The auto industry is the most prominent player in the current debate over European Union (EU) policies to compete with the US green subsidy push. With market shifts and mounting pressure to reduce harmful emissions, the increased level of competition has pushed the EU to ratchet up its support for alternate-fuel cars. Following a proposed plan of incentives, grants, and targeted subsidies, automakers across the EU can expect to benefit from a financial boost.
What is the EU Plan?
The European Commission (EC)—the EU’s governing body—has finalized plans to bolster the industry in Europe and launch its own push for greener vehicle subsidies. The plan includes €64 billion ($76 billion) in funding for clean transport development over the next seven years. This figure represents a 4% increase from the subsidization granted in the previous seven-year period.
This initiative will be characterized by the aforementioned subsidies on green car models, incentives for exploring the development of alternative vehicle technologies and propulsion systems, as well as targeted investment in battery manufacturing technology.
Incentives for Automakers
The revised EU plan is divided into two broad components. The first component offers financial incentives to automakers that have invested in research and development of green vehicles and technologies.
The second component has been earmarked as a purchase incentive for consumers that wish to buy low emissions vehicles—a subsidy of up to €6,000 ($7,165) for vehicles emitting below 50g/km of CO2.
Advantages for EU Citizens
In addition to incentives for the automotive industry, the regime aims to improve air quality in European cities, reduce emissions from heavy-duty transport, and expand the electrification of the transportation network.
This comprehensive strategy is expected to pose multiple advantages for EU citizens. One of the major advantages will be enhanced air quality and improved transport efficiency. Additionally, the plan is expected to encourage the uptake of zero-emission or ultra-low emission vehicles, spurring the deployment of alternative vehicle technologies.
Effects on Automakers
It is expected that the revised EU plan will largely benefit automotive producers within the regional bloc. The financial incentives provided to automakers are likely to attract new buyers, while the €6,000 incentive to buyers is likely to spur sales of alternative-fuelled cars.
The combination of subsidies and direct investment provides European auto makers with the resources to invest and undertake lifecycle cost payback assessments for their most efficient production models. Additionally, the grant scheme should make it easier for European car-makers to compete with US and Chinese automakers, who have enjoyed lower production costs as a result of substantial government investment in research and development.
Impact on the Global Automotive Sector
The societal and environmental benefits of the initiative, coupled with the subsidies offered to automakers and the consumer incentives, are expected to have an impact on the global automotive sector.
As media attention increasingly focuses on the environmental impact of the automobile industry, all vehicle manufacturers are having to become increasingly cost-conscious, as consumers, investors and regulators demand to see fewer pollutants and greater fuel efficiency.
In response, manufacturers are having to develop new charging and propulsion technologies, alternative fuel mix options and renewable materials to maintain a competitive advantage, forcing the auto sector as a whole to contemplate how they can develop a cost-effective solution.
By embracing and incentivising green transport policies, the revised European plan is likely to herald a major shift in the global auto industry. The plan should precipitate a dramatic rise in the demand for green cars and emission-reduction technologies within the EU, prompting further investment in the development of fuel-efficient cars and emissions-reducing technologies.
Expected Challenges
The move is not without its drawbacks, however. Offering financial incentives to automakers is liable to have an adverse effect on other markets within the auto sector. Bigger manufacturers are more likely to benefit from government-initiated subsidization, which means to remain competitive, small-scale manufacturers have to work even harder and more efficiently.
Furthermore, some experts have theorised that the the subsidies and incentives may increase the cost of vehicles for consumers in the long-term.
The revised EU plan will have both short and long-term implications for the automotive industry. Automakers will see a boost in sales and may even develop new technologies to take advantage of the support. Simultaneously, consumer incentives should stimulate a sharp increase in demand for ultra-low emission vehicles and consumers will benefit from enhanced air quality and improved transport efficiency.
In the long term, the EU subsidies should provide a platform for further fuel efficiency and emissions-reduction technologies. This could present opportunities for the entire global auto industry to benefit from the EU’s push for green transport technology.
Overall, while there may be some challenges along the way, the revised EU plan to compete with the US green subsidy push is a bold step in the effort to reduce emissions globally and encourage a more sustainable automotive industry.
