Greening the Auto Sector: Electric Vehicle Incentives in COVID-19 Stimulus
As the world continues to grapple with the COVID-19 pandemic, governments have been providing substantial stimulus packages to bolster their economies. While the primary focus of the funding is emergency economic relief, many countries have also embraced a “green recovery,” with funding specifically targeting climate change resiliency and a sustainable transition. Some governments, especially in the European Union (EU), have attached green strings to stimulus funding directed to carbon-intensive industries, such as the automotive industry. These countries see economic stimulus packages not only as an opportunity for increased job creation and economic growth but also as a chance to accelerate the shift towards sustainable practices.
Although the pandemic led to a sudden reduction of greenhouse gas (GHG) emissions resulting from a number of factors including a steep decline in transportation demand, these drops are not predicted to have a lasting effect on global warming; progress on climate change mitigation will heavily depend on global policy action. Corporate bailouts tied to environmental commitments, increased electric vehicle (EV) subsidies and infrastructure funding, and loans and grants for green projects are just some of the policy tools that could help transition to a more sustainable economy. Green-focused relief packages have the potential to reduce long-term GHG emissions, while also providing much needed stimulus to pandemic-impacted economies.
Countries that are not focusing on a green recovery and continue to direct large amounts of funding towards carbon intensive industries may fall out of step with changing global priorities, potentially creating economic headwinds as a result. In this research piece, Kroll Bond Rating Agency (KBRA) and ISS ESG examine the implications these dynamics have for the automotive sector and, particularly, EV use in the United States (U.S.), France, and Germany.
France and Germany are prioritizing a green transition with their stimulus packages, while climate change mitigation policies have been notably absent at the U.S. federal level.
Data provided by ISS ESG shows that automotive manufacturers in the U.S., France, and Germany currently have comparable EV product offerings and each country’s automotive sector is positioning itself towards long-term sustainability.
France and Germany are increasing federal support for national EV use and a broader greening of the automotive sector. The U.S., however, is not and current EV subsidies are not being expanded, though this may change with the incoming Biden administration.
These dynamics may have credit implications. Auto companies will likely need federal funding to transition to a more sustainable product offering. A lack of funding in the U.S. may decrease the competitiveness of American production and vehicle prices, while France and Germany may be able to boost their economies and increase employment in a post-COVID recovery.
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