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The Future of Fuel
21 June 2017
With growing media coverage on the environmental impact of diesel vehicles, in this article we try to illustrate the known facts to enable you to make an informed decision about the future fuel policy for your company vehicle fleet.
The Environmental Issue
Diesel is created as a by-product of the distillation of petroleum, it has a higher base content of oil and therefore is more viscose than petrol. By relying on a complex series of heaters within the engine for ignition, there is no need for spark plugs to create the combustion and therefore historically diesel cars have not been able to “burn” all of the fuel within the engine. You may well recall diesel cars of the late 90s disappearing up the motorway in a cloud of black smoke? The EU have been regulating the emission levels of diesel engine cars through their EU emission classification. We are currently on EU 6 emission standard which it is believed to run until around 2019. All cars are currently homologated by the manufacturers through the NEDC (New European Driving Cycle) method which often simulates engine performance, emissions and fuel economy either on a static rolling road or computerized simulation. This process has come in for much criticism over the years as it doesn’t reflect real-world driving habits, styles or situations.
The diagram below illustrates the appropriate EU emission standard levels for Nitrogen Oxide (NOx) versus actual readings taken from vehicles during actual driving testing. Whilst the levels have fallen over the 14 year period, in 2000 and EU 3 emission vehicles were typically emitting twice the levels of NOx that the standard allowed. By 2014, EU 6 vehicles were emitting 8 times the limit.
With the growth in the number of diesel vehicles over the last 15 years or so, predominantly driven by taxation and the belief that Co2 was the sole cause of air quality and global warming, many public health bodies readily acknowledge today there are some 40,000 deaths per year in the UK attributable to air quality and the primary contributor towards air quality is emissions from diesel engine vehicles.
The Future for Diesel
Now the media love a story and they can’t help but emphasise the apparent “demonisation” of diesel, in the UK there are typically some 3 million cars sold each year and for the vast majority of the last 10 years or more Diesel cars have outsold Petrol. But public awareness is increasing and in May 2017 for the first time we saw Petrol outsell Diesel.
Many car manufacturers have already confirmed that their anticipation of the next European emission standard (EU 7) will be so costly for them to meet that they will not be producing a diesel engine. VW, Renault and Volvo have already confirmed that they will be phasing out diesel engines from their car ranges by 2025. This process has already started with some new car launches only being available with a petrol engine, Honda Civic, VW Polo etc.
Legislation and Taxes
The Mayor of London is introducing the T-Charge (Toxicity) from 23rd October 2017 for all cars not meeting the minimum EU 4 emission standard will be charged an additional £10 for driving in the Congestion Charge zone. Many, if not all company cars will not be affected by this, for now, however private motorists or those taking cash allowance could well be penalized.
The Government, before the recent election, announced an Air Quality Bill which will likely be enforced before the end of this year. One of the expected announcements within that bill is a scrappage scheme for older, diesel cars. At present company car drivers pay a 3% surcharge for choosing a diesel car over equivalent petrol; this is a highly likely area for the government to increase the surcharge to dissuade driver’s company car drivers from choosing diesel in the future.
Benefit in Kind is where the company car driver sees the cost and “pain” of driving a diesel engine car. Many drivers choose their car based on the emissions for the current tax year and are not aware of the 2% increase year on year.
A 119g/km diesel car with a P11d value of £34,000 will currently cost the driver 25% (or £283/month assuming they are a 40% taxpayer) by the end of that 4yr lease they will be paying 33% (or £374/month) an increase of £91/month.
The Future
We live in uncertain times and, at the time of writing, it is not clear on which direction the newly formed Government will take on many of these issues. Car manufacturers are able to adapt quickly to change, and the breadth of models and engines they offer are a reflection of demand. With the swing in sales of petrol vs diesel, many manufacturers are already introducing petrol engine models to their ranges which, until now have been predominantly diesel. In September 2017 a new engine, emission and fuel economy standard will be introduced called WLTP which will start to appear on new car data, the Government is yet to acknowledge this as the basis for taxation, though it is widely expected that Co2 emissions will broadly increase. In April 2018, the writing down allowance for new cars will reduced from 130g/km to 110g/km, this has often been the driver for reducing fleet’s emission standard and vehicle choice. This will clearly sit at odds with new testing procedures and increases in Co2.
Our Recommendations
As you can see there is a lot of uncertainty around legislation, taxation and manufacturer vehicle development. It is clear that the car market will evolve considerably over the next 5 years. There are still hundreds of thousands of engineers and company car drivers who are expected to travel high mileages as part of their job and the most efficient vehicle for them still remains a diesel. For the rest, it is about making an informed decision. The awareness of benefit-in-kind cost impacts on their pay packet and the lower cost price of petrol cars will influence choice, so the trends in the company car park will no doubt change towards petrol over time. So, our recommendation is to introduce petrol engine cars into the company car fleet giving drivers an informed option and choice.
….And finally PHEVs
This document has been created with the sole consideration of petrol vs diesel. As you can see from the table above there has been a significant growth in Alternative Fuel Vehicles (AFV’s) which are predominantly Plug-in Hybrid Electric Vehicles (PHEVs). It is correct that these cars have a value and a place in your company car fleet but only where the total annual mileage is no more than about 17,000 miles per year. Beyond this the cars become inefficient, the increased weight of the car due to the battery and the small capacity petrol engine. Many fleets have seen increased fuel cost as a result of drivers choosing these vehicles due to the tax benefits.
Useful links:
http://www.telegraph.co.uk/news/2017/02/24/motorists-should-hesitate-getting-diesel-car-make-sure-buy-least/
https://www.theguardian.com/cities/2017/apr/13/death-of-diesel-wonder-fuel-new-asbestos
http://www.which.co.uk/reviews/cars/article/petrol-vs-diesel-cars-in-2017-which-is-better
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