“We need to get the pricing right”
Shift: One important aspect of the Paris climate agreement is the decarbonization of the transport sector by 2050. Is this actually possible?
Prof. Dr. Ottmar Edenhofer: It is, but it will be complicated and time-consuming. For example, with Germany’s current energy mix, which includes a high share of coal, e-mobility could even increase emissions. The same is true in China. E-mobility only makes sense if it is complemented by the full decarbonization of the power sector.
Shift: What are the quickest steps to get there?
Connie Hedegaard: I would say the two big things are getting the pricing right and not shying away from new regulation – of course, balanced regulation that considers what is technically possible. A third aspect is the behavioral side. There is something in the new business models – the new ways of getting access to individual mobility – that will help us. If we embrace this smartly, it can get us to where we need to be faster.
Edenhofer: We also need to think about reforming the whole tax system, because how we subsidize mineral oil and underprice carbon emissions in Europe is highly dysfunctional.
Shift: Could you explain that?
Edenhofer: The dramatic decline of the oil price was one important reason for high emissions from combustion in the transport sector. As long as the oil price is far too low, the evolution of e-mobility will be hard. Last but not least, we need to push innovation. When we think about smart regulation, we need to favor regulation with the highest potential to unlock innovation across sectors. Carbon pricing could steer technological progress in the right direction. This is important because innovation is the main driver for keeping costs low.
Hedegaard: Volkswagen is planning to introduce four sizes of electric cars ready by 2019 or 2020 – each at the same price as a comparable combustion engine car. I think that could be a game changer.
Shift: What else should carmakers do to support the transition?
Hedegaard: If you’re a company, why wait around to see what kind of regulation is coming? We will have better regulation in Europe if companies proactively come forward with innovative ideas about how we can solve the enormous task of decarbonization together. If the industry was outspoken about ending fossil fuels subsidies, consistent pricing of externalities, and real reform of the European Emissions Trading Scheme, I’m absolutely sure that would help correct the current market failures.
Shift: Up to now ….
Hedegaard: ….automobile associations have tended to stick to the lowest common denominator, so there is a trust issue among regulators. I would like to see Volkswagen really push the European Automobile Manufacturers’ Association – the ACEA – to be more proactive. And policy makers should stop referring to regulations as red tape. It is not red tape to have good standards with long time frames so that sectors know where they must be by when. I really think this can give a meaningful push to innovation.
Edenhofer: I couldn’t agree more. Many people perceive regulation or the push for a new transport system as a burden on society. To the contrary, when we reduce local air pollution and congestion and develop a more effective transport system with electric vehicles, this fundamentally enhances people’s welfare. If we really want to be leaders in this area, we should not be as defensive as we are in Germany. We should seize the opportunity to promote the next-generation transport system. And here I hope that companies like Volkswagen push and tell a more compelling narrative: that smart regulation can improve people’s well-being, not diminish it.
Shift: But don’t higher prices always lower public acceptance?
Edenhofer: Well, the more innovative the business sector is, the less price increases are necessary. And the better people understand what will happen with their money, the higher the social acceptance will be – even in low-income households. In British Columbia, for example, the government was able to foster public understanding and acceptance for a carbon tax by recycling the revenues to the people.
Shift: So, you tend to generally agree about the way forward.
Hedegaard: Yes. Now we just need Volkswagen to do it.