A Road Test of the Luxury Car Tax Concession: Will It Influence Demand for Low-Carbon Vehicles?

Abstract

The Australian Government proposes to reduce greenhouse gas emissions from the road transport sector by phasing in regulatory fuel efficiency standards between 2020 and 2025. To meet the standards, global car manufacturers will be required to reduce their fleets’ average CO2 emissions by increasing the supply of low‑emitting, fuel‑efficient vehicles. The Australian Government states the luxury car tax (LCT) concession for fuel‑efficient vehicles is one of the adopted measures to encourage “households and businesses” to purchase more fuel‑efficient vehicles. A study was conducted to examine the role of the LCT concession in influencing consumer demand for more fuel‑efficient vehicles. For each vehicle‑type segment, this study categorised vehicles into pairs, one classified by the National Transport Commission as having “best‑in‑class emissions” and the other as “best‑in‑sales”. The study aimed to quantify the impact of the LCT concession and the LCT regime on consumer demand by examining the cost price and vehicle sales for each vehicle pair. The findings from the survey, together with analysis of the policy measure and a literature review, could not support the Australian Government’s assertion that the LCT concession encourages consumers to purchase more fuel‑efficient vehicles. According to the literature, the most important barrier to low‑emitting vehicles is their high price compared to internal combustion engine (ICE) vehicles. The study findings provide grounds for policymakers to reform the LCT regime and the LCT concession — a reform that is required to support the introduction of regulatory fuel efficiency standards to aid in the reduction of road transport emissions.