Werner's Blog — Opinion, Analysis, Commentary
No ban of the internal combustion engine in Germany by 2030

A motion that was passed in the upper house of Germany's parliament, the Bundesrat, in September 2016 has led to spectacular headlines in some places (e.g., Forbes Magazine, Road and Track, The Independent, Ars Technica) that Germany plans on phasing out the internal combustion engine by the year 2030—a mere 14 years from now. Many news organizations picked up on a story in Germany's Der Spiegel on October 8, 2016, entitled Bundesländer wollen Benzin- und Dieselautos verbieten. Headlines such as Germany's Bundesrat votes to ban the internal combustion engine by 2030 are eye-catching, and even though some note that the motion is non-binding, they are also quite misleading in suggesting that the death of the internal combustion engine is immanent. In fact, the Bundesrat has simply called on the European Union to harmonize regulations on motor vehicle fuel efficiency. Here is what the Bundesrat resolution says (with my own translation into English) in the relevant section 4:

The Bundesrat is convinced that, especially Europe-wide, harmonized taxes and specific levies on motor vehicles and motor fuels are suitable to encourage the transition to emission-free mobility. Such measures create Europe-wide investment certainty for generating employment and markets of the future and they provide a reliable framework for national industrial policy. It is important to analyze the efficacy of existing tax and fee policies of member states with respect to encouraging emission-free mobility and to develop plans for the efficient deployment of tax-based and fee-based instruments, so that at the latest by 2030 only emission-free light vehicles may be newly registered union-wide.

The goal of transitioning to zero-emission vehicles by 2030 is ambitious, but it is also squarely put into the context of European harmonization of tax policies. The resolution is merely an appeal to the European Union to work together to find a common approach. Germany will not go it alone, and Germany is not contemplating an outright ban either. The resolution speaks about tax measures. What this resolution seems to imply is the goal of increasing fuel taxes sufficiently to make emission-free vehicles financially attractive so that customers will choose such emission-free vehicles as the more economic option.

Germany has pursued ambitious goals before. Its Energiewende (energy reform) marked the exit from nuclear power and a massive expansion of renewable energy, financed by high utility rates. The policy has been effective increasing renewable energy, which is now over 30% according to the U.S. Energy Information Administration. However, most of this expansion has come at the cost of reducing nuclear power, which is also emission-free. The share of coal and natural gas has hardly changed in the last few years. Coal continues to provide 44% of Germany's electricity generation (see chart below, courtesy of the US EIA). The result of the Energiewende is that Germany's reduction of greenhouse gases proceeds much slower than intended.

Germany gross electricity generation by fuel source (1990-2015) and Germany gross electricity generation by renewable fuel source (1990-2015)

Enter the Verkehrswende (mobility reform, or more literally a traffic turn-around), the green-motoring counterpart to the Energiewende. The political force behind the the goal of banning gasoline and diesel engines for new passenger vehicles by 2030 is, perhaps unsurprisingly, Germany's Green Party. Even though there was tacit approval from other political parties in order to pass the motion in the Bundesrat, the motion is not a law (which would need to be passed by Germany's lower house, the Bundestag). Neither of the governing parties is calling for implementation of the resolution at the national level. Naturally, car makers in Germany are highly critical, as they predict that in 2030 electric cars will only capture about one-third of the market.

Compared to where Germany is today with electric vehicles (EVs), a market share of 30% looks optimistic in the absence of subsidies. Even in Norway, which boasts some of the highest subsidies for EVs, EVs only gained a market share of 24% in 2014. In the Netherlands, the market share of EVs actually fell from 5.6% in 2013 to 3.4% in 2014 after the expiry of tax exemptions for company cars that emit less than 50 g/km CO2. Meanwhile, the market share of EVs in Germany remains stubbornly below 1%. The country that was called home by prominent inventors of internal combustion engines, Rudolf Diesel and Nikolaus Otto, is not likely to give up on a well-established market for gasoline and diesel engines. Even after Volkswagen's cheating scandal that involved fudging emission tests for its diesel engines, it is unlikely that lawmakers in Germany ar ready to force an abrupt end to these technologies. More likely is that ever-more efficient, and eventually cheaper, hybrid-electric vehicles will give old technology a new lease on life.

While innovation into electric vehicles is making progress, the main obstacle remains the lack of cheap high-capacity batteries. Without a major breakthrough in battery technology, the push for zero-emission vehicles as the only alternative is a costly error. The economic question is: how can we achieve emission reductions at the lowest cost? While EVs remain too expensive for the average consumer, cheaper hybrid-electric vehicles are a faster route towards emission reductions. Volkswagen's XL1 concept car (see my June 6, 2014 blog) shows what is feasible. German car makers, and Volkswagen among them, are far from sleeping behind the wheel when it comes to innovation. They won't simply surrender the market for EVs to newcomer Tesla Motors or established competitors such as Toyota and Nissan. Expect BMW's i-series, or Volkswagen's e-Golf and Golf-GTE, to be followed by others. Carmakers in Germany and elsewhere will continue to follow where the marekt—and that is us, the consumers—will lead them. The challenge remains the price. Pure electric vehicles and plug-in hybrid vehicles remain significantly pricier than their conventional counterparts, and this is not going to change soon. An ICCT study concluded "[a]t their present state of development, full-function hybrids reduce fuel consumption by 25 to 30 percent, at a manufacturing cost increment of roughly $2,500 to $3,500." It will take another decade of innovation to shrink this cost gap.

Germany is on the right track to press for innovation and for harmonization of fuel tax policies and other incentive schemes across Europe. The plethora of disjoint incentive policies across Europe distorts competition. The Verkehrswende will not be a quick U-turn on a wide road but more like a slow three-point turn on a narrow road. To paraphrase Mark Twain: "announcements of my death have ben greatly exaggerated", said the internal combustion engine.

Posted on Friday, November 4, 2016 at 08:30 — #Environment
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