_ Yuri Kofner, junior economist, MIWI – Institute for Market Integration and Economic Policy. Munich, 01 March 2021.
The importance and structural change of the automotive industry
The automotive and supplier industry is a central branch of the economy for growth, labor market, innovation and social equality in Germany and Bavaria. In 2019, the 1,363 German automobile and motor vehicle companies with almost one million employees and a turnover of almost 440 billion euros accounted for more than a tenth of gross value added and 3 percent of employment in Germany. In the manufacturing sector, it contributes directly to around 20 percent of gross value added, 12 percent of employment and 44 percent of in-house research and development expenditures. On average, an employee in the automotive industry earns 830 euros more than in the rest of the manufacturing industry. Micro-enterprises and SMEs made up four fifths of the corporate structure in the German automotive industry.[1]
In the same year 235 Bavarian motor vehicle companies with 206,000 employees and a turnover of 117 billion euros accounted for almost 16 percent of gross value added and 11 percent of employment in Bavaria.[2]
The political objective of saving CO2 leads to a massive structural change in the German and Bavarian automotive and supplier industry which, without a more horizontal industrial policy support, will lead to significant losses in the areas of value creation, international competitiveness and jobs in the short, medium and potentially even long term.
In 2020, in Germany the quarterly rates of change in price-adjusted sales of motor vehicles, engines, parts and accessories have plummeted between -10 and -50 percent. Price-adjusted sales in the Bavarian motor vehicle trade decreased by 6 percent compared to 2019. The number of employees decreased by 2 percent.[3]
However, the Corona economic crisis did not cause the bad business situation in the German and Bavarian automotive and supplier industries but worsened it. Since mid-2018 price-adjusted sales of motor vehicles, engines, parts and accessories of German automotive companies have been negative at −5 to −10 percent on average. From 2016 onwards gross value added in the automobile industry was negative, declining on average by 1 percent year-on-year. In Germany employment in the sector declined by 0.1 percent between 2018 and 2019[4], in Bavaria even by 1 percent.[5] The ifo business climate in the automotive and supplier industries has been deteriorating continuously since the beginning of 2018.
A horizontal industrial policy and technoly neutrality
If the EU, Germany and Bavaria have set themselves the goal of creating a CO2-neutral economy, it is important that this goal is achieved in a technology-neutral manner and on a market-based basis as much as possible. Among other things, this means creating and maintaining a “level playing field” (an equal treatment regime) for all CO2-saving energy sources.
When analysing the existing strategies, timetables and budget plans, it can be stated that the funding and support programs of the EU, the German federal government and Bavaria that accompany the structural change mainly focus on electromobility and hydrogen technologies, whereas other CO2-neutral energy carriers and drive systems are being disadvantaged against, e.g., CO2-neutral synthetic fuels (e-fuels) and CO2-saving internal combustion engines.
The benefits of synthetic fuels
However, there are strong reasons why CO2-neutral synthetic fuels should be treated equally in the regulatory framework compared to hydrogen and e-mobility.
There are already many and relatively well-developed technological options for producing synthetic fuels in a CO2-neutral manner. For example, the Fraunhofer Institute in Bavaria is working on the research, development and market launch of the TCR process, in which synthetic fuels are produced CO2-neutrally from biogenic waste materials and with partial sequestration. In Germany alone there is a technical potential of over 20 million tons of unused biogenic residues and waste that can be used for the production of CO2-neutral synthetic fuels. In contrast to biodiesel, these do not conflict with food production.[6]
In comparison, it can be stated that with the current German electricity mix e-cars during their life cycle produce more CO2 than conventional combustion engines.[7]
In contrast to hydrogen and especially e-mobility, when switching to synthetic fuels it is possible to maintain in the domestic automotive industry the value creation structure based on the internal combustion engine, which is of central importance for international competitiveness, the labour market and innovation activity in Germany and Bavaria According to studies by the ifo Institute, more than 600,000 German industrial jobs, around 130,000 jobs in small and medium-sized companies and around 13 percent (EUR 48 billion) of gross value added depend directly and indirectly on the combustion engine technology.[8]
According to a study for the Federal Ministry of Economics, up to 300,000 jobs in the automotive industry are endangered by the electrification of the car market by 2040.[9] The change to the electric battery, which will be mainly produced in Asia, will cost the Bavarian automotive suppliers alone around 55,000 jobs by 2025.[10]
The use of CO2-neutral synthetic fuels is also advantageous because, despite all government measures, combustion engines will continue to be bought and used in the domestic and foreign mobility sector.
Forecasts by the German Aerospace Center (DLR) for 2030 assume that – with a stock of 10 to 13 million electric cars – over 70 percent of vehicles will continue to be equipped with internal combustion engines.[11] Despite COVID and the climate change mitigation policies, global demand for internal combustion engines is still expected to increase by 4.9 percent annually through 2025, especially in the emerging economies.[12]
According to the first profitability calculations, CO2-neutral synthetic fuel could be produced using the Bavarian TCR process at 75 euro cents per liter (before taxes). A further cost reduction through the upscaling of the technologies is foreseeable.[13]
According to the Federal Ministry for Economic Affairs and Energy, there are still large areas of the transport sector in which a purely battery-electric or H2O-based transportation mode will be economically difficult, if not impossible to achieve until 2050. These areas include air traffic, shipping, agricultural and construction machinery, as well as heavy goods traffic[14].
With a shift towards synthetic fuels, not only can the competitive German and Bavarian value-added structure in the automotive, aviation and shipping industries be guaranteed and increased, but the existing conventional infrastructure of petrol stations, storage facilities and pipelines can also be maintained and used at no additional cost.
According to forecasts by IW Köln, global demand for synthetic fuels could easily reach 20,000 TWh by 2050 – this corresponds to half of the current global crude oil market.[15]
Policy recommendations
For the reasons mentioned above, the Federal Government should advocate regulatory equality (an equal treatment regime) of research, development and the market ramp-up of CO2-neutral synthetic fuels compared to hydrogen and e-mobility at all levels. This could include, but is not limited to, the following measures:
- The adoption of strategies for CO2-neutral synthetic fuels at the Bavarian, federal and EU level based on the model of the respective hydrogen strategies at the Bavarian, federal and EU level.
- The tax equality (an equal treatment regime) of CO2-neutral synthetic fuels as well as vehicles with internal combustion engines, which are technically guaranteed that they can only be operated with CO2-neutral synthetic fuels, compared to electromobility and hydrogen technologies in the Fuel Emissions Trading Act (BEHG), the Renewable Energy Sources Act (EEG), the Motor Vehicle Tax Act (KraftStG), the Federal Trunk Road Toll Act (BFStrMG), the Electromobility Act (EmoG), the Income Tax Act (EStG), the EU Emissions Trading System (ETS), etc.
- The inclusion of CO2-neutral synthetic fuels in the fleet balance in the EU directives 2009/30 / EC and 2009/50 / EC.
- The equation of CO2-neutral synthetic fuels in the EU RED-II directive compared to hydrogen and e-mobility.
- Vehicles with internal combustion engines, which are guaranteed that they can only be operated with CO2-neutral synthetic fuels, should be taken into account in the reform of company car taxation planned by the federal government.
- The legal framework for grants for the purchase of vehicles with an alternative drive system based on hydrogen and e-mobility should be changed so that these funds also apply to vehicles with internal combustion engines, provided that it is technically ensured that these are only CO2-neutral synthetic fuels can be operated.
- The items foreseen in the budgets at the state, nation and EU-levels for the promotion of research, development and the market ramp-up of electromobility and hydrogen technologies need to be extended to cover CO2-neutral synthetic fuels.
An important parallel political measure, which could not be explained in this article, but which must be mentioned for the sake of correctness and completeness, would be to lift all bureaucratic CO2 bans at all levels and instead apply the EU emissions trading system (ETS) to other sectors, especially transport and construction, and to expand the ETS as much as possible to other countries within the framework of a global “climate coalition”.[16] Because, if the goal was set to save CO2, it should be left to the markets themselves, i.e., the producers and consumers, to decide where and how carbon dioxide can be saved most effectively.[17],[18] In this way, the basic principles of technology openness and market economy can be adhered to.
Notes
[1] ifo Institut (2021). Strukturmerkmale Automobilindustrie. URL: https://www.ifo.de/en/industry-atlas/automotive-industry
[2] StMWi (2020). Industriebericht Bayern 2020. URL: https://www.bayern.de/industriebericht-bayern-2020/
[3] Bayerisches Landesamt für Statistik (2021). Umsatz und Beschäftigte im bayerischen Kraftfahrzeughandel. URL: https://www.statistik.bayern.de/mam/produkte/veroffentlichungen/statistische_berichte/g1200c_202011.pdf
[4] Statistisches Bundesamt (2020). Bruttowertschöpfung der deutschen Automobilindustrie in den Jahren 2008 bis 2019. URL: https://www-genesis.destatis.de/genesis/online/data
[5] ifo Institut (2021). Konjunkturumfrage Bayern im Auftrag des StMWi. URL: https://www.stmwi.bayern.de/fileadmin/user_upload/stmwi/Publikationen/2021/2021-02-10_Konjunkturstest_0121.pdf
[6] Fraunhofer UMSICHT (2021). Synthetische Kraftstoffe aus Biomasse-Reststoffen. URL: https://www.um-sicht-suro.fraunhofer.de/de/unsere-loesungen/biokraftstoff.html
[7] Sinn H.W. (2020). Möglichkeiten und Grenzen der europäischen Energiewende – Perspektive eines Volks-wirtes. ifo Institut. München. URL: https://www.hanswernersinn.de/de/moeglichkeiten-grenzen-europ-energiewende-ake-dpg-02102020
[8] ifo Institut (2017). Auswirkungen eines Zulassungsverbots für Personenkraftwagen und leichte Nutzfahr-zeuge mit Verbrennungsmotor. URL: https://www.ifo.de/publikationen/2017/monographie-autoren-schaft/auswirkungen-eines-zulassungsverbots-fuer
[9] (2019). Automobile Wertschöpfung 2030/2050. Studie im Auftrag des Bundesministeriums für Wirtschaft und Energie. URL: https://www.bmwi.de/Redaktion/DE/Publikationen/Studien/automobile-wertschoepfung-2030-2050.html
[10] BIHK und ifo Institut (2019). Fahrzeugbau – wie verändert sich die Wertschöpfungskette? München. URL: https://www.ifo.de/en/publikationen/2019/monograph-authorship/fahrzeugbau-wie-verandert-sich-die-wertschopfungskette
[11] DLR (2019). Studie Tankstelle der Zukunft. Mobilitätstrends 2040. URL: https://www.aral.de/con-tent/dam/aral/business-sites/de/global/retail/presse/pressemeldungen/2019/Aral_Studie_Tank-stelle_der_Zukunft_2019.pdf
[12] Grand View Research (2018). Internal Combustion Engine Market Size, Share & Trends Analysis Report 2018 – 2025. URL: https://www.grandviewresearch.com/industry-analysis/internal-combustion-engine-market
[13] Fraunhofer UMSICHT (2021). Leitprojekt „Verbrennungsmotor für die Mobilität der Zukunft“. URL: https://www.umsicht-suro.fraunhofer.de/content/dam/umsicht-suro/de/documents/Infomate-rial/Gr%C3%BCner%20Verbrenner_DE.pdf
[14] BMWI (2020). Die Nationale Wasserstoffstrategie. URL: https://www.bmwi.de/Redaktion/DE/Publikatio-nen/Energie/die-nationale-wasserstoffstrategie.html
[15] IW Köln (2018). Synthetische Energieträger – Perspektiven für die deutsche Wirtschaft und den internationalen Handel. URL: https://www.iwkoeln.de/studien/gutachten/beitrag/manuel-fritsch-thilo-schaefer-perspektiven-fuer-die-deutsche-wirtschaft-und-den-internationalen-handel.html
[16] Sinn H.W. (2019). Wie retten wir das Klima und wie nicht? ifo Institut. URL: https://www.hanswernersinn.de/de/video-vortrag-wie-retten-wir-das-klima-und-wie-nicht-16122019
[17] ifo Institut (2019). Zur Bepreisung von CO2-Emissionen – Ergebnisse aus dem Ökonomenpanel. URL: https://www.ifo.de/en/publikationen/2019/article-journal/zur-bepreisung-von-co2-emissionen-ergebnisse-aus-dem
[18] Peterson S., Rieckels W. (2020). Anhebung der EU-Klimaziele: Nach dem Spiel ist vor dem Spiel. IfW Kiel. URL: https://www.ifw-kiel.de/index.php?id=15569&L=1
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