Consequenses of a Potential Ban on New Cars and Light Trucks with Combustion Engines

Tasks

We use empirical methods to analyse the effects of legislation currently under consideration banning permits for new cars and light trucks with internal combustion engines as of 2030. The study has three distinct parts: in Chapter 2, we quantify the potential detrimental effects and risks of such a ban for productivity and employment in German industry. Chapter 3 focuses on the German automotive industry’s incentives to innovate in the areas of combustion engines, as well as alternative propulsion systems. Chapter 4 analyses the effects of a ban on the environment, and particularly on CO2 emissions.

Methodology

The first part of the study is based on detailed official manufacturing statistics, determining the importance of the "combustion engine" technology for value added and employment in the status quo. To analyse innovative activities, we derive the share of international patents for different types of propulsion technology filed by German industry compared to its most important competitors. To estimate the environmental effects of the ban, we develop a forecasting model that allows us to compare carbon dioxide emissions with and without the contemplated legislation through the year 2050.

Data and other sources

official manufacturing statistics 2009 - 2015
PATENTSCOPE
KBA (2016): new vehicle permits
BMWI (2014): Development of the energy markets - energy reference forecast
electricity market model EU REGEN

Results

Effects on production, value added and employment

Using highly detailed official manufacturing statistics, we study which groups of products would be affected by a ban on vehicles with combustion engines, in order to quantify potential risks for output and employment. Based on the structure of production in 2015, at least 457,000 employees are involved in producing types of products which would be directly affected by the ban (e.g., diesel engines). This is equivalent to 7.5% of overall manufacturing employment in Germany. The largest share of these employees (426,000) works in the automotive industry itself. If one includes product groups that would be indirectly affected (e.g., transmission systems, which are more complex in vehicles with combustion engines), the number of potentially affected jobs rises by 163,000 or an additional 3% of overall manufacturing employment. These jobs are mainly clustered in the metal industry: 102,000 employees in metal processing produce parts destined for vehicles with combustion engines. Taking the direct and indirect channel together, a total of at least 620,000 employees would be affected by the ban, which represents over 10% of total German manufacturing employment.

Among the 457,000 directly affected jobs, 31,000 jobs in small and medium-sized enterprises would be highly at risk. These firms can be expected to face larger difficulties than large companies in developing new alternative fields of business against the background of a major shift in propulsion technology. This share is substantially larger among indirectly affected jobs: Here 101,000 out of 163,000 jobs are situated in small and medium-sized enterprises and highly concentrated among automotive suppliers in the metal industry.

If value-added is considered instead of employment, these effects become even more pronounced. This is due to the exceptionally high average labour productivity in the automotive industry. If direct and indirect effects are combined, around 13% of German overall manufacturing value added would be affected by the ban. Based on the 2015 figures, this would represent a volume of 48 billion euros. In interpreting these figures, one has to bear in mind that not the entire workforce and value-added “at risk” would necessarily vanish. Some parts, for example, are also used in heavier trucks and buses, which would probably not be subject to the ban. In addition, new jobs in the areas of alternative propulsion technologies in Germany would help to limit employment reduction, at least in the aggregate.

Considering the development during the period 2011-2015, we find that those groups of products within automotive manufacturing that would not be affected by the ban display substantially stronger growth rates than affected product groups – one can therefore already observe a technological shift within the current regulatory setting. A similar finding applies to growth rates for product categories, which are used in electric vehicles – although the employment and value-added share of these vehicles and components currently only accounts for a miniscule share of employment and value-added in German manufacturing.

Incentives to innovate in alternative technologies

In the public perception, the German automotive industry has failed to develop technological capabilities with regard to alternative propulsion technologies. This is used as an innovationpolicy argument for introducing the contemplated ban. We analyse the track record of innovative investments by the German automotive industry using patent data for combustion engines and alternative technologies over the period 1995-2015, comparing Germany's patent output to those of its major competitors. We find that the German share of patents among the leading automotive nations in the most recent period 2010-2015 in the area of electric vehicles was the highest with 34% of patents; while a similar market share can ben seen in hybrid vehicles (32%). Furthermore, the situation in these fields is not fundamentally different to the share of combustion engine patents (40%). Among German combustion engine patents, we find that over two-thirds of all inventions focus on making engines more fuel-efficient. Therefore there is no evidence of any lack of innovation incentives in the area of alternative propulsion technologies compared to competing countries. Overall, the technology base for alternative propulsion systems in Germany is sufficient. Focusing on the required infrastructure and demand-oriented policymeasures, however, could accelerate the diffusion of innovative products in this field. From the perspective of innovation policy, therefore, the rationale for banning cars and light trucks with combustion engines appears weak.

Effects on the environment

Our study focuses on CO2 emissions. In addition, we provide a qualitative assessment of the potential effects on local emissions and consumption of land and resources. For CO2 emissions, we develop a model predicting the well to wheel (WTW) emissions of cars and light trucks through 2050. The effect of the ban is calculated using the difference between a “business as usual” (BAU) scenario and a setting in which the ban is implemented. For cars, the model predicts a cumulated 32% reduction in CO2 emissions within the forecast horizon (2030-2050) due to implementation of the ban. It is worth noting that even in the BAU scenario, a reduction in emissions of around 53% is achieved due to expected technological advances and the composition of the vehicle fleet. The expected results for local emissions are analogous. Disadvantages of electric vehicles are associated with their production (amount and composition of materials), the required resources including water-usage, as well as adverse effects on the environment (acid impact, particulates).

These findings are associated with a very substantial adjustment with regard to the composition of new vehicle registrations as of 2030, which underlines that the contemplated policy represents a major intervention in the market. In the first year of the ban, instead of the predicted 250,000 new electric vehicles in the BAU scenario, 3.3 million new electric vehicles would have to be purchased to compensate for the otherwise newly registered vehicles with combustion engines. Clearly, this would put enormous pressure on charging infrastructure, for which a recent study proposes a ratio of about 1 charger for 30 electric vehicles. A similar picture emerges in the electricity market. By as early as 2031 the registration ban would lead to an additional 1.1% increase in the required electricity generation in Germany overall, which would have to be generated completely from renewable sources to still meet the reduction targets for energy generation. This additional (renewable) electricity demand shock increase would amount to around 7.6% of the overall German electricity generation by 2050. This would result in an increase in average electricity prices of around 0.5%.

Overall assessment

Given the assumptions of our prediction model, a registration ban would lead to a cumulative reduction of around 32% in CO2 emissions over the period 2030-2050 compared to the BAU scenario, if the reduction targets in electricity generation are simultaneously achieved. The high intensity of this measure is reflected in the requirements with regard to vehicle numbers and electricity generation. On the other hand, the technology that would be subject to the ban plays an important role for value-added and employment for manufacturing in Germany and Europe. International studies by leading researchers show that measures targeting relative prices – i.e., less intense interventions than bans or quotas – can achieve optimal transition paths between technologies. Taking these observations into account, the registration ban is not the best policy for achieving environmental and innovation goals.

Publication

Falck, Oliver, Michael Ebnet, Johannes Koenen, Julian Dieler and Johann Wackerbauer,Auswirkungen eines Zulassungsverbots für Personenkraftwagen und leichte Nutzfahrzeuge mit Verbrennungsmotor, ifo Forschungsberichte 87, ifo Institut, 2017 | PDF Download