OECD targets diesel and company cars

Taxes on fuel and corporate benefit need to rise significantly, says agency

The Organisation for Economic Co-operation and Development (OECD) has launched a war of words on diesel fuel and company cars, claiming that the taxation levels on both are costing governments billions and seriously harming the environment.

“The cost of driving a car today does not properly reflect the impact on the environment and to society. Taxing diesel fuel and company cars correctly would help to fix this,” said the international agency’s environment director Simon Upton. “Governments should stop offering financial incentives to drive cars and to run them on fuels with a heavy environmental footprint.”

The agency claims that 28 countries it surveyed are effectively subsidising the use of company cars through taxation, to an average of €1,600 per car (from a low of just €57 in Canada to a whopping €2,763 in Belgium). The organisation claims that such tax breaks are encouraging drivers of company cars to cover higher mileages, causing more damage to the environment, as well as costing governments an estimated €28 billion in potential tax revenue.

Worse still, the


agency claims that the knock-on effects on climate, pollution and general health are racking up an annual bill of €116 billion. It goes on to say that only about half of the true benefit of a company car is actually taxed.

The agency is coming down even harder on diesel fuel than it is on company car drivers, pointing out that 33 out of the 34 countries it surveyed place a lower levy on diesel than petrol, despite diesel containing a higher concentration of carbon per litre.

Of course, much of this taxation advantage has been to actively encourage drivers to pick diesel cars, because of their greater fuel efficiency. That efficiency has led to lower overall vehicle emissions, despite diesel's greater carbon concentration. The agency says that this has to end.

“Diesel vehicles produce more carbon emissions per litre and more harmful air pollutants than petrol vehicles. Diesel contains approximately 18 per cent more carbon per litre than petrol, yet remains the most used vehicle fuel in 23 of 34 OECD countries, due in part to this tax differential. The OECD is calling on governments to stop subsidising company cars and to phase out the diesel tax differential. This would benefit public finances as well as air quality” says the agency.

Given the OECD’s influence at higher reaches of global governments, the findings will come as harsh reading to company car users and carmakers on the eve of the Paris Motor Show.

The recent reductions in average vehicle emissions have only been made possible by a mass switch from petrol to diesel power (diesel cars now represent 55 per cent of European car sales) and meeting the EU’s 2020 average CO2 limit of 95g/km will likely not be possible if diesel were to fall out of favour with customers.

About 12 per cent of cars on the road are company cars, so any shifts in that market could have a hugely deleterious effect on sales.

Neil Briscoe

Neil Briscoe

Neil Briscoe, a contributor to The Irish Times, specialises in motoring