US tax credit plan "spot on"

17 January 2006

US plan to introduce tax credits to encourage people to buy fuel efficient/low emission vehicles is “spot on” say Business Council

The new policy framework announced by US Treasury Secretary John Snow to provide tax credits to people and businesses buying hybrid vehicles is absolutely consistent with the Business Council for Sustainable Development’s recommendations to the New Zealand Government in November 2005. The proposed US tax policy changes would give people who buy or lease hybrid cars and trucks a tax credit of up to US$3,400 but is seen as a key way to reduce petrol consumption, emissions of air pollutants and greenhouse gas emissions.

The Business Council’s recommendations were outlined in its report “Incentivising Greener Vehicles” (http://www.nzbcsd.org.nz/project.asp?ProjectID=29) and favoured a grant of NZ$3,000 for vehicles with fuel economy of 6.5 litres/100 kilometres or better with a smaller grant of NZ$1,500 for vehicles achieving between 6.6 and 8.5L/100km.

Peter Neilson, Chief Executive of the Business Council said that the US’s decision recognises the need to incentivise people to change their purchasing patterns particularly when the cost of new technology can make the initial move a difficult one financially:

“The US have chosen to issue a tax credit, we have recommended grants on the basis that they are more cost-effective but the principal is the same. We have gone further by suggesting a penalty charge of $2,000 on first registration for passenger vehicles with fuel efficiency worse than 12L/100km. We have also recommended that the grants are not just for hybrid technology but for all cars which meet the low emission/low fuel consumption criteria.”

“The grants proposed by both the US and ourselves are around 10% of a new or second hand qualifying vehicle price and are necessary because fuel efficient/low emission vehicles are more expensive than standard vehicles. While the higher fuel efficiency compensates in part for the difference our research shows that petrol prices would need to reach $4 a litre to eliminate the difference for a new car purchaser.”

“It’s important we act now too. The US may be widely known as a nation fond of their gas guzzlers but we outstrip them in terms of the number of cars per capita and the fact we have one of the oldest car fleets in the western world. The typical car we drive here is now much less fuel efficient, more polluting and less safe than the current models being produced. Engine technology has improved considerably over the past decade.

Newer cars produce only a tiny proportion of the pollutants a similar vehicle once did. Some smaller petrol vehicles, some diesel vehicles and the petrol/electric hybrid vehicles not only have fewer emissions(CO2, NOx and sulphur) but they also use less than half the petrol or diesel per 100 kilometres than the cars of a decade ago.”

The US has not identified the cost to the Treasury of the proposed policy however the Business Council has costed the potential impact to the New Zealand Treasury of its raft of proposals.

Neilson said: “If 40% of new registrations are in the preferred categories, we estimate the cost to Government of introducing the incentives policy would be NZ$97 million a year if the Government adopted the incentives and penalties approach.

To the degree to which the take up of more fuel efficient/lower emission vehicles improves there will also be savings from lower greenhouse gas emissions and from lower fuel bills but as a result less motor fuel duty going to the Government.” However the US is way ahead of New Zealand in terms of the variety of hybrid and low emission vehicles on offer. Overall, there were eight hybrid models on offer to US buyers in 2004, when 87,000 of the cars were sold, according to market analysis firm J.D. Power and Associates. Last year, 11 models were on offer, it said.

Neilson agreed that this is also a key factor: “Choice is a key part of people’s purchasing decisions and so we would also encourage more manufacturers to add fuel efficient/low emission vehicles to their offerings in New Zealand so that a “green model” will be available for all ranges. Toyota has announced plans overseas to offer a hybrid version of all its major models by 2010. “

“Ultimately however the Government can kick start the move to lower emission vehicles being widespread here by taking a similar approach to the US – and it will also help us meet our Kyoto targets.” Ends Media Contacts:

ENDS

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