This article is part of the activity cycle of the conference organised by ECCO in partnership with Bocconi University and Agora Verkehrswende: Technological Neutrality and the European Green Deal. Which solutions for a competitive EU automotive sector?
Read the proceedings of the Conference
Read the discussion paper “Technology-neutral vs Technology-specific Policies in Climate Regulation: The Case for CO2 Emission Standards”
In a few days, it will mark ten years until the ban on the sale of new internal combustion engine cars in Europe takes effect. Meanwhile, the end of 2024 – a challenging year for the auto market despite the resilience of electric vehicle sales compared to other engine types – has reignited the debate over a possible reconsideration of European regulations to promote technological neutrality.
The call for a technologically neutral approach to zero-emission transition policies is championed by European conservatives. The European People’s Party recently proposed easing existing regulations, arguing that “the EU climate policies should prioritize market-based measures [and that] this approach allows CO₂ reductions to be achieved at the lowest cost, while giving consumers choice and enabling engineers to compete in developing the best solutions.”
While these arguments may seem convincing, economists highlight how a regulatory approach based on technological neutrality for road mobility decarbonisation could lead to market failures in climate policies, with repercussions on Europe’s competitiveness in the global automotive market.
The effectiveness of such policies is based on assumptions of perfectly functioning markets, informed and rational actors, and full internalisation of external costs and benefits. However, the real market is characterised by numerous imperfections that risk slowing down or deviating from the achievement of environmental and industrial objectives. These include externalities related to investments in development and innovation (risks of failing to capitalise on the benefits derived from innovation); information asymmetries (consumption decisions based on incomplete information); distortions in economic behaviours (short-term interests and suboptimal choices); dependence on established technologies (resistance to change); difficulties in coordination between companies (adoption of common standards); vested interests (preservation of dominant positions); the slowness of educational systems in adapting to emerging technological challenges (lack of skills).
These imperfections justify adopting a mix of cost-effective policies to foster the development and diffusion of the most effective technologies for achieving climate goals and ensuring competitiveness in the market. From both these perspectives, electric vehicles emerge as the only viable alternative.
From an industrial standpoint, analysing the origins and implications of these imperfections reveals that European regulations on CO₂ fleet emission standards and the goal of phasing out combustion engines by 2035 have helped mitigate issues such as investment underestimation or delays, although some challenges remain.
The main European producers do not seek changes to the current regulation, except to avoid potential fines for non–compliance. This makes the issue critical, as the regulation would lose its effectiveness without enforcement of penalties. Thanks to the standards, the European automotive industry has anticipated investments in product and process innovation, avoiding falling behind the main international competitors. Stellantis has certainly made these investments and is now opening up to further investments in Italy with the proposal of an industrial plan aligned with the company’s strategy goal of transitioning to electric vehicle production.
The dualism between the production of electric and internal combustion engine vehicles is unsustainable and undermines the industry’s ability to innovate and scale production, reducing competitiveness compared to Chinese and American manufacturers, who are rapidly gaining market share globally. This aspect cannot be ignored in the definition of the European and national industrial plans for the automotive sector.
Given the situation and the limitations and risks associated with an approach based on technological neutrality, the call for a revision of European regulations appears to stem from a perspective that may not fully account for all relevant dimensions. Resolving this inconsistency is essential to promoting a more inclusive public debate, boosting market confidence, developing consistent and forward-looking solutions to tackle the complexities and the problems of the transition.
On October 16, 2024, SDA Bocconi, ECCO, and Agora Verkehrswende organized the conference “Technology Neutrality and the European Green Deal: Which Solutions for a Competitive EU Automotive Sector?”, inviting economists, policymakers, and industry representatives to discuss the best strategies for designing climate policies while supporting the competitive transformation of industrial sectors, particularly the automotive industry. The discussion focused on analyzing the economic effectiveness of a technologically neutral regulation, the market failure risks associated with such an approach, and the need to integrate specific policies to foster innovation.
Today, we are publishing the proceedings of the conference to clarify the risks of technologically neutral policies and the negative consequences of relaxing the European vehicle CO2 standards.
Read the proceedings of the Conference
Read the discussion paper
Foto di Rathaphon Nanthapreecha
