The West is waking up to the true cost of net zero

Striking United Auto Workers (UAW) march in front of the Stellantis Mopar facility in Ontario, California
Striking United Auto Workers (UAW) march in front of the Stellantis Mopar facility in Ontario, California

Brits or Europeans might not have taken note of the ongoing strike by United Auto Workers (UAW), nor of the fact that Donald Trump chose to host them at a rally in Michigan instead of participating in the GOP primary debate – just a day after President Joe Biden had joined the workers on the picket line near Detroit.

Yet, the strike’s relevance lies not only in Michigan’s central place in America’s complicated electoral politics. It is also a harbinger of political battles as the Western world, and Europe in particular, transition to electric mobility.

Most importantly, it is yet another warning to Europe that an overly ambitious green agenda can have unintended consequences, especially given the extraordinary size of its car industry.

Today, automobile manufacturing, an industry with a total revenue of over €500 billion last year, accounts for roughly 5 percent of Germany’s GDP and 7 percent of its workforce – or some 800 thousand workers. The numbers are even higher in neighbouring countries that are connected to Germany’s industrial base – in Slovakia, half of all industrial production is car-related.

Two things can be true simultaneously. One, the transition to electric cars is unavoidable and desirable, on economic, technological, and environmental grounds. Two –  and this is where errors have been made – the transition must be gradual and efforts to accelerate it with heavy-handed policies, by penalising ownership of conventional cars or by tilting the balance in favour of electric car manufacturing with subsidies or costly emissions standards, can backfire.

In most European countries, the total cost of ownership of electric vehicles is already at par, if not lower, than that of conventional cars. Yet, as has been widely reported, that does not mean that owning an electric car is the more economical choice for everyone – one needs to drive enough miles for the savings on petrol or diesel to justify the higher purchase price. Moreover, cars are among the most expensive durable goods that households buy, and their median price has gone up by 40 percent since 2020 according to Fitch Ratings – far outpacing inflation at large.

This development goes hand in hand with a pressure to get petrol- and diesel-fuelled cars out of cities and make their future manufacturing impossible through ever more stringent emissions standards. The EU (and the UK) intends to cut carbon emissions from new cars to zero by 2035 and apply strict ‘Euro 7’ standards from 2025 onwards, the costs of which will be passed on to final customers.

With the Alternative for Germany polling in the twenties and taking frequent jabs at elite environmentalism, it does not take much imagination to see that the ‘gilets jaunes’ in France were just a taster of what is to come if political elites are seen as forcing more expensive (electric cars) or less convenient (mass transit) solutions on reluctant electorates.

European politicians are slowly waking up to the threat – earlier this week, the European Commission’s president Ursula von der Leyen embraced a compromise version of the ‘Euro 7’ standards which was negotiated on the back of a backlash from a number of EU governments. In Britain, too, Rishi Sunak has just announced policy changes designed to alleviate the potential damage, and unpopularity, of net zero policies.

Yet, these do not address the more serious potential impact environmental policies: employment losses and deindustrialisation. Over in Michigan, one of UAW’s demands involves stronger job security, driven by fears of massive lay-offs as the industry moves away from mechanically complicated internal combustion engines to electric cars, which require (according to Ford’s CEO) 40 percent less labour to produce.

China’s lead in the battery market complicates the situation further. With subsidies from the Inflation Reduction Act in the United States and similar policies in the EU, perhaps the gap can be narrowed – but doing so will not be a free lunch for the taxpayer. Furthermore, given the already existing ties of particularly German auto manufacturers to China – both selling to the Chinese market and producing cars there – the path of least resistance for European car makers is to deepen those linkages rather than build independent battery producing capacities inside the EU, especially if policymakers are urging for a fast adoption of electric vehicles.

And why the rush? Electric cars are no cleaner than the underlying energy infrastructure that they rely on. As of now, Germany generates more power from natural gas, lignite, and hard coal combined than it does from renewables. Widespread adoption of electric vehicles is bound to place further demands on the grid, which policymakers should better be confident can be covered by clean sources for the transition to make environmental sense.

The nervousness in Brussels and Berlin as well as the UK government’s delay of the looming ban on new petrol and diesel cars are good signs, but they do not go quite far enough. What is still needed is a clear articulation of the trade-offs involved in the green transition – especially in light of the economic and geopolitical challenges facing the West – and a sensible, prudent strategy that can keep voters on board. Thus far, neither has been delivered.

Dalibor Rohac is a senior fellow at the American Enterprise Institute 

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