Future Mobility a Core Pillar in Germany’s COVID-19 Recovery Programme
To revive its virus struck economy, the German government agreed on a 130 billion Euro stimulus plan. Measures addressing the transport sector are a key pillar of the plan. With incentives for green technologies in mobility, Germany uses its response and recovery programme to strengthen the transformation in the transport sectors.
The key points regarding transport are:
- Incentives to buy and produce climate friendly vehicles, especially electric cars
- Support of public transport
- Fleet modernisation for greener trucks and busses
- Emphasising the importance of green hydrogen and Power to X
- Support green investment in the aviation industry
- Reduced VAT for all products and services, including transportation
The transport measures in Germany’s recovery package are fairly comprehensive in comparison to stimulus programmes planned or agreed upon in other major economies in and outside of Europe. The package covers more or less the same action areas as European Commission’s proposed green recovery package. However, not included are aspects like incentivising individual level change in mobility behaviours or walking and cycling promotion.
Incentives for climate friendly cars
As the country’s automotive industry is one of the biggest in the world, many experts and NGOs were concerned that subsidies could also be granted for cars with internal combustion engines. This was the case during the financial crisis in 2008/2009. However, the now announced measures nearly solely promote electric and low emission vehicles:
- The annual motor vehicle tax for passenger cars will reflect CO2 emissions more strongly. Tax rates will especially increase for cars above 95g/km. The existing ten-year vehicle tax exemption for purely electric vehicles will be granted until 31.12.2025 and extended to 31.12.2030.
- Under the name “Innovation Bonus”, Germany will raise the subsidy from 3.000 to 6.000 Euro for the purchase of electric cars up to a price of 40.000 Euro. The limit of the reduced tax rate for purely electric company cars will be raised up to a purchase price of 60.000 Euro. More than half of newly registered cars in Germany, commercial vehicles, and German premium models have high shares in the company car fleet. The “Innovation Bonus” will cost 2.2 billion Euro.
- Another 2 billion Euro will finance a bonus scheme for the years 2020 and 2021 that supports future investments by vehicle manufacturers and the supply industry. It is designed to promote research and development in new technologies, processes, and equipment.
- For social services, a “Social & Mobile” fleet exchange programme limited to the years 2020 and 2021 is being set up to promote electric mobility in urban transport and to support non-profit organisations in converting their fleets. For the measure, around 200 million Euro are required.
- The temporary fleet exchange programme for craftsmen and small and medium enterprises for electric vehicles up to 7.5 t will be implemented in the near future.
- Additional 2.5 billion euros in the expansion of modern and safe charging point infrastructure, the promotion of research and development in the field of electromobility and battery cell production. It is also planned that more charging points will be constructed on public buildings such as hospitals and kindergardens.
Support Public Transport
Public transport, in particular, suffered from the crisis with a dramatic decrease in demand and income from passenger fees on the one side and high costs and challenges to meet hygienic requirements on the other. The stimulus package supports public transport with various measures:
- The federal states should get the opportunity to compensate transport enterprises for lower incomes. In 2020 up to 2.5 billion Euro will be additionally available to finance public transport.
- The German government will provide additional equity in the amount of 5 billion Euro to state owned German railway company Deutsche Bahn to invest additional capital in the modernisation, expansion and electrification of the rail network. The money comes in addition to an annual 1 billion Euro till 2030 that was agreed in the climate action plan. This will also benefit rail freight.
- Also, improvements of mobile phone reception along the 39,000 km of railway lines in Germany will be financed with 150 million Euro.
Heavy Duty Vehicles
Heavy duty vehicles emit as much CO2 as cars in Germany. Although the German truck fleet is comparably young and modern, the combustion engine is by far the dominating technology.
- With 1.2 billion Euro for a “Bus and Truck Fleet Modernisation Programme“, which is open to private and municipal operators alike, the stimulus package should promote alternative drive systems and fund more charging points for electric busses.
- The German government will also lobby the EU Commission to set up a temporary Europe-wide fleet renewal programme 2020/21 for heavy commercial vehicles to purchase trucks with the latest Euro VI emissions standard.
Aviation & Shipping
Aviation and shipping are hard to decarbonise but also strongly hit by the crisis. In total 2 billion Euro will be spent on new technologies in these sectors:
- 1 billion Euro to strengthen, modernise and digitise shipping as a climate-friendly means of transport.
- Support the accelerated conversion of aircraft fleets to modern aircraft over 1 billion Euro. The money comes in addition to the rescue programmes for German Carriers.
In the programme, the role of hydrogen in a post fossil economy was again emphasised. The long-awaited national hydrogen strategy that is planned to be published in the next weeks. In total 7 billion Euro should be used to promote green hydrogen.
- That includes tax cuts for electrolysis that produces green hydrogen, the usage of green hydrogen in heavy road transport and aviation.
- The Renewable Energy Directive (RED II) will be implemented more ambitiously than the EU requirements.
- In addition to that, up to 2 billion Euros are granted to for European and international cooperation to build up hydrogen exporting economies.
The package’s most important instrument to stimulate short-term national consumption is the six months reduction of the VAT (regular: 19% to 16%; reduced 7% to 5%) with a volume of 20 billion Euro. The tax reduction applies to transport related products and services, without distinguishing between environmental and climate aspects. That means, e.g., that also conventional cars with combustion engines will be sold slightly cheaper during the next months.
Conclusion: Setting the framework for a green recovery
The primary focus of Germany’s stimulus programme is clearly responding to the economic impacts of the crisis as well as setting the framework for a recovery. It is not a climate or environmental action plan. Avoidance or reducing of external environmental effects were not the driver of the measures. Nevertheless, most instruments will support an economy that not only able to get back on track but also already pointing in the right direction towards a fossil free future. To really decarbonise the transport sector until 2050 and reach the minus 95% target of CO2 emissions, further and stronger measures will be needed.
In the long term all these measures and subsidies have to be financed – most likely by higher taxes. It will be important to use intelligent taxing instruments to also ensure sustainability incentives from this other side of fiscal policymaking.
The governmental document can be found here [in German].
And check out this overview of all the measures mentioned in the recovery plan:
Contributors to this article are Friedel Sehlleier and Armin Wagner.