Choosing efficient vehicles

While vehicle tax is mainly linked to carbon dioxide (CO2) emissions, air quality is of increasing concern.

Compared to similar-sized petrol engines, diesel engines have better fuel consumption and lower CO2 emissions but produce more particulate matter (soot, unburnt fuel droplets and other tiny particles) and harmful nitrogen oxides (NOx), affecting air quality.

However, the gap in fuel economy between petrol and diesel is narrowing, thanks to recent improvements in petrol engine technology and hybrid cars. Similarly, the gap between diesel and petrol vehicles’ real-world driving emissions of NOx and particulate matter has closed following the recent introduction of on-road testing, which became mandatory for vehicle manufacturers from September 2018 (Real Driving Emissions testing).

Drivers of diesel vehicles registered from April 2017 now pay a vehicle excise duty (VED) supplement for the first year of registration and a higher company car tax diesel supplement, unless they meet the Real Driving Emissions 2 (RDE2) standard. The RDE2 standard will be mandatory on all new cars from January 2021, however compliant models are already available.

Several major cities and towns are implementing clean air zones (CAZs), which will charge polluting vehicles more to enter certain areas. Some CAZs will only charge HGVs, taxis and buses, while others will include vans and cars.

Older diesel vehicles are more likely to be affected. For example, to comply with London’s ultra low emission zone (ULEZ), vehicles must emit less than 0.08g/km NOx. Euro 4 petrol engines (widely manufactured from 2005 onwards) meet this standard, whereas diesel engines must be Euro 6 to be compliant (for cars, these were widely manufactured after 2014).

As air quality plans are developed and released by local authorities, fleets should review how many existing vehicles are compliant (Euro 4 petrol or Euro 6 diesel) and factor in CAZ charges to running costs and vehicle replacement decisions. Non-compliant vehicles could also be reallocated to routes avoiding any CAZs.

Our air quality review helps fleets understand the implications of CAZs. All reviews are free of charge thanks to funding from the Department of Transport.

While electric vehicle technology is rapidly improving, there are some situations where petrol or diesel-fuelled vehicles remain a better choice. In particular, drivers who frequently undertake long journeys, regularly drive at high speeds (ie on motorways) or carry heavy payloads, will find that a modern petrol or diesel car will better suit their needs. Recharging an electric car or van is also more practical and convenient if you have access to off-street parking so you can install your own home chargepoint.

See our video about company cars for more help on finding the best fuel type for your needs.

Whole life cost (WLC) modelling should be the basis for all vehicle procurement decisions, as it accounts for all the costs of running a vehicle through its lifetime on the fleet.

It includes the lease rate or purchase cost, service, maintenance and repair costs, residual value, interest, vehicle excise duty, business fuel, national insurance contributions and any additional costs, such as entering the London congestion zone.

WLC modelling helps to identify more fuel-efficient or lower CO2 vehicles and provides a thorough analysis of all the operating costs.

Through WLC modelling, it’s also possible to create vehicle choice lists, where vehicles with similar total costs are placed in the same grade. This ensures that vehicles with potentially higher capital costs but low running costs are given due consideration.

Rather than automatically replacing like-for-like, it’s worth seeking out opportunities to downsize vehicles. Smaller vans cost less to buy and are usually cheaper to run. An over-sized van will spend much of its life running well below its load capacity, resulting in unnecessarily high fuel costs and emissions.

Vehicles should be well suited to the tasks to be carried out in terms of physical size and payloads, eg both carrying capacity and engine power requirements.

Typically, each step up in van size, within a range, increases fuel consumption by 20 – 30 per cent. In contrast, loading a van to its maximum payload increases fuel consumption by 9 – 10 per cent (according to Energy Saving Trust research for Department for Transport). It is therefore better to have a full, small van rather than a half-empty, large one.

‘Right-sizing’ your fleet also involves checking for any surplus or under-used vehicles, as well as reviewing vehicle sizes. See our quick guide to right-sizing your fleet to help you with this process.

Also see our guide to Reducing van emissions and costs.

Where employees are driving vehicles managed by the business, such as company cars, it is possible to actively reduce the organisation’s carbon footprint and travel costs.

As vehicle taxation is closely linked to CO2, choosing lower emission vehicles can be financially beneficial. Lower emission company cars have lower benefit-in-kind rates, saving drivers money. Employers can save through reduced class 1A national insurance contributions, vehicle excise duty and fuel costs.

For an explanation of how company car tax works and the incentives to select lower-emission vehicles, see our guide to Company cars: a guide for drivers and employers.

One approach is to set a CO2 emission cap for company vehicles for all employees, regardless of grade or role. If the limit is reasonable but challenging, it can help reduce emissions relatively quickly, although significantly restricting vehicle choice may be unpopular. To mitigate this, it may be useful to create a list highlighting lower-emission but similar specification vehicles for popular choices.

Another approach is to introduce CO2 targets. This allows fleet improvements to be monitored and shares responsibility across departments or teams, which can create a sense of competition. Targets can be set in terms of percentage reductions in total CO2 emissions or average CO2g/km for the fleet, and linked to vehicle choice lists.

As manufacturers release new models with progressively lower CO2 emission figures, any CO2 cap needs to be regularly reviewed to ensure that it remains effective.

The government also periodically lowers the emission bands for certain financial incentives, including tax relief. For example, from April 2018, the lease rental disallowance of 15 per cent applies to vehicles with emissions above 110g/km, a reduction on the previous level of above 130g/km. Capital allowance rates have also changed.

We therefore recommend that any CO2 caps are reviewed annually, with adjustments made as appropriate.

Switching to a vehicle with lower emissions will benefit employees through lower benefit-in-kind payments. Further incentives could include:

• a monthly salary enhancement / dividend or one-off bonus if the employee choses a vehicle with lower WLC than they are entitled
• a one-off ‘green bonus’ if the employee chooses a vehicle with emissions below a certain level, for example 90g/km

It can be difficult to know where to start when implementing changes to company vehicle policies. Have a look at this generic Fleet vehicle policy template and adapt it to suit your organisation.

More information on managing company cars can be found in Manage business travel.