Developments in green fleet

The stumbling blocks to employers running a green fleet have been steadily removed thanks to manufacturers’ improved technology and a wealth of tax incentives, says Tom Washington

Since the government introduced a CO2 emissions-based benefit-in-kind (BIK) tax aimed at cutting pollution in 2002, the fleet market has been slowly evolving to become more environmentally friendly. Under the previous tax regime, the more miles a car covered, the less tax was due regardless of the type of vehicle. A new lower limit was introduced last year, a minimum charge of 10% of the price of a vehicle emitting CO2 of 120g/km. This rises in 1% increments for every 5g/km over the minimum level, to an upper ceiling of 35%. The move to link tax to a vehicle’s CO2 emissions, effectively undermined the perk of a traditional company car and sent out a clear message it was time to clean up company fleets.

Seven years on from the initial change, the government has brought other taxes around company cars into line with its green agenda causing many fleet managers to realise there is a strong business case for investing in an environmentally-friendly fleet. As well as looking to lower CO2-emitting cars, hybrid-fuel vehicles, which run on a combination of petrol and electricity, and have emissions below 120g/km, have become more prominent in place of gas-guzzling models.

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However, one stumbling block in fleets’ green revolution has been cost. Tim Bailey, fleet director for Europcar UK Group, says: “The problem rental operators face is that hybrid and lower-emission vehicles are significantly more costly to buy, operate and maintain, and therefore they are more costly to rent.”

However, manufacturers are trying to produce more affordable green vehicles. Nick Sutton, group business development director at Zenith Provecta, says it took two or three years for a noticeable change to occur, partly because manufacturers did not have the products to fit with environmental needs. “The biggest single driver has been improved technology from the manufacturers,” he says. “Over the last five years, what you have seen in fleet is a significant proportion of companies moving away from offering traditional company cars but [beforehand] there was only a limited choice.”

Many employers have switched to an employee car ownership plan (Ecop) that exempts staff from BIK tax and gives them greater freedom of choice. Others have given employees a cash allowance. “[However] this was a fairly short-sighted way of tackling the problem because people ended up buying second-hand cars with big engines and high CO2 emissions,” adds Sutton.

Some organisations are offering incentives to encourage staff to move to lower-emission vehicles. For example, Carlsberg rewards staff who choose a greener car with an extra 10% on top of their cash allowance.

Despite the changes, Sutton believes some employers are not prepared to compromise on the type of vehicles they offer. “This comes down to the vehicles being capable of doing the job they are needed to do,” he says. “[However], there has been a gravitation to smaller vehicles, which are not seen as cheap or low in status value any more.”

Very low-emission cars, such as liquified petroleum gas (LPG) and hydrogen fuel cell models, have yet to make a big impact on the fleet market. Employers may have a fear of investing heavily in new technology due to concerns over residual values. LPG or electric vehicles, for example, could be subject to much more innovation, meaning current models may be left obsolete.

Chris Bolan, a consultant at Compass Reward Consulting, says employers now recognise the advantages of running a green fleet are not just financial. “In terms of corporate social responsibility, environmental issues have been on the agenda for some time but the more difficult area was [how] to turn good intentions into actions,” he says. “Also, employers are waking up to the fact employees want to work for organisations that are responsible and [share] their views.”

Tax policy designed to encourage the take up of greener vehicles looks set to continue with a number of changes slated for this year. With the economy having moved into recession it will make sense for both employers and employees to opt for greener cars. Bolan concludes: “In the economic downturn, the financial case for having a green fleet is becoming compelling.”

If you read nothing else, read this…

  • In April 2002, mileage-related company car tax was switched to one linked to CO2 emissions. Since then, green fleets have taken big strides.
  • This taxes the lowest-emission vehicles at 10% of their list price, and penalises those with high CO2 emissions, the highest of which are taxed at 35% of their list price.
  • There have been several advancements in green fuel cars, including liquid petroleum gas (LPG) and electric vehicles.
  • The government’s taxation policy is set to continue to favour environmentally-friendly vehicles, providing a strong financial reason for employers to invest in a green fleet.