The EU's five largest economies are collectively spending €42bn ($45.6bn) annually on subsidies for fossil-fuel company cars, a study commissioned by environmental group Transport & Environment (T&E) revealed.

The report, conducted by consultancy Environmental Resources Management (ERM), advocates for a shift in subsidies towards electric vehicles (EVs) to promote cleaner transportation.

Company cars represent approximately 60% of new car sales in Europe. Italy leads the way with €16bn in subsidies, followed by Germany at €13.7bn. France and Poland also contribute significantly, with subsidies of €6.4bn and €6.1bn, respectively.

The study highlights that nearly €15bn is directed towards subsidising SUVs across the four nations, with company car drivers enjoying an average annual tax benefit of €6,800.

In the UK and Spain, tax incentives for company cars that produce pollution are significantly reduced.

The UK, in particular, enforces a substantial penalty on petrol and diesel company vehicles through a high benefit-in-kind tax rate. In contrast, drivers of electric company cars enjoy much lower tax obligations, the report says.

This has contributed to an increase in the adoption of electric company cars, which now stands at 21.5%. In Spain, tax incentives for company cars align closely with those for private vehicles, largely due to a relatively high benefit-in-kind tax rate.

However, since Spain provides limited incentives for companies to choose electric vehicles, the adoption rate of corporate EVs remains low at just 3.7%, according to T&E.

T&E director of the electric fleets programme Stef Cornelis said:  “Taxpayers are paying billions every year in tax benefits so company car drivers can drive polluting petrol cars. Many of which are expensive, high-end, high-polluting SUVs. This is bad climate policy and socially unfair.

“Governments in the UK and Belgium have introduced green tax measures and are phasing out benefits for polluting vehicles. But Governments in Europe’s largest automotive markets are failing to address this absurdity. This is why the European Commission needs to take action.”

Polluting company cars not only receive substantial subsidies, but they are also trailing in the EU's efforts towards a greener transition. During the first half of 2024, battery electric vehicles (BEVs) made up 13.8% of all new private vehicle registrations across the EU.

For corporate registrations, this figure was only 12.4%. Eliminating subsidies for fossil fuel company cars could help to reverse this trend.