The price of an average new car would increase by upwards of €1,000 under a proposed overhaul of Vehicle Registration Tax (VRT) ahead of the Budget.
A prestigious government think-tank says buyers of new cars with 'average' or 'above average' emissions should pay more tax - to push people towards greener vehicles.
The radical tax shake-up, proposed in a special Tax Strategy Group (TSG) report, adopts a carrot-and-stick 'polluter pays' approach throughout. But motor industry sources warn that, if adopted, such a plan would add more than €1,000 to the price of an average family car.
The TSG report proposes an increase in the number of VRT bands from 11 to 20. Those with zero-emission electric cars (EVs) and low-output plug-in hybrids (PHEVs) would benefit from a brand new 'ultra-green' band of 7pc (down from 14pc).
If implemented, road tax would also be reduced on EVs to €100 from €120.
It is estimated that the proposals would leave an estimated 88pc of car owners untouched by the new road-tax regime while 7pc would increase by €10 a year. The 4pc highest polluters would be hit by €30 to €50 a year increases.
The paper also renews the suggestion that the lower excise on diesel should be phased out. It is currently 11.6 cent per litre less than that on petrol.
Despite some hopes to the contrary, the plan effectively rules out the prospect of a scrappage scheme to get rid of old, high-emission cars.
Central to the report is the Government's handling of how cars are treated for VRT and road tax under the new world standard of measuring emissions that must fully apply to new cars from January 1. The old standard was widely criticised for being well off a true reflection of a car's real-world emissions. The new system has been shown to reveal 21pc higher emissions on average. That has huge implications for many new cars in terms of what VRT band they would fall into.
The report cites the International Council on Clean Transportation (ICCT) estimate that between 2010 and 2017 the real-world CO2 performance of newly registered Irish cars "completely stagnated".
The authors say: "Essentially there is an argument that VRT charges were far too low during the last decade as the rates applied were based on vastly underestimated CO2 values."
The Climate Action Plan (CAP) 2019 wants transportation sector emissions to decrease by 45pc to 50pc.
Central to that are targets that would put 550,000 EVs and 290,000 PHEVs on the road by 2030. It is clear that the strategy in the report is aimed at getting more people to switch to such vehicles. All new fossil-fuelled cars are to be banned for sale from 2030.
Against that backdrop the TSG authors say: "Vehicle taxation of average and above-average emission cars will need to increase so that the cost gap between ultra-low emission vehicles and the rest provides strong enough incentives to motorists in the market for a new car to make 'greener choices'."
If no adjustments are made to the VRT regime, the TSG also says used imports would gain an unfair competitive advantage over new cars (as a result of a lower VRT rate) because they were subjected to a less stringent testing regime.
The main issue is that the large numbers of used, mostly diesel, cars from the UK have CO2 emissions well above the Irish average.
The report adds: "The policy objective is therefore to both maintain a level playing field for new and used cars, while delivering on the government's climate action goals to the greatest extent possible."