LEGISLATION and taxation will be the key methods of ensuring that those businesses running company cars continue to push down their carbon emissions while the economy remains flat. This special report is filed by Neville Briggs, managing director at CFC Solutions, suppliers of fleet software.

FEW private companies, or come to that public sector organisations, can currently afford to pursue aggressive environmental company car policies in post recession Britain.

Instead, company car policies will continue to be shaped by national and European governmental policies. This legislation will be the crucial driver to a continuing reduction in the CO2 emissions of company cars.

I say this because, while average CO2 figures overall are continuing to fall – in the third quarter of 2010, average CO2 emitted by new cars was 143.35g/km, compared to 145.6 g/km of CO2 in quarter one – the rate of reduction is likely to level off as the effect of fleets holding onto cars and vans for longer takes more of an effect.

Businesses simply cannot afford to change vehicles as often.

We have also seen a market softening among many fleets which have historically pursued strong environmental policies because of the recession and its after-effects. Rightly or wrongly, it is difficult to spend money on greening your company’s business cars at the same time if you are also making employees redundant.

Tax policy key to lower emissions

Against this economic backdrop, the impetus for continuing fleet CO2 reductions will come from taxation policy and legislation, both at a national and European level.

This may work in different ways. For example, we are already seeing some evidence of drivers who may have had low or no wage rises in the last couple of years opting for cars that carry a lower benefit in kind bill thanks to the reduced CO2 rating of their company car choice. In other words, by astute company car choice, staff are effectively putting more money in their monthly wages through a lower company car tax bill.

It’s also worth noting that companies will benefit from this too, because there will be reduced National Insurance payable on the employee’s benefit in kind.

Another good example is the effect of the congestion charge in London. Companies operating inside that zone are very interested in vehicles that meet the sub-100g/km barrier that will qualify for a 100% discount from the London congestion charge, known as the Green Vehicle Discount (GVD). Cars such as the new Fiat 500 Twin Air, with CO2 emissions of 95g/km, qualify for the GVD and now carry a strong operational cost argument.

Finally, legislation at a European level has a part to play. At the moment, many fleets are unlikely to opt to pay for the technology needed to make engines ever cleaner but the ongoing Euro series of planned reductions will see new vehicle emissions pushed downwards in a structured fashion.

So what’s the outlook?

Clearly there’s going to be little appetite for companies, and their drivers, to pursue strongly progressive green company car policies because there is additional cost for these technologies – electric cars for example.

Instead, businesses and their company car drivers will need to take financial self-interest into account for their current business car choices. It’s not difficult, because the technology in new cars is doing that for them. But it does mean the rate of car fleet greening will slow because these cars won’t be replaced so often. The government needs to bear this in mind in its future decisions on company car tax and company car tax breaks.

Editor’s note

The London Congestion Charge changes in January 2011. The full extent of the changes can be seen in our tax article London Congestion Charge – new charges from 2011.

For more on the Fiat 500 TwinAir, read our news story New Fiat 500 TwinAir sets new mpg standards.