07. Transportation: Reform of taxation of cars and transformation of heavy transport

Changing governments have shared the ambition that all newly registered cars must be low- or zero emission cars by 2030 and that, by 2030, there must be 1-1.5m electric cars in Denmark. This is a very ambitious aim which FH generally supports. However, it must not leave a deep hole in the national coffers, increase inequality or reduce mobility.

The good news is that the population looks positively on replacing the petrol hose with an electrical cable. As shown in figure 10, almost half of workers find in “very” or “most” likely that they will buy an electric car within the next 5 years. However, the ones with the highest income are also the most likely to buy an electric car.

Nevertheless, a total of 42% are “very” or “somewhat” willing to pay extra for an electric car in order to protect the climate.

Barriers and challenges

Meanwhile, we are far from meeting the goals: Today, less than 1 in 100 cars are electric and, according to projections, there will only be 5-10% electric cars by 2030. The market for electric cars is still at an early stage, and it is considerably more expensive to buy an electric car than a conventional car with a petrol engine or a diesel-driven car.

A majority of interviewees also state that electric cars must be cheaper if they are to consider buying one, as can be seen from figure 12. And that wish is, obviously, even greater in the share of the population whose incomes are lower and where the household economy is already strained.

More than half of the interviewees also point to the need for publicly available charging stations, just as there is a widespread call for electric calls to “get better mileage”.

Some actors have suggested increasing the use of electric cars by exempting their owners from payment of vehicle registration fees. A complete exemption of the vehicle registration fee will make a large hole in the public purse.

Furthermore, the current tax incentive is targeted to families who can afford the relatively expensive electric cars. And targeted tax breaks for the wealthiest citizens increase inequality.

Other players have suggested a ban. But a ban would, in practise, affect low-income groups the hardest because there is a lack of adequate alternatives to the fossil-fuel cars. And it is doubtful whether this will have changed in 2025 or 2030 in the absence of new political initiatives.

Reform of car taxation

FH believes that a reform of car taxation is needed. The reform must ensure that subsidies for electric cars is widely distributed across car sizes and income groups and that the state’s income from car taxation is maintained.

FH therefore proposes a reform of car taxation so that climate-friendly cars become cheaper to acquire, allowing the average Danish worker access to the electric car market.  However, the recurrent level of taxation will rise in order to maintain the state’s income. More specifically, this scheme will bring:

  • Higher tax allowances for energy efficiency measures in the vehicle registration fee.
  • The possibility for a negative vehicle registration fee for smaller electric cars.
  • Value-based addition to the motor vehicle tax.
  • Higher vehicle registration fee for expensive fossil-fuel burning cars.
  • Surcharge for multiple cars per household.
  • Introduction of road pricing and higher fuel charges.
  • A national review of automotive policies every three years with a view to monitor the take-up of electric cars, the state’s income from car taxation, mobility and the redistributive effects of car taxation.

With the reorganization, there will be a large incentive to replace the car with the climate-friendly alternative. This leaves a bill to be distributed to all car owners, however, with a higher share to be paid by high income groups with one or more expensive cars per  household. This ensures that the green transition of the fleet of cars is collectively funded.

In addition to the reorganization of the tax reform, the state must improve the framework for the spreading of electric cars through the deployment of charging stations as described in the chapter “Sector coupling underpinned by major energy investments”. 

Green transition of heavy transport

Contrary to passenger transport, where electric cars are considered as the most promising technology, it is still too early to say which technologies will be best for heavy transportation, e.g. buses and trucks, in the long term. The investments into both biogas and Power-to-X proposed by FH keep the door open over the next few years.

In the short term, electrification is not possible. There are better opportunities for using gas. Funds should therefore be set aside for the establishment of gas tanks so as to obtain an expansion as seen in Germany. This will require striking a balance between the use of gas tanks in the short term and the possibility for better technologies in the long term.

In order to assess and adjust expectations for gas, Power-to-X and demand in the coming years, there should be a close dialogue between the relevant parties.

This can give investors greater certainty when it comes to knowing which amounts or types of fuels will be supplied and in demand in coming years – also as part of the green and socially sustainable public procurement proposed above. Specifically, a partnership should be established between the energy industry, the transportation industry, workers and authorities.

Demand and, thereby, development of climate-friendly fuels should, furthermore, receive support through a subsidy pool at an amount of, for example, DKK 1bn towards 2030. The pool could, among others, provide subsidies for the first 10,000 trucks driving on alternative fuels.

It is not just the fuel for the engine, but also the driver behind the wheel, who contributes to the carbon footprint. Increased focus should therefore be given to eco-driving. Today, eco-driving is already part of the mandatory training and education.

Even though this training can reduce fuel consumption and thereby reduce costs for the individual company, it can be a difficult investment to make – especially for small companies.

As the Climate Partnership for Land Transportation recommends, it should be examined how eco-driving can become even more widespread on roads and tracks.

Finally, the state should set aside DKK 100m for pilot projects with, for example, increase of a truck’s payload capacity, double trailer combined vehicles, databased/intelligent solutions etc.

FH believes that a reform of car taxation is needed.

danish trde union confederation

Railways and public transportation

The state should prepare a plan for the railways of the future, including expansion and electrification, and, in that connection, it should set aside funds for completing the planned electrification as soon as possible and to electrify additional railway lines.

The work should have an international focus, especially on cooperation with Norway, Sweden and Germany – in particular with a focus on possibilities for promoting high speed trains between selected cities in Europe – and launch relevant initiatives at the EU-level, such as a European rail fund.

This can strengthen the foundation for Danish exports of electricity, see above, and replace air traffic, which benefits the climate, in the absence of climate-friendly aircraft fuel. 

At the same time, public transportation should be expanded where it is relevant. This requires incorporation of the dissemination of electric cars/charging stations, hydrogen infrastructure etc.

The first step should therefore be that the state prepares a national plan with the involvement of the relevant players. The next step will be the practical expansion for which a fund of DKK 2bn can be set aside.

You just finished reading Chapter 07. Transportation: Reorganization of taxation of cars and transformation of heavy transport.

Read all chapters below:

05. More circular economy, better disposal and management of waste

The circular economy is about moving from a linear production to methods of production where materials are kept in a circuit and the need for new raw materials is reduced.

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10. Climate taxes and other sources of financing

Throughout the years, many economists have pointed to the fact that the most cost-efficient and technology-neutral tool for reducing greenhouse gas emissions would be general climate taxes.

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