Green ‘cash for clunkers’ deals on the starting grid

Car renewal schemes aimed at boosting the automotive industry and the wider economy during the virus recovery period are likely to be linked to climate targets, although the actual effectiveness of such programmes is still a matter of debate.

Global car scales were expected to continue their downward trend before the virus even hit and are now falling even further. Europe’s carmakers are struggling to ride out its impact on their business and are looking to plan a course out of trouble. 

Some manufacturers have started to reopen factories in an effort to catch up on lost production, while others have applied for state aid. Renault has already secured €5 billion from the French government.

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Another course of action could be scrappage schemes, which would aim to incentivise motorists to ditch their current cars in favour of new models. 

Germany’s big manufacturers – BMW, Daimler and Volkswagen – met with Chancellor Angela Merkel earlier in the week to discuss how the federal government could help the industry, which contributes more than 5% to the Bundesrepublik’s GDP.

Berlin is due to make a scrappage decision no earlier than the end of May and Minister for Economic Affairs Peter Altmaier is insistent that the schemes should be linked to green policies.

“Of course, it must be the case that this scrapping premium has our climate targets in mind and tries to save CO2,” he told Bild in an interview.

Altmaier added that although a previous version was “very controversial”, when deployed in the wake of the 2008/09 financial crisis, “it actually contributed to the fact that economic growth got back on track very quickly”.

How this particular renewal scheme will actually work and whether there would be an extra premium for electric car purchases remains to be seen.

The virus outbreak’s impact on European and global supply chains mean that factors like oil price, electric battery raw material costs and simple consumer demand will weigh heavily on any incentive programme.

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Old bangers

Altmaier is not alone in suggesting green strings for new ‘cash for clunkers’ schemes. EU climate chief Frans Timmermans has also called for an ecological approach to stimulus policymaking.

“We see the automotive industry asking us to help them, by helping households to afford a new car,” Timmermans told MEPs on 21 April. “But why don’t we do this with ecological scrappage schemes, replacing an old and dirty car with a cleaner, even zero emission one?”

As part of its approval for Renault’s state aid, the European Commission’s competition services pointed to the French manufacturer’s successful foray into electric car building and its contribution to climate targets.

It is unclear at this stage whether the EU executive would attempt to launch an EU-wide scheme, given the complex and time-consuming process of drafting, proposing and getting final approval for its ideas.

EU climate chief sees green strings for car scrappage schemes

The European Union’s chief climate official said on Tuesday (21 April) there could be green conditions attached to any car scrappage schemes set up by the bloc to revive vehicle demand following the coronavirus pandemic.

Common guidelines or criteria for national programmes are a more likely avenue. The auto industry has already called for a coordinated approach in order to prevent single market distortion.

“Purchase and investment incentives should be based on similar criteria across Europe, drawing on both national and EU funding. Such schemes should be enhanced by scrapping premiums,” the European Automobile Manufacturers Association (ACEA) said.

The group, which represents top marques like Fiat, Peugeot and VW, also said that programmes “should take into account society’s climate ambitions and resource-efficiency objectives in concert with the economic impact”.

But ‘cash for clunkers’ schemes – named after a US policy in 2009 worth $3bn – are not a sure-fire way of boosting sales or the wider economy, as a number of studies into the long-term effects of such programmes have struggled to identify lasting benefits.

A 2013 review of the eponymous ‘cash for clunkers’, concluded that it had no short- or long-term economic dividend and that 45% of the money spent went toward consumers who would have bought a new car regardless of incentive.

Other studies have pointed to a short-term boost for the economy.

Another stocktake in 2018 of Germany’s €5bn programme said that the economic impact was positive but that its subsidy structure could have actually caused an increase in CO2 emissions, as motorists traded in their old, smaller cars for larger more-polluting models.

“Increased emissions over the lifetime of the new vehicles might more than offset the reduction of CO2 emissions resulting from scrapping the clunkers, such that the environmental premium might have hurt the environment in the long-run,” the study suggested.

[Edited by Benjamin Fox]

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