European legislation could raise fuel prices by as much as 22% across EU member states over the next decade, according to BloombergNEF. This will be a blow to drivers of gasoline cars and automakers that want to keep selling cars with engines, but could be a major driver in the transition to electric cars.
By increasing fuel prices, the EU Emission Trading Scheme will make the relative economics of driving an electric vehicle cheaper compared with gas cars. EVs could also receive subsidies from the multibillion-euro funding pots created by the scheme, answering automakers’ pleas for help in the technology transition.
The EU carbon market sets a limit on the amount of emissions across the bloc, and many companies must buy carbon allowances to comply with targets. Under the current market design, carbon prices could peak at €122 per metric ton of CO2 in 2030, increasing gasoline prices by 18% and diesel by 22% across Europe.
Member states are pushing back against the rules out of fear they may push up inflation or otherwise provoke backlash along the lines of what France saw with the yellow vest protests of 2018.
The EU may look at ways to mitigate burdens on households and align price levels closer to the €45 per ton asked for by member states. This would limit the increase in fuel costs to around 9% for gasoline and 11% for diesel in 2030.
While troubling for gas car owners, a rise in fuel costs could give electric models a leg up. This in part addresses automaker concerns raised in a letter to the Commission that they need “lower energy costs for charging” to successfully transition to electric vehicles.
The carbon scheme can also help address automakers’ requests for subsidies. Based on BNEF’s analysis, the scheme will create a €644 billion pot of money between 2027 and 2035. This would reduce to €430 billion if a cap of €45 per ton is implemented.
The issue will be how the pot is spent.
Some €61 billion will be directed toward the Social Climate Fund. The EU is discussing that some of this money could go to social leasing schemes for EVs. They may form part of the Small Affordable Cars Initiative, President Ursula von der Leyen touted during her Union Address last week. It could be difficult to mobilize funds from this pot, though, as it has a focus on low-income groups.
The remaining ETS II revenue — as high as €583 billion, per BNEF’s analysis — will be used for decarbonization. A portion is stated for buildings and heating, some funds will be used to help those burdened by the effects of the carbon pricing, and one of the key objectives is to accelerate the uptake of zero-emission vehicles.
That’s potentially a big pot of funds that could enable the bloc to phase out fossil fuel cars by 2035. This could be helpful as BNEF’s Long-Term Outlook sees only 69% of car sales being electric in the year, unless further incentives are made available.
In a scenario where a quarter of the funds go directly to subsidizing electric cars, this would amount to €161 billion. At a rate of €4,000 per vehicle, that would cover around 40 million cars, or almost four years of EU car sales.
And €4,000 can make a difference. Under the UK’s new subsidy scheme, the Ford Puma Gen-E has become the cheapest car to lease in the country, after it received the maximum £3,750 (€4,330) available.
A quick look on Leasing.com shows you can now get the vehicle for £233 a month, with a £233 down payment. That’s £50 less than the equivalent petrol Puma, and is roughly comparable with the cheapest gasoline models on the site.
When savings from driving on electricity over gasoline are considered, these prices have the potential to flip the new and used car markets. Many used car drivers can easily outlay £215 a month on depreciation (£125) and fuel (£90). They could get the shiny new Ford Puma EV and charging, with costs of just £12.50 a month on an off-peak tariff, for a comparable price.
The EU can’t snap its fingers and direct all the ETS II funding to EV subsidies, but it is a lever that can be pulled to nudge the market toward electric options. What happens next will involve a lot of maneuvering from all parties involved, but the EV market could emerge as a big winner from the process.
Mercedes-Benz is preparing to invest in Chongqing Qianli Technology, a Geely-backed developer of autonomous-driving systems, as the luxury-car maker moves to bolster its software capabilities in China, according to people familiar with the matter. The automaker plans to buy a minority stake in Qianli, said the people, who asked not to be identified discussing private information. Separately on Wednesday, the German manufacturer announced that production chief Jörg Burzer will take over as CTO from Markus Schäfer, with luxury-brand boss Michael Schiebe taking on Burzer’s role. The moves may tighten CEO Ola Källenius’ grip on the automaker, which is grappling with high costs and intensifying competition in China. Schiebe is one of Källenius’ closest allies and has been helping to implement his push further upmarket.