BINDING QUOTAS

EU Gives Carmakers Electric Shock

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It's a live wire. Picture source: Reuters

Deceived by automakers about clean diesel technology, European regulators have little faith in the industry’s recent pronouncements about its commitment to all-electric vehicles.

Volkswagen, Daimler and BMW have all adopted plans to boost electric and hybrid vehicles to between 15 and 25 percent of overall sales by 2030, but these are voluntary targets that they can change at any time.

To ensure that the industry does not go back on its word, the European Commission may force carmakers to meet minimum binding sales quotas for electric cars, according to Handelsblatt sources in Brussels.

The quotas would come as part of a broader package, proposed by European Energy Commissioner Miguel Arias Canete, that would also include sharper restrictions on carbon-dioxide emissions.

The commission has not made a final decision, but observers both inside and outside the auto industry believe Mr. Canete will propose a quota of 10 to 15 percent for 2025 and a quota of 25 to 30 percent for 2030.

“We believe such sales quotas are the wrong way.”

Source, German Association of the Automotive Industry

An official proposal could come as soon as this year, sources told Handelsblatt. The commission refused to comment, but a spokesperson said Brussels was weighing several options without providing specifics.

One way or another, the European Union has to find a way to slash emissions from autos if it wants to meet its ambitious goal to reduce greenhouse gas emissions 40 percent below 1990 levels by 2040.

The problem is that passenger transportation, second only to the energy sector as a source of air pollution, is projected to increase more than half by 2050. Street traffic alone is responsible for nearly one-fifth of all carbon-dioxide emissions in Europe today.

But the auto industry is not keen to submit to dictates from Brussels. “We believe such sales quotas are the wrong way,” a source at the German Association of the Automotive Industry told Handelsblatt. Electric car sales depend on many factors the industry has no influence on, the source said.

In Brussels, a European Commission spokeswoman made clear the EU executive views the measures agreed to at Germany's diesel summit as only a "very first step."

While that may be true, governments around the world are imposing strict mandates on the industry to accelerate the transition to low-emissions vehicles. French President Emmanuel Macron joined Britain in announcing a ban on new gas and diesel vehicles by 2040, while the Netherlands wants to impose a ban in 2035 and Norway wants to do so as early as 2025.

That’s not to mention China, now the world’s largest car market. Beijing has mandated that carmakers sell electric and hybrid vehicles equivalent to 8 percent of turnover in 2018, 10 percent in 2019 and 12 percent in 2020. And India recently announced it would only sell electric vehicles after 2030.

Julia Poliscanova, with the non-profit Transport & Environment, said Europe needs to rapidly transition to emissions-free vehicles to ensure that “we do not lose jobs to China and the United States and our citizens can finally breathe clean air.”

In Germany, however, quotas for electric cars are controversial within the coalition government, which has taken a soft line with the automobile industry, one of the country’s most important industries. Indeed, Berlin has lobbied Beijing on behalf of German automakers to ease quotas in China.

And the government has also intervened to help automakers avert driving bans targeting diesels in cities such as Stuttgart, which are suffering from high levels of air pollution from nitrogen oxide.

At a summit in Berlin last week, the government and automakers agreed to recall 5 million diesel vehicles for software updates and offer trade-in bonuses for the owners of another 5 million diesels to purchase cars that pollute less. They also agreed to a €1 billion fund for public transit. These measures are supposed to reduce diesel emissions by 25 percent, but critics say the software updates – the core of the plan – would fix less than 20 percent of the 15 million diesels on German roads.

In Brussels, European Commission spokeswoman Vanessa Mock made clear the EU executive views the measures agreed at Germany’s diesel summit as only a “very first step.” The commission will examine whether the software updates actually reduce nitrogen oxide emissions, Ms. Mock said, and she called on German regulators to measure the reduction through real world tests, not just in the laboratory.

“But if the automobile industry systematically ignores the regulations as in the past, it should not complain about quotas and target requirements.”

Rebecca Harms, European Parliamentarian, Green Party

Regulators are wary of relying too heavily on lab tests after VW cheated by installing software in millions of diesel vehicles which held emissions levels down in the lab, but allowed the vehicles to emit nitrogen oxide up to 40 times the legal limit on the road. The automaker has had to pay billions in fines and damages in the United States, but has avoided penalties in Europe despite the best efforts of EU Justice Commissioner Vera Jourova, who has tried to force VW to pay damages to European customers.

The commission is now looking into allegations that carmakers in Germany colluded in the development of diesel technology that precipitated the emissions scandal. And as the diesel scandal grows, regulators in Brussels are less inclined to work with the industry and instead are becoming more disposed to impose mandates to hasten the transition to electric cars.

“Fundamentally, policymakers and industry should agree on common goals,” said Rebecca Harms, a European parliamentarian with the Green Party. “But if the automobile industry systematically ignores the regulations as in the past, it should not complain about quotas and target requirements.”

Whether or not Germany will sign on to quotas for electric cars remains to be seen. Chancellor Angela Merkel has set a goal of 1 million electric cars on Germany’s roads by 2020, but so far there are only 100,000. Environment Minister Barbara Hendricks, a center-left Social Democrat, said quotas are one way to speed up the transition.

“Electric mobility is advancing too slowly not just in Germany, but in Europe,” Ms. Hendricks said. Additional instruments are needed, she said, and “an e-quota in the EU can be such an instrument.”

But the opposition of the carmakers could prove decisive. The auto industry and the state are notoriously cozy in Germany, as demonstrated by reports that Stefan Weil, the premier of the federal state of Lower Saxony, sent a speech on the emissions scandal to VW for review before reading it in the state legislature.

“It wasn’t just a fact check – we re-wrote the speech and watered it down,” a person at VW who participated in the process told mass-market daily Bild.

Lower Saxony has a 20-percent stake in VW and Mr. Weil sits on the automaker’s non-executive supervisory board, which hires and fires executives and weighs in on corporate strategy. A spokesperson for VW said it’s normal for members of the supervisory board to coordinate public statements with the company.

And if last week’s diesel summit was any indicator, it is also normal for government and the auto industry to coordinate public policy, a potentially a bad sign for electric car quotas.

 

Till Hoppe and Silke Kersting reported this story for Handelsblatt. Spencer Kimball adapted this story to English for Handelsblatt Global. To contact the authors: hoppe@handelsblatt.com, kersting@handelsblatt.com, s.kimball@extern.handelsblatt.com

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