Technology-neutral vs Technology-specific Policies in Climate Regulation

This paper discusses the question of technology neutrality versus technology specificity in environmental and climate regulation using the example of the European CO₂ standards for cars. 

Critics of the CO₂ limits complain that they are not sufficiently technology-neutral, thereby restricting abatement options, limiting flexibility for vehicle manufacturers, and leading to unnecessary costs. They advocate for the new European Emissions Trading System 2 (ETS 2) to serve as the primary instrument for climate protection in the transport sector. Conversely, advocates of technology-specific policy instruments emphasise that progress can only be achieved quickly enough and path dependencies be overcome through targeted support measures, eventually bringing about lower overall costs in the long term.

The paper addresses the debate from an economic perspective. It begins by briefly laying the conceptual foundations and outlining the arguments in favour of a policy approach that is as technology-neutral as possible. Then it examines the shortcomings of carbon pricing as a stand-alone technology-neutral climate policy and presents the economic rationale for technology-specific interventions in the road transport sector. Furthermore, it reflects discussions of CO₂ pricing versus CO₂ standards from a political-economic perspective and gives a very brief assessment of the CO₂ fleet limits in the context of European green industrial policy (Clean Industrial Deal). Finally, it delves into the debate on further developing the regulatory framework, evaluating some of the most prominent proposals for the vehicle regulation’s future.

In conclusion, a well-rounded policy mix, including targeted technology-specific interventions, is indispensable for ensuring both environmental effectiveness and economic efficiency in the transition to zero-emission mobility, while carbon pricing – e.g. via the ETS 2 – remains an essential policy tool for decarbonisation. Instruments such as strategic R&D support, infrastructure investments, and improved information policies are needed to address market imperfections. Within this policy mix, the EU’s CO₂ standards for cars are a key instrument, crucial for driving the innovation required to meet Europe’s climate and competitiveness goals.

Relaxing these standards to ease transformational pressure would be like a 'sweet poison,' seemingly beneficial to the automotive industry in the short term but ultimately harmful, as it would not only undermine Europe's climate objectives but also jeopardise its long-term economic prosperity, leaving the industry vulnerable in an increasingly green global economy.

An executive summary served as a stimulus for the discussions at a conference organised by SDA Bocconi School of Management in cooperation with the think tanks ECCO and Agora Verkehrswende on 16 October 2024 in Milan.