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Carbon Tax

Electrification of Company Cars & Tax Reform Needed in France

How to reduce CO2 emissions from commercial fleets through taxation.

Originally published on Transport & Environment.

The company vehicle fleet is both one of the main emission factors in France and a promising path for zero-emission transport. Often overlooked as a source of on-road emissions, company vehicle fleets account for half (52%) of new passenger car registrations each year. Since they travel nearly twice as many kilometers per year as passenger cars, they are responsible for two-thirds (67%) of the CO2 emissions of newly registered vehicles, or 2% of total greenhouse gas emissions. greenhouse in France. A solution to reducing these emissions is within reach — electrification — and tax reform can steer corporate fleets towards this change.

Report: Électrification des voitures de société, une réforme fiscale est nécessaire.

In order to reduce emissions from commercial fleets, the Climate and Resilience law requires fleet managers to gradually integrate low-emission vehicles into the annual renewal of their fleet. In 2022, 10% of new registrations must be low-emission vehicles (less than 50g of CO2 / km), to reach 70% in 2030.

However, in the absence of sanctions provided for by law, the scenario of a generalized failure of this transition is possible. The electrification of the French automobile fleet is in fact coming up against major obstacles.

First, current tax and industry policies do little to encourage battery electric vehicles (BEVs) in smaller vehicle segments or in the rental industry.

At the same time, sales of polluting plug-in hybrid electric vehicles (PHEVs) are booming in commercial fleets. The company vehicle market represents three quarters (73%) of all ORVs. ORVs are eligible for renewal rates as low-emission cars despite studies showing that these vehicles emit between two to four times the publicly displayed amounts of CO2. By considering ORVs as low-emission cars, French law creates a windfall effect for this market and jeopardizes the climate benefits of this law.

This report explores how the French tax system can be used to overcome these challenges and position France as a leader in the transition to a zero emission transport system. Our analysis reveals that many tax mechanisms still support polluting company cars, in contradiction with French political and climate objectives. This report presents targeted proposals to increase the attractiveness of electric cars, both for long-term rental companies, fleet managers and employees — all with a positive effect on public spending and a significant reduction in emissions. greenhouse gas.

The key points are as follows:

  1. The current Company Vehicle Tax (TVS), although indexed to the vehicle’s CO2 emissions, misses its target. Only a very marginal part of the fleet market, cars emitting more than 130g CO2 / km, is affected by high TVS rates. Very low rates are imposed on French light cars which make up the majority of sales, such as Renault Clio or Peugeot 208, which are unlikely to change the behavior of private players. We are proposing a gradual reform of the TVS, over ten years, so that it increasingly applies to all thermal vehicles, including light vehicles — thus really favoring electric cars. According to the model developed by Revnext and T&E for this study, the redesign of the TVS would allow the sale of 402.

report: Électrification des voitures de société,
une réforme fiscale est nécessaire

  1. On the other hand, the current Tax on Company Vehicles presents annoying exemptions. In principle, cars emitting more than 20g of CO2 are taxed more as their CO2 emissions increase. However, hybrid cars which pollute less than 120 g of CO2 / km can be exempt from paying the tax for 12 quarters. As a result, 65% of cars that are exempt from TVS run on fossil fuels. This exemption should be repealed from 2023.
  2. The benefits-in-kind (AeN) tax policy influences the car model that employees choose for their company vehicle. The current tax benefit in kind regime does not provide sufficient incentive to choose electric rather than internal combustion engine (thermal car): from the employee’s point of view, the cost of a thermal company car in rental is roughly equal to the cost of its electric counterpart (eg, a Renault Clio and a Renault ZOE). The solution is clear here, because the taxation of vehicle benefits in kind in France is among the lowest in Europe. In accordance with the polluter pays principle, the taxation of the benefit in kind for combustion vehicles and ORVs should be immediately doubled. The tax rate should apply on a broad tax base, including all taxes in the price of the car, in particular the penalty and the TVS (tax on company vehicles). The reform of the benefit in kind would allow the sale of 433,000 additional battery electric vehicles by 2030, and the reduction of 4.2 million tonnes of additional CO2 compared to the scenario without this reform.
  3. The tax advantage that companies receive for company cars in the form of depreciation reaches up to 4,500 euros for a polluting car. Consequently, the tax advantages for polluting cars represent 2.72 billion euros of public expenditure each year (93% of the total expenditure on depreciation). Following the example of Belgium, T&E recommends an abolition over five years (2023–2027) of depreciation deductions for polluting cars. There is an urgent need to reform the benefit in kind system because the reductions granted to the VEB within the framework of the benefit in kind are supposed to end in the coming years, thus limiting the attractiveness of BEVs for employees. This reform would stimulate electrification at no additional cost to the state.

Électrification des voitures de société,
une réforme fiscale est nécessaire

  1. ORVs have become common in the fleet of French companies and are replacing electric vehicles. Over 70% of ORV sales are made as company vehicles. A sub-target of 90% “very low emission vehicles” in the vehicle fleet renewal rate would curb the growth of polluting OHVs in company fleets. ORVs should also be included in the weight penalty — by subtracting the weight of the battery — in order to curb the development of heavy and inefficient ORVs in corporate fleets.

These recommendations apply to passenger cars. It will be necessary to explore the possibility of applying a similar approach to light commercial vehicles, while finding a way to exempt small and very small businesses which represent 50% of light commercial vehicles in France.

The proposed tax change would allow the arrival of a million additional BEVs in the fleets by 2030, twice more than current forecasts. VEBs would then constitute 97% of company vehicle sales. The measures proposed would thus allow the reduction of 11.2 million tonnes of CO2 by 2030 on real fleets and 43 million tonnes of CO2 over their entire lifespan.

The potential for France’s transition to a zero-emission corporate fleet is significant. The company vehicle fleet has a considerable influence on the passenger car market. Very responsive to tax changes, this market constitutes an opportunity to be seized in the transition to zero-emission transport.

Électrification des voitures de société,
une réforme fiscale est nécessaire

Without reform, the company fleets could miss their transition between 2021 and 2025. We can also observe that other European countries such as Germany seem to be moving faster on the electrification of their fleets in 2021. However, the weak progress VEB sales obviously represent an important issue for France’s climate trajectory, but this trend also constitutes a significant risk for the competitiveness of French car manufacturers and their compliance with European standards.

The finance law governs all the key taxes that influence company fleet decisions and therefore represents an important opportunity. The introduction of tax reforms, such as those recommended in this report, would quickly move fleet managers towards an electrified offer and thus position France as a leader in the transition to a zero-emission transport system.

Download the report: Électrification des voitures de société, une réforme fiscale est nécessaire

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