T&E: ‘Fossil fuel subsidies for company cars cost taxpayers €42 billion a year’

According to a new study by the green group Transport & Environment (T&E), subsidies for petrol and diesel company cars cost taxpayers €42 billion every year in the five biggest EU countries alone.

The study by ERM, commissioned by T&E, calculates the effects of the four tax benefits traditionally given to company cars: benefit-in-kind, depreciation write-offs, VAT deductions, and fuel cards. Private car owners do not enjoy these subsidies. Company cars represent 60% of all European new car registrations.

To come up with the total subsidies, ERM compares two scenarios: a business-as-usual scenario with the current taxes in place and a counterfactual scenario showing how much salary car drivers would have spent if they were to purchase their vehicles as private buyers. Final figures are based on a scenario where 80% of the company car mileage is private.

Italy, followed by Germany, France, and Poland, are the countries that subsidize polluting company cars the most, totaling €16, €13.7, €6.4, and €6.1 billion a year, respectively. The most significant subsidy happens via benefit-in-kind schemes that continue incentivizing petrol and diesel vehicles.

Tax advantages for polluting company cars in the UK and Spain are much lower. Indeed, the UK imposes a substantial penalty for petrol and diesel company vehicles through a high benefit-in-kind rate, while electric company car drivers pay low taxes. This has helped boost the uptake of electric company cars, now at 21.5%.

In Spain, the tax benefits for company cars are similar to those for private vehicles, primarily due to a relatively high benefit-in-kind rate. However, as Spain offers minimal incentives for companies to opt for electric cars, the uptake of corporate EVs is low (at 3.7%), T&E explains.

Polluting SUVs

The study also finds that SUV company car drivers receive very high fossil fuel subsidies via company car taxation. Compared to private buyers, they pay up to €8,900 per year less in taxes for driving a polluting SUV. This also explains why companies register twice as many climate-harming SUVs as private households. Of the total €42 billion, €15 billion goes into subsidizing SUVs.

Stef Cornelis, director of the electric fleets program at T&E, commented: “Taxpayers are paying billions every year in tax benefits so company car drivers can drive polluting petrol cars. Many of which are expensive, high-end, high-polluting SUVs. This is bad climate policy and socially unfair.”

“Governments in the UK and Belgium have introduced green tax measures and are phasing out benefits for polluting vehicles. However, the governments in Europe’s largest automotive markets fail to address this absurdity. This is why the European Commission needs to take action,” he added.

Green transition efforts

Not only do polluting company cars benefit from enormous subsidies, but they are also lagging in the EU’s green transition efforts, T&E states. In the first half 2024, 13.8% of all new private registrations were BEVs in the EU. For corporate registrations, this was only 12.4%.

Removing the subsidies for fossil fuel company cars will reverse this trend. The EU heads of state, the new candidate Vice-President Teresa Ribera, and candidate Climate Commissioner Wopke Hoekstra, have previously called for the phase-out of fossil fuel subsidies.

In her mission letter to the Commissioner for Sustainable Transport candidate, President von der Leyen instructed Apostolos Tzitzikostas to develop a proposal to make corporate fleets greener. She also mentioned phasing out fossil fuel subsidies in her letter to candidate Commissioner for Climate Wopke Hoekstra.

Act now

T&E calls upon the new European Commission to act now and come forward in 2025 with a Greening Corporate Fleets Regulation that sets binding 2030 electrification targets for large corporate fleets and leasing companies.

This is, for example, already the case in Belgium, where the electrification of the entire car fleet is still booming. This is led by the company car market, which has represented at least four-fifths of the BEVs registered in the Belux in recent years.

This will also help achieve the goals of the upcoming EU Clean Industrial Deal by creating a lead market for clean technology and boosting demand for EVs. At the same time, it brings investment certainty for key industrial sectors such as carmakers, battery manufacturers, and the power sector.

Stef Cornelis again: “President von der Leyen has reconfirmed her support for the Green Deal and called her Commissioner candidates to phase out fossil fuel subsidies. However, the huge tax benefits that wealthy petrol company car drivers still receive in Europe today conflict with that goal.”

“Under her new leadership, the Commission should set electrification targets for large company car fleets and finally end this tax anomaly. This also fits in the EU’s wider industrial agenda as these targets will boost demand for EVs and create a lead market for clean tech, hereby bringing investment certainty for carmakers and the e-mobility sector overall,” he concluded.