Friday Lunch Meeting Research, Emmanuel Hache, January 21st 2022

 

European Union regulations require automakers to comply with specific targets for the CO2 emissions rates of the new vehicles they sell. The targets have been tightened at regular intervals since the beginning of the regulatory program in 2012. EU directives also seek to attain a zero-emissions fleet by 2035. In addition, several member states have adopted measures to encourage the sales of low-emissions and electric vehicles (EVs). We examine the role of such policies—compared with “traditional” determinants of car sales, such as taxes and fuel prices, local ordinances banning diesel vehicles from entering specific areas, and the EV charging infrastructure—using new car sales data from Germany from January 2014 to March 2020. With over three million new cars sold every year, a fleet of over 48 million (as of 2019), and a renowned auto industry, Germany is the largest car market in Europe. The average CO2 emissions of new cars sold in Germany declined at a fast rate until approximately 2016, then leveled off and even slightly increased as the share of diesel vehicles dropped. Some of these “missing” diesel cars appear to have been replaced for the most part by conventional gasoline vehicles. Hybrids, plug-in hybrids and EVs have been growing, but in a less than proportional fashion. In Germany the annual car circulation tax is linked with the CO2 emissions rate of the vehicles, penalizing vehicles with larger engines, diesel engines, and higher CO2 emissions rate per km (Alberini and Horvath, 2021). As of 2016, substantial rebates have been offered to drivers who purchase all electric vehicles and plug-in hybrids. Concerns however have been expressed as to whether the charging infrastructure remains a limiting constraint to the purchase of EVs (Illmann and Kluge, 2020; Sommer and Vance, 2021) and whether subsidies to charging stations are more effective than rebates to consumers (Cole et al., 2021). In addition, certain metro areas in Germany have adopted or have been considering the adoption of diesel vehicle bans out of concern for local pollution problems, a trend that partly overlapped with the Volkswagen “Dieselgate” scandal. We use a panel dataset documenting new car sales data at the Bundesland (state) level from 2014 to early 2020 to examine which of these factors seem to have been more effective at shaping new cars sales. We exploit the variation in taxes, fuel costs and rebates across types of cars and over time, as well as the variation in diesel ban ordinances and charging infrastructure across locales and over time. Our goal is to disentangle the effect of each factor and policy, assess the contribution of each to the new car sales patterns and CO2 emissions, and to examine the heterogeneity of such effects across different parts of the country.

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