Seven Regulatory Mistakes

The roots of the current crisis can be traced to seven successive regulatory failures.

1. Beginning in the late 1990s, the European Union artificially favored diesel engines as the easiest way to reduce carbon dioxide emissions because they produced fewer greenhouse gases. Carmakers invested billions of euros in engines, factories and supply chains that later became a technological dead end. Had Brussels the market to play a greater role, manufacturers would likely have invested less in diesel technology and more in the early development of electric vehicles.

2. Brussels linked emissions targets to vehicle weight. Manufacturers of heavier vehicles were therefore granted more lenient limits, encouraging the production of SUVs, higher-performance models and more expensive vehicles, while the market share of lighter, more fuel-efficient cars steadily declined. This shift was the product of overregulation rather than normal market forces.

3. Overly complex and poorly designed regulations favored costly technical modifications. These costs could be absorbed far more easily in premium vehicles than in small, affordable models. As a result, lower-priced cars gradually disappeared from the European market.

4. For years, flaws in laboratory testing rules allowed manufacturers to report fuel consumption and emissions figures that were significantly lower than those recorded under real-world driving conditions. Brussels created the illusion of progress, while the genuine technological transition – including further advances in electric mobility – was delayed as policymakers became complacent.

5. The Dieselgate scandal in the middle of the last decade triggered a dramatic policy reversal that would not have occurred in a normally functioning market. The abrupt push toward rapid electrification reflected the failure of earlier policies. First, the EU encouraged automakers to invest heavily in diesel engines, then forced them to switch rapidly to electrification. Rather than correcting its earlier mistakes, Brussels replaced one flawed regulatory approach with another – one that proved even more damaging.

Dieselgate was one of the largest industrial scandals in automotive history. It came to light in September 2015, when the US Environmental Protection Agency (EPA) revealed that Volkswagen had deliberately cheated on diesel emissions tests. The company had installed special software, known as a defeat device, in its engine control systems.

6. The push toward electric mobility repeated earlier mistakes. Instead of encouraging affordable urban electric cars, the EU once again designed regulations that favored heavy electric SUVs with large batteries, high price tags and greater demand for raw materials.

7. The European Union tightened its climate targets before establishing domestic supply chains for batteries, raw materials and automotive software. As a result, European manufacturers have borne much of the cost of the transition, while China has captured key technologies and a significant share of the industry's added value.

Originally published on the author's personal website lukaskovanda.cz.