Estimating the impact of company car policies on mileage and CO2 emissions in Germany

The German tax treatment of private use of company cars as a flat-rate non-cash benefit (so-called 1% rule) stimulates additional travel and CO2 emissions. Previous research shows that the annual mileage of company cars is twice that of private cars. However, because employees who receive company cars are fundamentally different in terms of their preferences, socio-demographic characteristics, and travel needs, the causal effect of receiving company car fuel allowances on private car use remains unknown. From a policy perspective, this is critical to assessing the climate benefits of revising or eliminating the company car tax benefit. In this study, we use double machine learning to estimate the individual treatment effects of fuel allowances on mileage and related CO2 emissions by accounting for self-selection and work-related travel needs. We examine the moderating effects of socio-demographics, commuting distance, and vehicle type and discuss the climate policy implications of insensitivity to changes in fuel costs and carbon prices. To underscore the relevance for climate change mitigation, we estimate the total CO2 reduction potential of eliminating flat-rate non-cash benefits for internal combustion engine vehicles in Germany. In light of recent federal budget constraints, adjusting company car taxation represents a revenue-generating, progressive climate policy measure to catch up on the stagnating decarbonization of the German transport sector.