How green cars can save you money

16 June 2008

There are already incentives for owning a cleaner car - and more on the way. Cars with higher emissions, on the contrary, are set to be stung with ever-higher running costs.

If you drive into London's congestion zone, you'll be acutely aware that it costs you £8 a go – unless you're in an exempt car, such as a hybrid, electric or alternative-fuelled vehicle. That exemption from the charge is enough to save you nearly £2000 a year if you drive to work in the zone every day, and there's always the chance that other similar zones could be introduced.

The Local Transport Bill from the Department for Transport is designed to give councils more powers to introduce charging schemes like London's. However, given the failure of the proposed scheme in Manchester and Boris Johnson's decision to scrap the western extension of the zone in London, further charge zones look unlikely in the near future.

The more economical your car, the less you'll also be shelling out in fuel duty, even though the economic situation has seen some proposed rises postponed. The 20p per litre incentive for biofuels like ethanol and biodiesel continues, but the cost of production means they remain only a couple of pence per litre cheaper at the end of the day (and still not widely available).

Since April 2008, there has been a 2% reduction in company car tax if you opt for a car that can run on E85 bioethanol. Use conventional fuel and the CO2-related bandings will get tougher in the future, the threshold for the minimum 15% tax band falling from 135- to 130g/km for 2010/11.

Furthermore, in April 2008 a new 10% band was introduced for cars emitting less than 120g/km.

Vehicle excise duty (road tax), too, had already been getting cheaper for cars with lower emissions and more expensive for those with higher emissions. But, since April 2009, the scheme has been adapted again to further incentivise lower-emitting cars.

Any car emitting less than 100g/km (such as the Ford Fiesta Econoetic) will pay nothing. Choose one that emits between 100- and 120g/km, and you'll pay just £35 a year.

There are more bands than before, and the top L and M bands charge cars that emit more than 226g/km £405. You can save almost £200 a year just by having a car from band K, which applies to cars with emissions between 201- and 225g/km.

For 2010/11, there will also be a special first-year rate of VED on new cars, again with the amount dictated by the car's CO2 emissions. It will cost nothing for cars with emissions of less than 130g/km, but at the other end of the scale, cars that emit more than 255g/km will have to pay £950.

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