I am pleased to see that Germany continues to drive its energy transition. The so-called ‘Energiewende’ (German for energy transition) is overhauling the country’s energy concept fundamentally. Thereby the three pillars of the new energy concept are reliability, environmental sustainability and economic viability. The government’s vision is to transform the country into a role model for energy efficiency and a green economy coupled with competitive energy prices and a high level of prosperity (BMWi, 2010). The four main political objectives of the energy transition are to combat climate change, to avoid the risks of nuclear power, to improve Germany’s energy security and to increase competition and growth in the sector (Pescia and Graichen, 2015). But there are more potential benefits to it, including the reduction of energy imports and therefore oil dependency and exposure to external energy supply shocks, as well as the strengthening local economies and the provision of social justice (Morris and Pehnt, 2015).
In order to achieve the ambitious vision, the government’s agenda includes:
- Cost-efficient expansion of renewables, e.g. expansion of offshore and onshore wind farming and increasing sustainability and efficiency in the use of bioenergy
- Enhancing energy efficiency of private households, the industry and the public sector, e.g. the modernisation campaign for buildings with the vision of energy-efficient buildings by 2050
- Shifting the energy mix away from nuclear power and fossil-fuel power plants toward renewable energy sources
- Improvements in the country’s grid infrastructure and storage technologies with demand-responsive electricity generation
- Electric mobility strategy with one million electric vehicles on Germany’s streets by 2020 and six million by 2030
- Energy research programme with focus on innovation and new technologies regarding renewable energies, energy efficiency and storage methods (BMWi, 2010).
Although some of the policy measures, which the government has adopted, are debatable, the overall plan is clearly well thought out. A month ago I already dedicated a blog post to the idea of ecological fiscal reforms (green tax shift) and eco-social market economies. In this post I used Germany as a textbook example for the evidence of the wide-ranging benefits of such green reforms.
In my opinion, the ‘Energiewende’ provides the necessary nudge to the industry, consumers as well as the public sector to enhance their energy efficiency and sustainability. It reshapes the incentives of economic actors in favour of green research, innovation and consumption. In addition, it is also a poster child for demonstrating that “coherent government policy can transform an industry” and that it is possible to “to blend low-risk feed-in tariffs with market price signals” (Fares, 2014).
The motivation for today’s post stems from the fact that Germany is now starting to implement its electric mobility strategy (item 5 on the agenda above). It is about to introduce a new nudge targeting electric cars. In particular, the German Federal Cabinet has just approved a new legislative package for the preferential treatment of electric cars. It will include a subsidy of 4,000 Euro when purchasing a new electric car and 3,000 Euro when purchasing a hybrid car. In addition, electric cars will be exempt from the motor vehicle tax for a period of 10 years (Tagesschau, 2016). This initiative for electric mobility will be funded jointly by the government and the automobile industry, each contributing 0.6 billion of funding. According to the government Daimler, VW and BMW have already agreed to the 50:50 split in costs (ZEIT, 2016). The initiative will be coupled with the roll out of charging points. This, in turn, will be funded by the Federal Government swallowing another 300 million of public funds.
The main goal of the latest initiatives for electric mobility is to achieve a more than ten-fold increase the amount of electric and hybrid cars from currently less than 50,000 to more than 500,000 in the short-run and to more than one million in the medium-run (Tagesschau, 2016). As noted earlier, electric mobility is at the heart of the country’s energy transition. Transport is currently one of the main drivers of Germany’s oil dependence. It continues to rely heavily on fossil fuels rather than renewable energy sources despite efforts like the development of the National Hydrogen and Fuel Cell Technology Innovation Programme (BMWi, 2010). This is why the government is now taking action. It is starting to pave the way for preferential treatment of electric cars in order to increase the incentives for both fleet operators and first-time private buyers to purchase an electric car and to drive its energy transition also in the area of transport.
Overall, the legislative package still has to be discussed and approved by the German Federal Parliament and Federal Council. However, the package is likely to go through shortly with the subsidy for the purchase of electric and electric cars being expected to already begin in May. Subsidies will be claimable through an online application facility (Tagesschau, 2016). So there are interesting times to come; especially whether the subsidy will be sufficient to increase the adoption of the electric mobility technology. Electric cars continue to carry an excessive price tag for their zero emissions image. Even under the assumption that both fleet operators and first-time private buyers care about the image associated with a zero-emission vehicle (BMWi, 2010), it is not clear whether this together with the government’s subsidy and tax exemption is an incentive large enough to justify the higher initial investment costs. One should not forget that it is ultimately the price which determines demand (and supply). The initiative has the potential to break ground, but it is unlikely to turn the larger share of society into electric car users; at least not yet. Still, I would argue that we are heading into the right direction due to the right policy mix. Firstly, Germany focuses on competition and market orientation. Secondly, Germany introduces incentives in favour of greener transportation without restricting society’s choices as well as important incentives for green innovation. Both are key to rethink transportation and mobility issues in a century where renewable energy sources are clearly on the rise.
Thanks for reading,
BMWi (2010). Energy Concept for an Environmentally Sound, Reliable and Affordable Energy Supply. Berlin: Federal Ministry of Economics and Technology. Retrieved from: http://www.bmwi.de/English/Redaktion/Pdf/energy-concept,property=pdf,bereich=bmwi,sprache=en,rwb=true.pdf
Fares (2014, 7 October). Energiewende. Two Energy Lessons for the United States from Germany. Retrieved from: http://blogs.scientificamerican.com/plugged-in/energiewende-two-energy-lessons-for-the-united-states-from-germany/
Morris, C., and Pent, M. (2015). Energy Transition: The German Energiewende. Berlin: Heinrich Böll Stiftung. Retrieved from: http://energytransition.de/wp-content/themes/boell/pdf/en/German-Energy-Transition_en.pdf
Pescia, D., and Graichen, P. (2015). Understanding the Energiewende: FAQ on the ongoing transition of the German power system. Berlin: Agora Energiewende. Retrieved from: https://www.agora-energiewende.de/fileadmin/Projekte/2015/Understanding_the_EW/Agora_Understanding_the_Energiewende.pdf
Tagesschau (2016, 18 Mai). Kaufprämien und Steuerboni für Elektroautos: Kabinett beschließt Förderung. Tagesschau Online. Retrieved from: http://www.tagesschau.de/wirtschaft/elektro-autos-103.html
ZEIT (2016, 27 April). 4.000 Euro Prämie für Kauf eines Elektroautos. ZEIT ONLINE. Retrieved from: http://www.zeit.de/politik/deutschland/2016-04/bundesregierung-elektroautos-subvention-kaufpraemie