Germany should scrap the electricity tax while phasing out subsidies for the purchase of new electric cars to support the expansion of e-mobility, said a paper by the Institute for Economic Research (ifo).
The authors, ifo head Clemens Fuest and the director of the ifo Center for Industrial Organization and New Technologies Oliver Falck, also write that price subsidies for charging electric cars are not the right solution.
“Subsidising the price of electricity for electric cars reduces the incentive to save electricity and thus exacerbates shortages in other sectors,” said Fuest.
The paper, commissioned by the Chamber of Commerce and Industry for Munich and Upper Bavaria, also criticises that the new EU emissions trading system for the transport and building sectors (to be implemented from 2027) includes a mechanism that could limit the CO2 price.
“As a result, there may not be enough incentives for a sufficient number of buyers to switch to electric cars,” writes ifo.
As energy taxes are governed by EU rules, it would remain to be seen whether abolishing the electricity tax in Germany would be viewed as in line with those rules, ifo told Clean Energy Wire.
However, it said this should be possible in principle, also because other taxes on electricity (such as VAT) remained in place.
To ensure a fair environment in the common market, the European Union had introduced the directive on energy taxation, which includes minimum tax levels on the different types of energy, including electricity.
The EU aims to revise the directive so that fuels will start being taxed according to their energy content and environmental performance, but talks have moved slowly and finding consensus proves difficult, reported Euractiv earlier this year.
There are increasing doubts over whether Germany can reach its target for electric cars.
“The current state of affairs signals that the German government’s target of 15 million electric vehicles in 2030 will be missed by 50 percent,” according to the Center of Automotive Management (CAR).
Electricity plus incentives
European countries are struggling to persuade people to switch from combustion engine cars to electric ones, experts warn.
Europe sells 10 times more electric cars today than it did just six years ago, according to the International Energy Agency, but its fleet is cleaning up too slowly to meet its climate goals.
Governments across the continent are struggling with the price-tag of electric vehicles, which can cost several thousand euros more upfront than comparable ones that burn fossil fuels.
“What we have learned is that it’s not enough just to incentivise electric vehicle purchase and ownership,” said Julia Poliscanova, an analyst at campaign group Transport and Environment.
“You also have to disincentivise the purchase of conventional cars at the same time.”
The EU’s move to cleaner cars is part of its promise to cut planet-heating pollution 65% from 1990 levels by the end of the decade, and hit net zero by 2045.
But even as it has slashed emissions in its power sector, putting up wind turbines and shutting down coal plants, emissions from road transport have risen steadily in the background.
Transport was the “problem child” of climate protection, said Christian Hochfeld, head of Agora Verkehrswende, a clean transport thinktank in Germany.
Because most alternatives to cars took time and money to build, the full switch to electric vehicles was “the most critical issue” for reducing emissions in the next decade, he said.
The EU plans to bring car emissions down by 55% from 2021 levels by the end of the decade, and to zero by 2035.
But customers are put off by the high upfront price of electric cars, even if they pay off in the future through lower running costs.
To help counter this, countries across Europe offer customers financial incentives to buy cleaner cars.
According to the European Automobile Manufacturers’ Association (ACEA), 21 of the 27 EU member states offer tax breaks when buying a low-carbon car, while 20 offer money to help with the purchase.