In September, France announced new green eligibility rules for electric vehicle subsidies – a first in environmental policymaking. From 2024, the government incentive of between 5,000 and 7,000 euros will only be given to electric cars with a carbon footprint of production below 14.75 tons of CO2.2. (1)
This initiative has many advantages and can be replicated in other European countries. ItalyIn fact, she has already expressed interest in this approach. But for this incentive plan to be replicated in an effective and robust way across Europe, the methodology will need some fine-tuning.
Supporting European industry with targeted subsidies
Although the French Green Bonus aims to reduce the environmental impact of cars and incentivize clean materials and energy for car production, its goal extends beyond environmental risks. It is a backdoor to promote cars made in France and Europe, allocating financial support specifically to these models. In fact, electric cars imported from countries with a carbon-intensive energy mix, such as China, will not qualify for the fiscal incentive and will lose some of their competitiveness.
In response to US and Chinese electric vehicle subsidy policies, Europe expanded state aid mechanisms and announced an investigation into Chinese support for imported models. But France was hoping for more. Now you’ve decided to take it a step further with this new green bonus. By introducing this basic environmental requirement, France is effectively adopting a new industrial policy instrument to protect the competitiveness of the European car industry, which is threatened by the influx of cheaper Chinese electric models.
But does the short-sighted European auto industry – which has delayed electrification to benefit from polluting vehicles for too long – deserve our subsidies? It’s a fair question, but it’s also about ensuring that Europe maintains its industrial base. We must avoid a future in which all our electric cars are produced in China, and where we lose hundreds of thousands of jobs in Europe. Local content rules that favor less carbon-intensive production must play a role if we truly want a thriving electric vehicle industry in Europe.
French rules will exclude a quarter of electric car sales from subsidies
The list of eligible vehicles was published today by the French government. It shows that 6 models of electric cars produced in China will lose their EV support: Dacia Sebring, Tesla Model 3, and four SAIC MG models (2). Together, these vehicles represent 26% of EV sales and 12% of EV models. As a result, more than two-thirds of electric vehicle sales in France (69%) will still be eligible for the bonus.
Figure: Share of car sales and car models eligible for the new French environmental bonus (3)
Most premium electric car models will not be eligible because they exceed the €47,000 price threshold (such as the Audi Q8 e-tron, BMW iX3 and Mercedes EQE). Together, we estimate that these models represent approximately 26% of models or 5% of sales.
A European guide to optimization and subtraction
Although this law is ambitious, the current methodology fails to address several critical shortcomings in the French and European automotive sector, including the insufficient supply of compact electric cars and the heavy reliance on Chinese batteries. As a result, under current rules, all models with a carbon footprint of less than 14.75 tonnes of CO2 equivalent will be eligible, and no distinction is made between models such as the small Renault Twingo and the all-wheel drive Peugeot e-3008. In addition, the French methodology fails to provide sources for the assumptions and emission factors used.
There is a risk that the adoption of new standards on the carbon footprint of automobile production by European countries will create a more fragmented and complex financial landscape. Each country will choose the assumptions and standards that best suit its interests, thus sending very mixed signals to industry and consumers. Indeed, for the initiative to be truly effective, its wider adoption and harmonization across Europe is essential.
The European Commission must publish a clear vision and set guidelines for how EU countries will implement green support rules to ensure coordination and effectiveness.
First, it must be supported by a more robust and transparent methodology. T&E recommends aligning the methodology with existing and future European regulations (particularly the Battery Regulation and the Carbon Border Adjustment Mechanism, or CBAM, for steel and aluminium), which have uniform methods for calculating carbon emissions.
Secondly, T&E also recommends a tiered approach where lower CO2 vehicles are used2 Footprints will reap a greater financial incentive in order to better reward best-in-class models.
Third, to maintain consistency across the sector, this scale can subsequently be applied to other areas of motor vehicle taxation, particularly corporate motor vehicle taxation.
Finally, public money to support electric vehicles must come with clear, strong conditions: automakers must unequivocally support the phase-out of combustion engines by 2035.
Recently, the Association of European Automakers, ACEA, called on policymakers to create an enabling environment conditions For small electric cars produced in Europe. Prioritizing public support for small electric cars made in Europe is a good starting point.
In short, European countries should support such environmental bonuses because they rightly support the EU’s industrial base by rewarding cars produced with a lower carbon footprint, and they also ensure that taxpayer-funded subsidies are not spent on vehicles that already receive foreign state aid. The EU guidelines will serve as a starting point for countries to adopt this.
Such a policy has the potential to chart a new course for national and European vehicle policy. It’s a small, but encouraging, step toward deeper cleaning up of the auto industry’s high carbon footprint.
Notes:
(1) The current electric vehicle bonus provides private and corporate buyers with a subsidy of between €5,000 and €7,000 (depending on household income) for an electric vehicle weighing less than 2.4 tonnes and costing a maximum of €47,000. The extent to which a vehicle was produced with recycled or bio-based materials will also gradually be taken into account in the new bonus criteria.
(2) The four MG models: MG 4, MG ZS, MG Marvel R, MG 5. This also excludes other small EV models (less than 100 sales in the first half of 2023) from BYD (Atto, Han, Tang) and Airlines U5. The BMW iX3, which is also produced in China, is above the 14.75 tonnes of CO2 threshold but is already excluded from subsidies because it is above the price cap.
(3) T&E estimates are based on the initial list of models published by the French government assuming that other EV models not included in the current list will be eligible (e.g. Kia Niro, Hyundai Ioniq 5).
(4) Corporate fleets make up half of all new vehicle purchases and currently have an important role to play in driving the market toward larger, less environmentally friendly vehicles.
