Robert Habeck, Federal Minister for Economic Affairs and Climate Protection, talks to Oliver Zipse, Chairman of the Board of Management of BMW, during a tour at the factory in Munich (2022).

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Robert Habeck, Federal Minister for Economic Affairs and Climate Protection, talks to Oliver Zipse, Chairman of the Board of Management of BMW, during a tour at the factory in Munich (2022). © Tobias Hase

Automotive industry scores billions for their polluting hybrids from European recovery fund

European car manufacturers are some of the biggest beneficiaries of the European Recovery and Resilience Fund (RRF). These Brussels billions have been earmarked to accelerate the green transition. Problem is, part of these automotive investments could actually extend fossil fuel use, and with it, the stifling dependence on Russian gas and oil.

This article in 1 minute
  • With a total allocation of 109 billion euros, the European mobility sector is the biggest winner of the recovery investments. Some 23,1 billion is meant to be invested in road transport and the automotive industry.
  • France and Germany make use of the RRF in part for plug-in hybrid cars. Over the past two years, this has led to an unprecedented growth in the number of hybrids sold, while all real-world tests clearly show that they emit much more carbon dioxide than previously indicated. 
  • These investments help extend fossil fuel use, and thus possibly the dependence on Russian oil and gas. The European Commission is currently looking into whether the official test procedure for hybrids needs to be toughened.
  • Moreover, the #RecoveryFiles team found indications that the tendering process for these types of mobility projects is not always followed up properly.
  • The Recovery and Resilience Fund was set up to help Member States recover from the economic impact of the pandemic. National recovery plans coordinated with the European Commission set out how EU countries spend the funds and what reforms they suggest in return. A team of European journalists created and led by Follow the Money is searching for transparency under the title #RecoveryFiles.
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The European car lobby gathered quite an impressive delegation. The CEOs of Fiat Chrysler, Jaguar Land Rover, Scania AB, Volkswagen and other car manufacturers came together for an online meeting that they hoped would contribute to the sector’s revival in the quiet months of the first lockdown.

Due to the health measures, they were in an acute state of emergency. The closing of plants resulted in a production loss of 2,4 million vehicles. The most important EU markets were down by more than 95 percent, according to the European Automobile Manufacturers’ Association (ACEA). ‘A near-total collapse’, states Eric-Mark Huitema, ACEA Director General.

Luckily for Huitema and his colleagues, they had an influential audience to hear them out: European Commissioner of Internal Market Thierry Breton and European Commissioner Frans Timmermans, leader of the Green Deal.

At that time Brussels was only weeks away from presenting a never-before-seen European stimulus package: a 723.8 billion euros Recovery and Resilience Fund (RRF). With money borrowed from the financial markets, the European Commission hoped to pull Europe through the health crisis, all while ensuring that Member States would invest in a green and digital future.

In doing so, the captains of industry were more than motivated on that spring day in May 2020 to convey their message to the European Commission: they hoped for financial support measures, so that they could reopen their production plants and people could keep their jobs.

The #RecoveryFiles

This is the third English-language article Follow the Money is publishing as part of the #RecoveryFiles, a pan-European investigative project into the European Covid-19 recovery fund made possible in part by the IJ4EU fund. For this investigation, Follow the Money joined forces with journalists across Europe; you can read the first story here.

Meet the team:

  • Gabi Horn, Átlátszó (Hungary)
  • Attila Bíró, Context Investigative Reporting Project (Romania)
  • Staffan Dahllöf, DEO.dk (Denmark / Sweden)
  • Petr Vodsedalek, Deník (Czech Republic)
  • Remy Koens, Follow the Money (The Netherlands)
  • Peter Teffer, Follow the Money (The Netherlands)
  • Lise Witteman, Follow the Money (The Netherlands / Brussels)
  • Marcos García Reyfreelance (Spain)
  • Jarno Liski, Iltalehti (Finland)
  • Giulio Rubino, Irpimedia (Italy)
  • Marie Charrel, Le Monde (France)
  • Adrien Sénécat, Le Monde (France)
  • Piotr Maciej Kaczyński, Onet.pl (Poland)
  • Ante Pavić, Oštro (Croatia)
  • Matej Zwitter, Oštro (Slovenia)
  • Hans-Martin Tillack, Die Welt (Germany)
  • Ben Weiser, ZackZack (Austria)
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Going green

In return for financial support, car manufacturers promised exactly what policymakers in Brussels have been hoping to hear for years: to make the European vehicle fleet greener. As Sigrid de Vries, Secretary General of the European Association of Automotive Suppliers (CLEPA), put it, ‘A win-win solution that addresses the pressing ecological, industrial and broader needs of society.’

Until then, the automotive industry was not enthusiastic about going green, which was quite obvious at the climate summit in Glasgow, in November 2021. Major car companies such as Volkswagen, Stellantis, Renault and BMW made it clear that they would still sell cars that run on fossil fuel until 2040. BMW complained in the Financial Times that there was still too much uncertainty regarding ‘the development of global infrastructure to support a ​​complete shift to zero-emission vehicles’.

The European Commission considers hybrids to be ‘a substantial contribution to climate change’

In reality, the car industry lobby prefers sticking to old-fashioned combustion engines. ‘Tech neutrality’ and ‘alternative fuels’ are two terms that have been consistently thrown around to ensure that not only fully electric vehicles would be subsidised and catered to but also existing combustion engines that are cheaper to produce.

For instance, the industry promotes plug-in hybrid cars as a ‘green solution’ because they can run on both petrol and electricity. Drivers can opt for driving green as well as fall back on fossil fuels or experimental ‘synthetic fuels’. According to the industry, this hybrid technique helps with the smooth transition to a new green era.

In the hectic year of 2020, when the RRF was created, Brussels adopted this narrative. According to an estimate made by Germany’s Wuppertal Institute and others, the European mobility sector can count on 109 billion euros in support, making it the biggest winner of the recovery investments.

Road transport and the automotive industry, including hybrid vehicles, get 23,1 billion euros of that funding because the European Commission considers hybrids to be ‘a substantial contribution to climate change’.

Loophole in the methodology

Not everyone is pleased with this situation. Environmental organisations had criticism right from the start of the RRF. According to Julia Poliscanova of non-profit organisation Transport & Environment that advocates for cleaner mobility, European policymakers were following an old standard that had proven doubtful, to say the least.

‘In 2014 the European Commission introduced a method of testing and certifying these types of [hybrid] vehicles. Back then there wasn’t any evidence on how these vehicles performed in the real world,’ she recalls. ‘But by 2020, there was more and more proof that in reality, hybrid vehicles didn’t live up to the promises on which the regulations were based. A big part of the problem was the way in which they were built: the electric part is quite weak and cannot produce enough power for dynamic driving or longer distances for commuting, for example. In fact, hybrid cars often get their power from the combustion engine.’

Germany MEP Damian Boeselager (Volt) was already involved in the negotiations about the RRF in 2020, stating that he was hoping that it would prepare the European Union for the future. However, he believes that promoting hybrid vehicles is contrary to that goal. Boeselager considers subsidies on those types of cars as a ‘obsolete investment’.

He points out that even before the corona crisis there were already enough indications that hybrid cars could not make a significant difference to the environment. In November 2018 an investigation from the BBC revealed that many corporate drivers had never even unwrapped their charging cables. Two years later, in September 2020, the International Council on Clean Transportation (ICCT) published similar research, concluding that based on actual emissions, the environmental effects of hybrid cars are much more comparable to conventional cars than with full on electric cars.

In the new 5,4 billion euros plan for ‘climate-friendly mobility’, only 227 million euros is earmarked for the rail industry

Nevertheless, the attempts by Boeselager and the Greens to exclude hybrid cars from the ‘green investments’ of the RRF failed. ‘We explicitly did not put these vehicles on the list of investments that the Commission would find eligible to be labelled as green’, said the Volt MEP, still frustrated about the course of events. ‘The Council and the Commission used a loophole in the methodology of that list because there was space left for innovative techniques that we might not have thought of. And then they assumed – against their better judgment – that we forgot about hybrid cars.’

The result of this ‘fuck up’ (quoting Boeselager) can be seen in the recovery plans of the two most powerful EU Member States, which also happen to have a huge automotive industry. The German plan is largely a repackaging of a previous stimulus package of former Chancellor Angela Merkel’s government. At the time, the Minister-President of Bavaria Markus Söder called it ‘a big car package’.

In the new 5,4 billion euros plan for ‘climate-friendly mobility’, only 227 million euros is earmarked for the rail industry. The rest goes to the automotive sector, including up to 1,1 billion in subsidies for buyers of plug-in hybrids.

Ecological bonus

In May 2020, the French government had already allocated 8 billion euros to its own recovery plan for the national automotive sector. When the RRF was adopted a few months later, the government transferred a number of these European recovery measures into its 100 billion national recovery plan ‘France Relance’ (Restart France). Sustainable vehicles were to be financed using recovery funds from Brussels. The French plan was officially approved by the European Commission in June 2021.

France invested 1,3 billion euros in a so-called ‘ecological bonus’ for cars, of which 885 million came from the European Union (68 percent). Thanks to this bonus, car buyers in 2020 could receive up to 7000 euros towards the purchase of a new electric auto (currently: 6000 euros) and up to 2000 euros for the purchase of a plug-in hybrid (currently 1000 euros). Furthermore, the RRF is also financing 100 percent of the ‘greening’ of the French public transportation system (155 million euros), including hybrids.

These measures resulted in a spectacular increase in the sales of electric cars in France: 300 percent in 2020 and another plus 85 percent in 2021. In 2021 more than 315,000 new electric and hybrid cars were registered. According to the ACEA, that year (semi) electric cars outsold diesel cars for the first time in Europe.

While the Brussels billions are heavily stimulating controversial car sales, the European Commission has actually started changing its policies. Following the disturbing reports about the lack of effect these cars have on reducing greenhouse gas emissions, Europe wants to toughen the methods for calculating car emissions, claims Reuters. Car manufacturers would then have to sell more electric vehicles in order to meet emission targets and avoid hefty fines.

Financing the invasion

Outside of Brussels not everyone is happy about the push for a hybrid fleet. The Netherlands barely has an automotive industry but does have many drivers of French and German cars. The country would prefer to move more quickly to fully electric cars as this would lower its greenhouse gas emissions. Belgium, Ireland and Denmark also have plans to vote on reducing support for hybrids.

Julia Poliscanova of Transport & Environment says it’s great that the European Commission is adjusting its course. ‘But the current Commission text would only act in late 2020s so it will take years until the policy is actually changed. That’s too late. They are solving the problem when the problem is over, and when fully electric vehicles will have taken over anyway. It is now that car makers are pushing for hybrids to be sold.'

‘This is public money that also could have gone to the hospitality industry that suffered greatly during the health crisis’

Poliscanova feels that by allowing RRF money to be spent on hybrids, citizens will lose their trust in Brussels: these cars contribute to Europe’s dependence on Russian gas and oil, while these investments help Russia fund the invasion of Ukraine.

‘This is public money that also could have gone to the hospitality industry that suffered greatly during the health crisis, for instance. Instead, it’s spent in part on cars that actually still produce a lot of greenhouse gas emissions, financing Putin’s aggression. This could cause a backlash,’ adds Poliscanova.

Risks

Nevertheless, the RRF is stimulating the transition to fully electric vehicles in many Member States. Billions are reserved for a charging station infrastructure as well as developing and selling electric cars, which is also very welcome according to Boeselager. The Polish former Minister of Environment Marcin Korolec even warns that the shift towards greener cars in Western Europe will mean more second-hand cars with combustion motors being sold in Eastern Europe. 

At the same time, the large cash flows in many Member States still need to get going, with actual results to appear in the upcoming years. For some countries, drafting shiny new plans is one thing, but carrying them out is another kettle of fish.

Romania plans to invest 580 million euros in new electric vehicles for public transport and another 165 million for charging stations

For instance, Romania plans to invest 580 million euros in new electric vehicles for public transport and another 165 million for charging stations. However, this rather poor country has a badly functioning government and is infamous for its low absorption rate of European money. Recent figures show that about only half of the available EU funds are actually spent. For example, of the 9 billion euros allocated in 2014-2020 for infrastructure investments, only 4,2 billion was spent. Romania is also in the top 5 countries that defraud the EU the most.

Not only Eastern Europe has problems. Spanish Prime Minister Pedro Sánchez announced in April 2021 that 13,2 billion euros from the RRF would be spent on the automotive sector. ‘The goal is to create the necessary ecosystem in Spain to develop and produce electric vehicles and turn our country into the European electromobility hub,’ he said. But while the formal implementation of the subsidies has just started, some of the tendering processes have already caused some controversy.

Scandal

On 7 March 2021 Sánchez penned an article in El País newspaper in which he announced the creation of a public-private consortium for a battery factory (PERTE) with Volkswagen Group and Iberdrola. Three days earlier, the Spanish Minister of Industry, Trade and Tourism Reyes Maroto, had made the same public announcement. But these announcements seem to be in conflict with Spanish and European rules for public procurement. In fact, the tendering process for the recovery projects were published in Spain’s Official Gazette in December 2021, nine months after Sánchez announced the names of the beneficiaries.

Liberal MEP Luis Garicano calls it a scandal. ‘You can’t arbitrarily award a project like this. I don’t believe it’s right and I think that it’s not in accordance with EU rules,’ he said to the reporters of the #RecoveryFiles. 

A spokesperson of the Ministry of Industry, responsible for implementing the plan, claimed that the money ‘will always be awarded on a competitive basis’. ‘Anyone who has a plan can present it, including the Volkswagen and Iberdrola consortium,’ they added.

It is unclear whether the European Commission knew about this questionable turn of events when the Spanish plan was being assessed. A Commission spokesperson did not address this specific question and did not want to say if the Commission had debated this internally.

The #RecoveryFiles team plans to keep an eye on whether Spain will keep its promises as well as closely follow all other RRF beneficiaries.

The #RecoveryFiles investigation is supported by the IJ4EU fund.