February 4, 2021

WLTP and the new CO2 tax for drivers

Starting 1 January, Luxembourg’s car drivers are called to make a more active contribution to efforts to combat climate change. The new tax on CO2 emissions, initially due to be applied from 1 March 2020 but delayed because of the COVID-19 crisis, is now in force.

Voiture circulant dans le centre ville de Luxembourg

Updating of car tax

The WLTP (Worldwide harmonized light duty test procedure) brought some order and realism to vehicle consumption and CO2 emission figures as in their opinion, vehicle or car tax had not kept in-line with reality. .

Since the beginning of the year, it has been adapted to these new emissions measures, and is a better reflection of true situation.  . The legislator has decided to bring it into line with WLTP vehicle classification.

What’s different?

The amounts, categories and calculation of the tax remain identical. However, drivers’ bills are set to increase significantly.

The calculation formula remains unchanged: amount of tax = a*b*c
a = CO2 emissions in g/km
b = a multiplier of 0.9 for diesel vehicles or 0.6 for other cars
c = a factor of 0.5 for vehicles whose CO2 is less than 90 g/km, which increases by 0.1 for every additional 10g.

The change lies in the values of the emissions provided, i.e. factors “a” and “c”. The way in which emissions are assessed by the WLTP standard delivers results that are closer to real conditions (for a complete description of the differences between the WLTP and NEDC measurement protocols, see the previous article devoted to this topic). On average, these more realistic results translate into 24% to 31% additional CO2 emissions compared with the now obsolete NEDC standard.

In other words, the new emission values will significantly weigh on the result. The ACL forecasts an increase of €450 to €750 for car drivers.

These changes in way the tax is calculated apply to all car purchases from 1 January 2021. They have no retroactive effect, so vehicles newly registered   before 2021 will continue to assess their emissions (and therefore be taxed) on the basis of the NEDC standard. This will remain the case until they are definitively removed from circulation.

And at the pumps?

To combat climate change, the Luxembourg government is collecting a new tax on fuels. In accordance with the “polluter pays” principle, this increase should over time discourage the use of fossil fuels.

As of 1 January 2020, drivers will have to pay an additional €0.05 per litre of diesel, petrol or fuel oil and per m3 of gas. This will be €0.07 in 2022 and €0.09 in 2023. At household level, this represents an average additional spend of €150 every year.

In order for this tax not to exacerbate social inequalities, the government is planning compensation for the most vulnerable. At the same time as the CO2 tax comes into force, the tax credit ceiling for the least fortunate employees, pensioners and self-employed is being increased, while the cost-of-living allowance is being raised by 10%.

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