cash to go green: government cash for environmentally friendly cars

The automotive industry has been bearing the brunt of the financial crisis and has been seeking massive handouts from governments around the world. The stimulus funds will enable car makers to build environmentally friendly, fuel-efficient, sustainable cars. E&T reports.

The world's automotive industry is on its knees, beaten up by the global financial crisis and demand for more environmentally friendly transport.

But with the major players in the industry constrained by enervated balance sheets and anaemic resources, that tide of change was not going to happen. Faced with the demise of an industry that employs millions around the world - the big three Detroit-based manufacturers employ over a quarter of a million workers directly within the US alone - governments have stepped up to the mark.

Armed with credits, tax breaks and special investment schemes, OECD governments have come to the rescue of their automobile sectors. However, in return many are demanding the production of more energy-efficient engines and cars or giving incentives for the purchase of new cars. The age of the green car could rise like a modern day phoenix from the ashes of the petrol-driven, 20th century automotive industry.

Global car initiatives

The European Union (EU) has launched the European Green Cars Initiative, involving research on a broad range of technologies and smart energy infrastructures essential to achieve a breakthrough in the use of renewable and non-polluting energy sources. The Australian New Car Plan for a Greener Future investment promotes R&D and the achievement of better environmental outcomes, while the Korean government is increasing its R&D spending for the development of technology in green cars.

"Exceptional times call for exceptional measures," EU Commission President José Manuel Barroso said at the launch of the Green Car Initiative. "The jobs and well-being of our citizens are at stake. Europe needs to extend to the real economy its unprecedented coordination over financial markets.

"The Recovery Plan can keep millions in work in the short-term. It can turn the crisis into an opportunity to create clean growth and more and better jobs in the future. If Europe acts decisively to implement this Recovery Plan, we can get back on a path of sustainable growth and pay back short-term government borrowing. If we do not act now, we risk a vicious recessionary cycle of falling purchasing power and tax revenues, rising unemployment and ever wider budget deficits."

The Green Car Initiative, a part of the European economic recovery plan, aims to allocate €5bn through a Public Private Partnership to bolster innovation in the automotive sector and sustain its focus on environmental progress. The initiative complements the European Clean Transport Facility which, through the European Investment Bank, serves to provide more immediate financial relief to the sector.

The EU initiative involves research on a broad range of technologies and smart energy infrastructures essential to achieve a breakthrough in the use of renewable and non-polluting energy sources, safety and traffic fluidity.

European automotive suppliers and vehicle manufacturers in the form of CLEPA (the European umbrella membership organisation representing the interests of the global automotive supply industry) and EUCAR (the European Council for Automotive R&D from the major European passenger car and commercial vehicle manufacturers), united to present their proposals to the EU.

The Green Car Initiative concentrates on long-term R&D, largely combining existing projects under a clear policy focus and underlining the importance of a joint approach between industries and policy makers. The CLEPA and EUCAR document is intended to harmonise the R&D directions and priorities of the auto industry, and then to communicate these to relevant authorities and bodies at national and EU level and to other key partners.

The suggestion is that research concentrates on key areas including work on hybrid, plug-in, electric drive, hydrogen and fuel cell vehicles.

It is still too early for exact details to emerge, but topics such as electric drives, fuel cell systems, energy charging systems, development of CO2 neutral fuels and the optimisation of powertrains for alternative fuels are all likely to feature heavily.

Plans down under

In the southern hemisphere, it is Australia that is taking the lead with a AUS$6.2bn plan, launched late last year. Much like its European counterpart, the exact details of the projects to be supported are still in the melting pot, but the emphasis is on manufacturing competitive, low-emission, fuel-efficient vehicles in Australia.

"The commercialisation of new technologies in Australia is a key feature of the Green Car Innovation Fund, which will focus on reducing vehicle fuel consumption and greenhouse gas emissions," Senator Kim Carr says. "While the automotive industry in Australia and around the world is facing significant challenges, I am confident that the New Car Plan for a Greener Future will help our industry meet these challenges. The plan and the initiatives I have announced will facilitate a transition to a more sustainable, competitive industry and provide economic, social and environmental benefits for the country."

Australian Prime Minister, Kevin Rudd, explains that despite the problems of the parent companies in the US, the plan is not simply a blank cheque. "There is a significant commitment to the industry, but we expect a significant commitment back from the industry as well. And the way in which this assistance is structured, it is provided in response to actual investments and commitments by the car companies on the ground - all three of them. And that's the way we will be implementing it in the future.

"The key significance, however, is the government, saying unequivocally that we believe in this industry's future. We're prepared to provide long-term support for innovation policy to help the industry's transform for the future so they can themselves act with confidence that the government is going to be there as a partner.

"The alternative is the government turns its back and walks away. That's the alternative course of action, that's what some are still advocating. I believe in manufacturing, I believe in the car industry, I believe in the 200,000 jobs which are supported directly and indirectly by the industry. And this government is proud to be out there in support of this industry for the future."

Cash incentives

Governments are also putting in place financial compensation schemes to prompt businesses and households to discard old cars and buy new ones. In France, owners of vehicles older than ten years will receive €1,000 when buying a new car. In Germany, owners of cars older than nine years will receive €2,500 for the purchase of a new car and the vehicle tax is now calculated on the basis of emissions caused.

Spain has a fund endowed with €1.2bn to encourage the replacement of vehicles of more than ten years by new vehicles. Portugal has in force incentives to scrap light cars older than eight or 13 years and buy new ones and is preparing new stimulus to introduce electric vehicles on the market by 2010.

In Japan, taxes have been reduced for purchases of eco-friendly cars. Italy is introducing a financial incentive for the exchange of old cars for new eco-friendly cars. Overall, the focus currently seems to be on a more fuel-efficient but not a 'green car' (for example, hybrid or electrical). The US provides a tax credit of up to US$7,500 for families that purchase plug-in hybrid vehicles.

Quite whether the carrot - in financial incentives - and the stick - in tighter emission and fuel economy standards being demanded around the world - is enough to galvanise a traditionally conservative industry to cast aside the shackles of an oil-based legacy, only time will tell.

But it could be that future generations will look back at the dark financial days that we live in with an altogether different perspective if it proves to the naissance for the environmentally friendly car.

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