European carmakers in a bind over emissions control

The European Union (EU) has brought in tougher emission rules which would entail the major carmakers paying heavy fines in 2025, which could total up to $15 billion. To avoid the potential penalties, the carmakers are juggling their sales strategy.

They have increased the prices of the petrol cars by a few hundred euros, and they are giving heavy discounts on the electric vehicles (EVs). But the business dilemma that the auto manufacturers face is this. While people would be discouraged from buying petrol cars because of the increase in prices, they would not be able to buy the subsidised EVs because they are hesitating to spend as the economy has slowed down and consumption has taken a hit.

While European politicians are trying to impress upon the EU not to push too hard and too quickly on decarbonising the auto sector, the manufacturers are not taking chances.ApplyCtrl + EnterRemove

They are preparing strategies to avert the fines that come with failure to meet the stricter emission norms. The question remains whether the car manufacturers in Europe can survive the pressure without losing businesses to competition from Chinese EVs apart from Tesla in the United States.

At some point of time, they would have to avoid manufacturing petrol, diesel and CNG cars altogether, and roll out only EVs.

The EU would want to make Europe a decarbonised paradise in terms of transport, but the manufacturers would have to pass through difficult stages and some of them might not even survive. The EU’s legislation is binding on all the 27 member-countries whatever the reservations each country may have towards moving to a green economy.

From January 1, the EU has lowered the carbon dioxide emissions from the automotive sector, and it has made it necessary for car-makers to make at least one-fifth of their production to be that of EVs. The new emission norm is 93.6 gCO2/km, which only Saic, Volvo and Tesla have reached.

Said Beatrix Keim of the Centre for Automotive Research, “Carmakers have started with their pricing strategy to steer demand towards battery EVs in order to reach the CO2 targets and avoid potential fines.”

But there is no certainty that the strategy would work. According to an industry insider, “In reality, increasing the price of thermal engine cars means cutting production (...) and all the value chain and suppliers will suffer from this.” It is felt that subsidising EVs will increase the sale of battery-driven cars and it is likely to go up to 3.1 million in 2025. But the cross-subsidy comes at a cost.

It is estimated that it would cost the United Kingdom’s automotive industry 6 billion pounds or $7.6 billion. Luc Chatel, president of La Platforme automobile (PFA), made the blunt observation, “At some point, enough is enough. I can’t sell enough electric vehicles and I’m going to be penalised on my thermal vehicles. What do they want me to make, horse-drawn carriages?”

The problem is a difficult one but something that cannot be put away either. It is imperative to curb greenhouse gas emissions in order to keep the global temperatures rising above 1.5 degrees Celsius above the pre-industrial levels. Failure to do so would worsen the climate disasters that will bring catastrophe on the whole of humanity across countries and continents.

The EU is pushing hard for it because there is no alternative. Europe is also in a position to do so because it has evolved a continental policy mechanism which can be implemented across its 27 member-countries and a population of over 450 million.

If EU succeeds in achieving the green targets, then it can be an example for many other regions. The US, which is the major economy in the Western world, refuses to put its shoulder to the wheel as it were. It is left to Europe with status of an advanced industrial nation to take the lead in reaching the climate goals.