The role of company car taxation to promote low carbon vehicle technologies

This paper presents a review of the CO2 based company car taxation that has been in place in the UK since 2002. One aim of this ecotaxation reform was to promote the uptake of low carbon vehicle technologies, but in practice the tax reform led to the widespread use of diesel cars. With company cars making up 55% of new car sales, this has led to a major shift towards diesel in the UK car stock as a whole. In 2010 a modification to the company car taxation system was introduced, which provided a step change incentive for the drivers of low and ultra-low carbon vehicles. This change provides a financial advantage over diesel to the low carbon technologies of hybrid and electric vehicles. This paper explores the working and effects of the company car tax system and suggests that the tax structure will particularly favour plug-in hybrids. Indeed, it could well tip the balance to making this the dominant clean vehicle technology, sidelining pure battery electric vehicles and making it difficult for fuel cell vehicles to achieve market penetration. Potter and Atchulo: Company Car Taxation January 2012 Aberdeen UTSG 2