The European eco-bonus: a new industrial policy tool for Europe?

The European eco-bonus: a new industrial policy tool for Europe?

Transport & Environment — 2023-11-02

News from Brussels

In September, France presented a new environmental criterion for granting the ecological bonus to the purchase of new vehicles, a first. From 2024, this bonus, currently amounting to €5 to €7,000, will be conditional on the value of the carbon footprint of the production of the electric vehicle: only vehicles with a carbon footprint below 14.75t will be eligible to obtain the bonus.

Data on the recyclability of materials and the use of biosourced materials will also be gradually taken into account. This initiative has many interests and could be replicated by other European countries, Italy having already announced its interest in this measure. But to make it a solid European instrument, improvements in the methodology will be necessary.

The environmental benefit of applying this eco bonus is obvious: although the transition to electric must be supported and accelerated, it is not sufficient to guarantee decarbonization of vehicle production. It is indeed a profound decarbonization of the automobile that is at stake, and this involves reducing impacts throughout the life cycle, from production to the end of life, by considering the consumption of materials. and energy. 

Target subsidies to better support the industry

But the ambition here goes beyond the strict environmental issue. This is a way for France to promote vehicles made in France and made in Europe and to reserve subsidies for them. Based on the environmental footprint of production, electric cars imported from countries with very carbon-intensive energy mixes, such as China, but also the heaviest cars assembled with batteries imported from Asia will not be eligible for the bonus. and will see their price advantage reduced.

According to preliminary estimates from T&E, this could concern vehicles such as the SAIC MG4 or the Tesla Model 3 (both around 15-16 tCO2) and potentially German models such as the BMX iX (18-19 tCO2) or the Audi Q8 e-tron (15-16 tCO2). The list of eligible vehicles is announced by December 15. 

France is therefore initiating with this environmental conditionality of the bonus a new industrial policy tool, to secure its investments in reindustrialization and support the competitiveness of French and European industry, which has fallen behind Chinese competition. Having failed to convince Europe to develop a “Buy European Act” similar to the American IRA, which would have favored the European production of electric cars and protected the market from international competition, it undoubtedly hopes to rally other countries. 

Germany, concerned with maintaining its trade balance with China, does not want protectionist measures, and has largely influenced European policies in response to the American Inflation Reduction Act, which therefore gave birth to a mouse. Several other countries, led by Italy, could show interest in the application of such conditionalities. Moreover, the initiative could well have a very limited effect if it is not implemented on a European scale. 

Necessary improvements for European scale

In several respects, the current methodology – a true gem of complexity – ignores the weaknesses of the French and European automotive sector: in particular the too low volume available on the market for small segment vehicles, the dependence on Chinese batteries, the too low level of recyclability... Thus vehicles whose footprint exceeds 14.75 tCO2eq during production will not be eligible, but no difference is made between a Zoé and a 3008. The method is also based on unsourced emission factors, which could quickly be considered arbitrary. 

The signal given today must therefore be based on a strengthened, more transparent method in the years to come to have a real positive impact on the sector. It is only under these conditions that it will give a sustainable competitive advantage to the automobile industry. Consistency with existing and future European regulations (in particular with the battery regulation and the carbon border adjustment mechanism), involving harmonization of calculation methods, is desirable. It is also a way to facilitate the application of this industrial tool by other European countries.

T&E also proposes to introduce progressiveness into the bonus eligibility system: a system where a car that consumes less CO2 would benefit from a higher bonus. Finally, for the sake of consistency, this scale can then be applied to other areas of automobile taxation, in particular to professional fleets via the tax on company vehicles. These fleets represent one in two new cars purchased and are pushing the market towards larger and heavier cars. 

The packaging of the ecological bonus is a signal to the attention of motorists but especially manufacturers, in favor of additional efforts to decarbonize the automobile industry. But more than a signal, it can open the way to a transformation of public policies on a national and European scale, capable of directing investments and public subsidies towards the most sustainable products and discouraging production and sale. vehicles with high carbon footprints.