The costs of fuel consumption discrepancies

The aim of this thesis is to determine the welfare loss instigated by the discrepancy in theoretical and actual fuel consumptions of company cars in the Netherlands. With this is mind, the research focuses on three areas, namely the fiscal losses for the government, the non-financial costs for the government as measured by the carbon emissions, and the financial costs for the companies. The importance of this research is highlighted by the increasing popularity of offering company cars as fringe benefits to employees and the implementation of emission based taxation. In order to address these issues, a company car dataset provided by Athlon Lease Company will be analyzed. The dataset spans from 2006 to 2011 and provides data about 14,361 cars. These data will be used to proximate population characteristics by making use of sample averages. Since the emissions based taxation scheme was only implemented from 2010 onwards, this research will focus on 2010 and 2011. The analyses performed resulted in a number of conclusions. Firstly, it supported the findings by earlier research (e.g., Ligterink and Bos, 2010; TNO, 2013) that huge differences exists between the theoretical fuel consumption, as indicated by the car manufacturers, and the actual fuel consumptions, as measured by tank cards. Secondly, it provided evidence that cars with a lower theoretical consumption have larger deviations, indicating that evidence for improvements in fuel consumptions are more equivocal than expected. Thirdly, it highlighted, as proposed by this research, that current fiscal policies are based on inaccurate information. After aggregation to the whole company car fleet, this resulted in a net fiscal loss of €250,914,084 in 2010 and €612,890,348 in 2011. The increase is mainly driven by increasing deviations, but also by higher tax rates in 2011. The fiscal loss is expected to increase in the following years, as the taxation schemes are becoming more stringent. Furthermore, the discrepancy resulted in additional carbon emissions of 812,433,394 kg of CO2 in 2010 and 1,097,042,963 kg of CO2 in 2011. This represents respectively 0.39% and 0.53% of the total carbon equivalents emitted. Fourthly, it derived that the additional financial costs for the companies offering these fringe benefits equaled €265,486,218 in 2010 and €430,972,269 in 2011. 4 In order to address the above raised issues, new legislations are needed to regulate the fuel consumption test procedures. These are often branded as non-realistic and consequently lead to a systematic underestimation of fuel consumption. Moreover, it is advisable that the Dutch government incorporates these discrepancies into the current tax framework by utilizing either actual emissions as a basis, or adding a yet to determined fixed percentage on the theoretical emissions. Furthermore, it is also possible to incorporate a taxation scheme based on the ‘kilometerheffing’ principle by levying a variable tax (i.e., incorporating road tax in the fuel price). Lastly, given the importance of driving behavior on fuel consumption, the Dutch government and companies alike must aim at making the installation of fuel efficiency driving tools mandatory.