Subsidies for fossil fuel company cars are costing taxpayers tens of billions

Government subsidies for fossil fuel company cars are costing European taxpayers billions each year, with such subsidies in the five biggest EU countries alone costing €42 billion every year.

The new report was published on Monday by Transport and Environment (T&E), Europe’s leading advocates for clean transport and energy, and authored by EMR, the world’s largest specialist sustainability consultancy.

Calculating the effects of four tax benefits traditionally given to company cars – benefit-in-kind, depreciation write-offs, VAT deductions, and fuel cards – the report looked at six European countries which are home to the largest car or company car markets in Europe – France, Germany, Italy, Poland, Spain, and the UK.

The report found that Italy subsidises polluting company cars the most, totalling €16 billion each year for its country’s taxpayers (under an 80 per cent private use scenario). Next were Germany (€13.7 billion), France (€6.4 billion), and Poland (€6.1 billion).

According to the report, the most impactful of these government subsidies is via benefit-in-kind schemes that continue to incentivise petrol and diesel vehicles.

Conversely, tax advantages for polluting company cars in the UK and Spain were much lower, demonstrating that such subsidising policies are not integral to good business.

Specifically, the report found that the UK imposes a strong penalty for petrol and diesel company vehicles through a high benefit-in-kind rate, compared to a relatively low tax rate for electric company car drivers.

In fact, this combination of high and low taxes has helped boost the uptake of electric company cars to 21.5 per cent in the UK.

In Spain, while there are minimal incentives for companies to adopt electric company cars, resulting in a low uptake of 3.7 per cent, the tax benefits for company cars are similar to those for private vehicles, primarily due to a relatively high benefit-in-kind rate.

Unsurprisingly, the report also found that SUV company car drivers receive very high fossil fuel subsidies through company car taxation. For example, compared to a private SUV buyer, a company car driver pays up to €8,900 per year less in taxes for driving a polluting SUV.

Of the total €42 billion taxpayers are subsidising petrol and diesel company cars, €15 billion is going towards SUVs.

“Taxpayers are paying billions every year in tax benefits so company car drivers can drive polluting petrol cars,” said Stef Cornelis, director of the electric fleets programme at T&E. “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. But Governments in Europe’s largest automotive markets are failing to address this absurdity.

“This is why the European Commission needs to take action.”

The uptake of electric vehicles as company cars is also lagging behind private EV adoption.

According to the report, 13.8 per cent of all new private registrations across the European Union (EU) in the first half of 2024 were battery EVs (BEVs). For corporate registrations, however, this number was only 12.4 per cent.

T&E believes that by removing subsidies for fossil fuel company cars, this trend can be reversed.

And while government subsidies of fossil fuel company cars will decline over the next decade, the graph below shows that they do not disappear entirely.

Specifically, according to the report, “in all years, subsidies offered by Italy make up the greatest share of annual totals, followed by subsidies offered by Germany.” France and Poland will swap places by 2025, while the “total annual fossil fuel subsidies from all countries increases to a peak of ca. €46.6b in 2026 due to an increase in sales of PHEVs (which have high fossil fuel subsidies), before reducing in all subsequent years due to the increase in sales of BEVs”.

This may change, however, if EU heads of state as well as the new candidate Vice-President Teresa Ribera and candidate Climate Commissioner Wopke Hoekstra have their way, all of whom have called for a phase out of all fossil fuel subsidies.

T&E points out that Ursula von der Leyen, president of the European Commission, in her mission letter to the candidate Commissioner for Sustainable Transport, instructed Apostolos Tzitzikostas to come forward with a proposal to make corporate fleets greener. Phasing out fossil fuel subsidies was also referenced in the president’s letter to candidate Commissioner for Climate Wopke Hoekstra.

T&E is therefore claling 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.

“President von der Leyen has reconfirmed her support for the Green Deal and called her Commissioner candidates to phase out fossil fuel subsidies,” said Cornelis.

“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.”