The Subsidized Green Revolution: The Impact of Public Incentives on the Automotive Industry to Promote Alternative Fuel Vehicles (AFVs) in the Period from 2010 to 2018

Abstract

Throughout decades, conflicts related to the access and usage of various energy sources have caused political tensions between nations and confederations of states. Thus, partially to decrease the dependence on fossil fuels, a thorough transition towards renewable energies has been promoted by several regional and national governments as well as by multinational institutions such as the European Union. In this context, the automotive industry has particularly been held responsible for the production of negative externalities, such as global greenhouse gas emissions (GHG emissions), noise and air pollution. To a notable extent, these externalities were caused by vehicles running on fossil fuels such as petroleum products, including gasoline, diesel fuel and fuel oil. Accordingly, it is often argued that replacing vehicles run by internal combustion engines (ICEs) with so-called alternative fuel vehicles (AFVs), particularly with plug-in electric vehicles (PEVs), is crucial to increase the sustainability of the transport sector. Moreover, several EU-member states aim to reduce the vehicle-related petrol and diesel demand to decrease their dependence on foreign energy sources. However, one must consider that there are important economic costs related to such a transition process. This paper evaluates the short-term and long-term effects of fiscal policies on the European automotive market in the period from 2010 to 2018, focusing on the impact of mentioned public incentives for AFVs. This public interventionism will be critically evaluated to examine the effectiveness of government incentives in promoting AFVs, particularly for plug-in electric vehicles (PEVs). The author argues that the rather positive sales evolution of AFVs was not caused by corresponding actual customer demand but mainly by governmental policies in an increasingly interventionist market. He acknowledges that the growing variety of available PEV models, the increasing driving range of electric vehicles, as well as their decreasing production costs due to economies of scale, have helped PEVs to become more competitive. However, the concern should be raised that mentioned public interventionism is unsustainable from a macroeconomic perspective, possibly leading to significant market distortion and a new artificial market bubble. The narrowed focus on battery electric vehicles prevents the market from further elaborating on other potentially more sustainable technologies. Moreover, from a geostrategic perspective, the transition of the European automotive industry towards electrification is likely to reduce the EU’s dependency on imported fossil fuels but enables several non-European automotive brands to conquer a significant market with their new competitive plug-in electric vehicle technologies.