO2 performance below a particular g/km value, but no incentive for a vehicle which progressed in performance but did not achieve the CO2 g/km value performance, would contravene this proportionality principle.

Size of the incentive:
The size of the incentive should not exceed the additional cost of technology. The aim of this is to reduce the risk that the incentive will be used to subsidise manufacturers.

Link to CO2 limits in the relevant EU legislation:
The Guidelines recommend incentivising vehicles which outperform the CO2 emission target values in EU legislation rather than merely matching such targets.

Further information including the guidelines described in this article can be viewed at

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