Company car taxation, business travel and teleworking incentives

Company car taxation, business travel and teleworking incentives [1]

Overview:

Work-related trips make up a significant portion of daily travel demand and thus have a significant impact on carbon emissions, congestion and air quality.

Company car benefits are associated with increases in transport demand, car ownership and use of heavier vehicles. Ending company car benefits or increasing taxes on these “in-kind” benefits could significantly reduce emissions from passenger vehicles and prompt behaviour change in employees who no longer have “free” access to a private vehicle. Alternatively, such benefits could be contingent upon cars meeting certain criteria, e.g. they might be limited to electric vehicles.

Teleworking can play a key role in decreasing commuter vehicle miles travelled, contributing to carbon and air pollution reduction while also providing ancillary benefits to employers and employees. Current legislation and national policies in this regard are limited, though the potential benefits of teleworking has made it more popular, especially during the Covid-19 crisis. Employers and employees alike increasingly acknowledge links between teleworking, health and the environment. Employers are the primary drivers of a shift to increased teleworking opportunities. National legislation could, however, incite employers to make teleworking more commonplace. For example, authorities could introduce a right to request remote working, encourage investment in remote work hubs (e.g. located close to childcare facilities), enhance broadband access for households, provide tax advantages for remote working or mandate public sector employers to move to teleworking for a set share of work time.

Impact on CO₂ emissions:

A German study found that employees with company cars drive 24 672 km per year, compared with 12 828 km per year for private cars. Such differences can translate to a shift in CO2 emissions if access to company cars is reduced.

A Canadian study found that working from home decreased travel time overall by 14 minutes. In Switzerland, It has been estimated that teleworking could reduce national traffic volumes by 1.9%.

Company-specific studies have reported substantial CO2 savings. In 2000, AT&T, with 67 900 employees, saved an estimated 44 000 tonnes of CO2 through reduced commuting. A 2015 Dell study found that teleworking employees saved 1.15 tonnes of CO2 per year, even after accounting for negative rebound emission effects, increased energy use at home, etc.

Costs:

Company car tax subsidies are associated with a revenue loss in the European Union of around 0.5% of the EU GDP. While taxing company car benefits at their full value would increase costs for the consumer, at a national level such a policy measure would lead to higher public revenue. A study of OECD countries estimated that only 44–58% of a company car’s taxable benefit value was actually taxed, resulting in a subsidy equivalent of EUR 1 600 per company car per year, or EUR 26.8 billion in lost revenue in 2012.

Productivity losses for businesses might result from teleworking. Yet there are reports of productivity gains in other areas when employees can work at home with fewer distractions. Overall, teleworking provides savings for employers through reduced need to maintain offices, and for employees through reduced commuting costs.

Co-benefits:

Changes in company car taxation and increased uptake of teleworking can have the following effects:

Increased public transport and active mode shares if employees are not given a car as part of their remuneration package.
Purchase of lighter vehicles by employees. Studies show company cars tend to be heavier than personal vehicles.
For teleworking employees, better work life balance, higher satisfaction and significant fuel cost savings. Dell’s US employee base saves over USD 12 million a year through the company teleworking policy.
Lower peak congestion because telecommuters are likely to avoid peak hours when they do travel.
Better mental health for employees thanks to reduced commuting time. There is substantial evidence for links between commuting and stress. A UK report found that 60% of commuters felt flexible working would increase their health and well-being.
Less air pollution. A Swiss study reported reductions in NO2, CO and PM10 ranging from 3.3% to 3.7% linked to teleworking.
Increased dematerialisation. Telecommuters often opt for less paper and other physical media in favour of digital options, reducing emissions associated with the manufacture and distribution of related material.
For employers allowing or encouraging teleworking, the possibility of office downsizing. The efficiency of teleworking for companies depends on the number of people working from home and how often they do so, but it can prove unnecessary to maintain permanent office space for all employees. Teleworking can also prevent absenteeism, and is a suitable option for employees with disabilities.

Other considerations:

Increased teleworking can have rebound effects, such as increased non-work travel related to the reduced need to commute. Travel demand management measures (e.g. regarding pricing or land use) can help keep such effects in check.
Potential negative effects of teleworking include social isolation and fragmentation of team dynamics.
While teleworking allows for greater flexibility, there are reports of overworking, with a disturbed work/life balance when the boundaries between the two are blurred. The impact is particularly associated with women.

Sources:

Atkyns, R, Blazek, M, and Roitz, J (2002) Measurement of environmental impacts of telework adoption amidst change in complex organizations: AT&T survey methodology and results. Resources, Conservation and Recycling, 36(3) https://doi.org/10.1016/S0921-3449(02)00082-4

Giovanis, E (2017) The relationship between teleworking, traffic and air pollution. Atmospheric Pollution Research, 9(1) https://doi.org/10.1016/j.apr.2017.06.004

Harding, M (2014) Personal Tax Treatment of Company Cars and Commuting Expenses: Estimating the Fiscal and Environmental Costs. https://doi.org/10.1787/22235558

Lachapelle, U, Tanguay, G, and Neumark-Gaudet, L (2018) Telecommuting and sustainable travel: Reduction of overall travel time, increases in non-motorised travel and congestion relief? Urban Studies, 55(10) https://doi.org/10.1177%2F0042098017708985

Metzler, D., Humpe, A. and Gössling, S. (2019) Is it time to abolish company car benefits? An analysis of transport behaviour in Germany and implications for climate change. Climate Policy, 19(5) https://doi.org/10.1080/14693062.2018.1533446

Næss-Schmidt, S. and Winiarczyk, M (2009) Company Car Taxation. https://foes.de/pdf/Studie%20Copenhagen%20Economics_paper_22_en.pdf

Pearce, J (2009) Successful Corporate Telecommuting with Technology Considerations for Late Adopters. Organizational Dynamics, 38(1) https://doi.org/10.1016/j.orgdyn.2008.10.002

Pflueger, J, Gibson, S, and Normand, C (2016) The Sustainability Benefits of the Connected Workplace. https://i.dell.com/sites/doccontent/corporate/corpcomm/en/Documents/telecommute-study.pdf

Royal Society for Public Health (2016) Health in a Hurry: The impact of rush hour commuting on our health and wellbeing. https://www.rsph.org.uk/uploads/assets/uploaded/b1320af3-7ba3-4b4e-a14351e7d8cfb24b.pdf

The Climate Group (2008) SMART 2020: Enabling the low carbon economy in the information age. https://www.theclimategroup.org/sites/default/files/archive/files/Smart2020Report.pdf