EU Considers $22 Billion Electric Vehicle Stimulus, U.S. Mulls Cash-for-clunkers Redux

The European Commission is reportedly preparing an economic stimulus package aimed at helping the EU bounce back from economic hardships caused by the coronavirus lockdown — saving some room for incentivized electric vehicle sales.

As you may have noticed in your home country, stimulus package proposals often involve lawmakers attempting to slip something in to aid their favorite causes. While not every nation in the EU feels similarly on all matters, environmentalism has been a reoccurring theme within the union — and has encouraged it to make aggressive decisions when it comes to promoting vehicles.

For decades, the European Union spent billions in subsidies and tax breaks to make diesel fuel cheaper than gasoline. Diesel engines produced less carbon dioxide and opened the door to biofuels, so the presumption was they were better for air pollution. That turned out not to be true, so the continent then pushed hard into subsidizing EVs, with diesel sales crumbling as a result.

Now seen as the only way to save the world from heavy, gas guzzling crossovers that people actually buy in great numbers, battery electric cars are getting their moment in the sun. And it may get a little brighter. The next EU stimulus package is set to include €20 billion ($22 billion USD) for those deciding to purchase an environmentally friendly passenger car.

According to German outlet Sueddeutsche Zeitung, the European Commission’s draft papers recommend setting aside €100 billion for the automotive sector — with a fifth of that going to “clean cars” over a period of two years. However, no one has been able to decide what qualifies as a “clean car.” Many also want to incorporate further incentives for those trading in older vehicles with worse fuel economy, similar to what the United States is considering with an updated cash-for-clunkers plan.

We expressed our thoughts on giving it another shot, but the opinion doesn’t vary much from takes given in 2009, when America first decided it was an ideal way to get people back into dealerships. The gist is that it didn’t really seem to play out like the government intended, and turned out debatably worse for the environment than simply encouraging people to continue driving older automobiles — though it did boost new vehicle sales in the short term.

The United States hasn’t discussed the matter much, even though it’s on the table, and the European Union seems lightly interested but nowhere near sold on the idea. Unfortunately, plenty of differing opinions exist on how far into the green the stimulus should be taken. Automotive News reported European Commission President Ursula von der Leyen’s take on carbon-friendly stimulus measures on May 13th.

“If it is necessary to increase our debt, which our children will then inherit, then at the very least, we must use that money to invest in their future by addressing climate change, reducing the climate impact and not adding to it,” she told the European Parliament.

In the draft, she suggested allotting half of the $100-billion package for transportation to be earmarked for the development of alternative drivetrains that would aid in reducing vehicle emissions and help automakers meet increasingly high carbon caps. Additional funding may be used to help build new charging stations to help spur EV adoption.

The European Commission plans on issuing an early draft of its economic recovery plan on May 27th, but not before a week’s worth of discussion occurs to get everyone on the same page. Those seeking to promote greener cars also have to contend with how cash incentives are basically free money funneled into the chosen industry — which is kind of the point of a stimulus package, when you boil it down.

Many argue that any vehicular incentives designed to help Europe recover from the economic damage that’s been done should go exclusively towards electric vehicles. Others say this is too stringent, and should instead incorporate internal combustion cars of above-average efficiency, or have bemoaned the plan as offering favorable treatment to specific automakers and models, many of which don’t sell in large volumes.

Germany’s transport ministry suggested including cars that emit 140 grams of carbon per km, which is way beyond the EU’s 2021 fleet emission target of 95 g/km. Sueddeutsche Zeitung noted that this would allow high-volume models like the Volkswagen Tiguan to be eligible for subsidies. Obviously, as the most car-focused of all EU member states, Germany wants to get automakers all the help it can. But German Chancellor Angela Merkel has repeatedly voiced that any economic stimulus package needs to incorporate the environment and serve to protect the climate, meaning the country probably won’t push for more than it’s currently asking for.

From Automotive News:

Such a move would be “completely unacceptable,” Stef Cornelis, from the Brussels-based lobby group Transport & Environment, told the paper. Stefan Heimlich, head of the European motorist club ACE, also criticized the German proposal, saying it would hurt, not help, automakers’ efforts to reach CO2 emission reduction targets mandated by the EU.

The European auto industry, the world’s second largest by production after China, has pushed for a coordinated and harmonized fleet renewal scheme for all vehicle types and categories.

On May 14, CEOs from major car and truck manufacturers and their suppliers met with members of the Commission to discuss a recovery plan for the automotive sector “with a view to stimulating the wider economy and bolstering the transformation to a carbon-neutral society.”

France’s Finance Minister, Bruno Le Maire said on May 18 that any aid offered to the industry by his government offered would seek to encourage sales of cars with lower emissions.

Sounds like there’s no chance of the stimulus pack not skewing toward promoting green tech; something we probably should have expected. We would caution Europe to be very cautious in how it allows this to play out. The EU could find itself looking at electric cars in a few years the way it views diesel today — especially now that we’re learning of some of the shortcomings of EVs and the concept of green energy. Still, few expect Europe to take a cautious or measured approach. Many countries in the region are already making plans to ban diesel sales and prohibit where internal combustion vehicles can drive, similar to what’s happening in the People’s Republic of China.

China incentivized EV purchases for years in an effort to encourage their growth. It worked for a while… until its government pulled the perks and sales fell off a cliff. Dumping money onto electric cars may only serve to prop them up while that extra cash is in play. (The Chinese market had other issues and was arguably in decline before subsidies were cut, giving us plenty to consider.)

Still, we think the best way to encourage EV adoption is to help build the infrastructure that supports them (e.g. charging stations). Give the industry the tools it needs to make these cars work for the population, stand back, and see what consumers do as the technology continues to improve. They might surprise you with their purchasing decisions.

[Image: nrqemi/Shutterstock]