Competing forces in the German new car market : how do they affect diesel, PHEV, and BEV sales?

With more than 3 million new passenger cars sold every year, Germany’s automobile industry is a major player on the European car market, and one seen as an important arena for achieving climate protection targets. Using high-resolution car registration data from each state in Germany between January 2015 to March 2020, we estimate reduced-form panel data models to identify the effects of three flagship policies aimed at reducing transport emissions from cars: diesel bans, rebates for battery vehicles, and subsidies for charging station projects. The models show that the policies have significant effects on the sales of specific powertrains. But policy simulations that incorporate estimates of lifecycle CO2-emissions reveal that they have only negligible effects on emission reductions and are costly. Rebates on the purchase of a battery-electric or plug-in hybrids result in a cost per ton of reduced CO2-emissions of over €1000. Even the most optimistic scenarios result in a cost per ton of CO2-reduced by subsidies for the construction of charging stations of at least €400. These figures are very large when compared with the cost of abatement implicit in the price of allowances on the European Emissions Trading System, with important implications on cross-sectoral trading, such as that envisioned in the European Union’s Fit-for-55 program.