The IfW World Economy Institute Kiel has criticized the German government‘s Covid-19 stimulus package, saying some elements of it are “harmful.” A mid-August IfW analysis titled “Incentive boom thanks to Covid-19?” found that the “one-sided, massive incentivization of all-electric vehicles” is pushing other car markets to the sidelines. Its authors suggest eliminating EUR 4.4 billion from the stimulus package approved on June 3 “without replacing the funds with other incentives.”

The analysis specifically mentions the government’s support for all-electric vehicles, including higher economic incentives, vehicle replacement programs and bonuses for automakers‘ and suppliers‘ investment plans. One of the study’s authors, Claus-Friedrich Laaser, explained: “The government’s one-sided, massive incentivization of all-electric vehicles disadvantages other engine designs, even though the alternatives might turn out to be more beneficial. The bonus program merely subsidizes automakers and their suppliers. Other important industries are left to fend for themselves.”

The criticism was not meant as a broadside against the government’s climate action targets but zeroes in on how to achieve them, the IfW researchers said. Incentivizing individual technologies or measures is not conducive to efficiency, they noted. “A standard carbon price across all sectors would be much cheaper and much more to the point,” Laaser explained, adding that from an economist‘s point of view, incentives need to be disbursed entirely independent of the technology used.