Company car tax cuts undermine Germany’s transport sector emissions reduction efforts – analysis

The tax cuts for company cars in Germany are undermining the country’s efforts to get a grip on its stubbornly high emission in the transport sector, think tank Agora Verkehrswende says in an analysis of the support scheme that costs the federal budget an estimated three to six billion euros per year. About half of the tax cuts benefits the 20 percent of households with the highest income, while the poorer half of households only receives one-fifth of the tax cuts. And most of the supported company cars are particularly damaging to the climate as they tend to have bigger engines and weigh more than privately owned cars, the analysis conducted by the Institute for Applied Ecology (Öko-Institut) found. A steering effect towards fully or partially electric cars could not be detected as the eight percent share of new electric company cars was only half of that for private cars in the first half of 2021. Two in three newly registered cars in Germany are company-owned and the vehicles usually quickly move on to the used car market. “A reform of company car taxation is overdue,” said think tank director Christian Hochfeld. “A bit of ecological window dressing won’t cut it. There has to be a comprehensive reform,“ Hochfeld said, arguing that all privileges for combustion engine cars should be abandoned. Comfortable company cars are often used as an asset by employers in wage negotiations with high-earning employees and also often come with a flat-rate for gasoline, meaning they effectively incentivise a high utilisation rate of inefficient cars, the think tank concluded. Germany has exceptionally high emissions from newly registered cars compared to other EU member states, which at 140 grams of CO2 per kilometre is much higher than in second-placed Netherlands, where new cars emit 98 grams of CO2 on average.

Subsidies and other support schemes that run counter to emissions reduction goals have repeatedly singled out as one of the most obvious levers to pull for the German government to bring down emissions in the transport sector and elsewhere. But also the support scheme for electric cars has been criticised for disproportionately going to the pockets of wealthier motorists while poorer ones miss out.