France to increase tax on diesel fuel as country prepared for electric future

26 September 2017

France to increase tax on diesel fuel as country prepared for electric future

26 September 2017

Drivers of diesel vehicles will have to pay more at the pumps in France, as the government looks to bring the cost of the fuel in line with petrol in the latest move to effectively end the technology’s spell on roads in the country.

Countries around Europe are looking at ways of phasing out traditional combustion engines, and while many believe petrol hybrids are cleaner, there seems to be little future for the diesel engine. France, along with the UK, will ban the sale of internal combustion engines in new vehicles from 2040, while Norway is looking at phasing out the technology by 2025. In addition, Germany could soon be forced into a similar move, should a coalition government between the Christian Democrats and Green Party go ahead.

In preparation for the ban, the French government want to increase the cost parity between petrol and diesel fuels at the pumps. Therefore, following a report in Les Echos, spokesman Christophe Castaner confirmed a plan to increase the tax on the fuel by 10%, adding around €0.076 to a litre. The move is expected to be announced in the country’s next budget bill, and will take place in 2018.

The current price of diesel in France is around €1.18 a litre, of which €0.70 is tax. The increase will fully absorb a decline in oil prices seen in recent months, where the average pump price has fallen by €0.08 since the start of 2017.

According to the French Union of Petroleum Industries (UFIP), taxes on diesel could increase by €0.31 per litre by 2022, if the trajectory provided in the draft finance bill is implemented. For petrol however, the rise would equate to just €0.15. This, the government hopes, will encourage motorists to get rid of their diesel vehicles, with a scheme being put in place to offer incentives to all those who trade in a diesel car for a cleaner alternative, either new or second hand.

The proposal is for a €500 - €1,000 incentive to switch to a less polluting model, whether it is petrol, diesel, hybrid or electric. The offer will be given to those trading in a petrol vehicle registered before 1997, or a diesel car registered before 2001, with the plan to clear the country’s roads of most of the three million vehicles which fall into these categories.

The increase in tax at the pump could also be seen as the government ensuring it receives an equal amount of tax from drivers of vehicles using the fuel as it has done in the past. Since the Dieselgate scandal in 2015 the industry has seen a change, with petrol, hybrid and electric rapidly taking market share away from the technology. As the uptake of electric is slower, although significant gains are still being made, it is petrol which has become the dominant power.

The diesel share of new registrations in France has been falling since 2012, but the decline has accelerated since the emissions scandal broke, dropping from 64% in 2014 to 57% in 2015 and further to 52% in 2016. So far in 2017, the share has been below 50% in every month of the year, with a total 48% of the new car market so year-to-date, the lowest level since 2000. Petrol has captured 47.3% of the new car market so far this year in and is merely 0.5% behind diesel.

Therefore, with a drop in the uptake of the fuel, and less income from the tax at the pumps as a result, increasing the duty could be seen as a way of stabilising the income while also encouraging drivers to move to petrol and cleaner alternatives, in preparation for the eventual ban.