Do fringe benefit cars make the car fleet greener?

Abstract

It has proven difficult to reduce carbon emissions from the transport sector; in fact, emissions from this sector are still increasing worldwide. Reducing emissions by reducing road transport is challenging; therefore, a transition to a vehicle fleet with low or zero emissions seems essential. Many new cars in OECD countries are sold to firms as fringe benefit cars (sometimes called company cars in the literature). The generous taxation of such cars has been shown to have negative welfare effects because it increases the consumption of cars. However, it is sometimes justified since it speeds up the transition of the car fleet to lower-emission vehicles. The purpose of this paper is to analyze how fringe benefit cars impact carbon emissions, fuel type, weight, size, engine power, and market value of new cars. We apply micro register data including all adult Swedes and their cars, spanning the years 1999 to 2020. By using a matching model that combines Exact matching and Mahalanobis distance matching, the fuel consumption of the fringe benefit car is compared to the hypothetical new private car that the employee receiving the fringe benefit would have otherwise purchased. We find that new fringe benefit cars tend to be larger, heavier, and more powerful than the hypothetical new private cars that fringe benefit car recipients would have otherwise purchased, However, we also find that new fringe benefit cars sold in 2019–2020 consumed 1.2 L less fuel per 100 km compared to hypothetical new private cars, a decrease of 20 percent. The lower fuel consumption of the fringe benefit cars in these years results from a higher share of electric vehicles among them. We also find that the likelihood of the fringe benefit car being an alternative-fuelled vehicle is 6 percentage points higher than if it was bought as a private car.