That's the message from Arval, which says that its Consultancy Team is increasingly being asked to structure vehicle selection lists that are designed to aggressively reduce business-related CO2 emissions, by capping CO2 at very low levels.

However, the company says that where such companies also offer employees the option of opting out of the company car scheme and taking cash, an increasing number of staff are migrating to this cash option.

As a result, many cash takers will buy used cars with higher emissions than would have been emitted from cars on their original company car selection list. And this can end up costing the company considerably more.

Energy Saving Trust (EST) research shows that when an employee opts out of a company car scheme, their vehicle emissions on average increase by 20% as they are often purchasing second hand cars which are cheaper to buy but more polluting and more expensive to run.

Nigel Underdown, head of transport advice at EST, said: 'Capping the CO2 of a company car fleet is an excellent means of encouraging drivers to select more sustainable vehicles. However, if the list is so restrictive that the cars within it are no longer attractive to employees then they will be inclined to move to a cash scheme or end up in the grey fleet which on average will always be a more polluting option.'

Arval also warns that if company cars are being used as a recruitment and retention tool, including lower emitting models can be attractive to employees for tax reasons. However restricting choice so much that the options are no longer appealing nullifies the benefit.

Jon Mackney, head of consultancy at Arval, said: ''Fleets must find a happy medium and capping CO2 is an approach that we often recommend. Arval's own company car choice list is restricted by emissions and we have worked with a number of companies that have succeeded in getting this balance right.

'There really is no hard and fast rule in terms of what level a CO2 cap should be set at as it will differ from fleet to fleet. A company needs to consider the range of vehicles it is making available, the attractiveness of any cash allowance and the amount that it will reimburse employees that take the cash allowance and complete business mileage in a private car. Clearly there is scope for getting this wrong, and the associated cost increase can be significant. As an example, we recently worked with a company that had shifted its CO2 cap from 160g/km to 120g/km and below; a move that was encouraging many drivers away from company cars and into cash allowance.'

'This often means introducing CO2 caps which still allow a reasonable choice of vehicle, but with a plan to gradually reduce these caps as improving technology allows. It is also advisable to base the vehicle selection list on whole-life costs. Because this approach takes account of fuel, it tends to favour vehicles with lower fuel consumption and emissions.'