The Bonus-Malus System: An Economic Tool for Decarbonizing the Automotive Sector

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By Rodrigo Baranna, consultant

The 2018 review of the program bonus/penalty A study of the automotive market in France revealed that the Overall, the mechanism remains profitable for the French government. Although public spending on the bonus for the purchase of low-CO2-emission cars and the trade-in incentive reached record levels, revenue from penalties on higher-emission cars supported the upward trend. Thus, while bonus expenditures totaled 550 million euros, Revenue from penalties exceeded them by 8.9 million euros, for a total of 558.9 million euros ^[1]. On the expenditure side, The conversion incentive for electric cars had been reduced from 4,000€ to 2,500€^[2] and the eco-bonus limited to cars emitting up to 20 gCO2/km^[3]. In the previous year, cars emitting between 21 and 60 gCO2/km were also eligible for a bonus, although this bonus was smaller (€1,000) than that for 100% electric vehicles (€6,000) ^[4].

However, these two changes did not prevent the total amount paid by the government from increasing in 2018. In return, the conversion incentives were extended to all households (they had been limited to non-taxable households in 2017) and to used cars. In addition, the incentives for new internal-combustion-engine cars were increased, rising from up to €1,000 in 2017 to up to €2,000 in 2018. ^[2]. On the revenue side, the tiered penalty system based on emissions had been maintained. However, instead of starting at 50€ for cars emitting 127 gCO2/km as in 2017, the penalty started at €50 for an emissions level of 120 gCO2/km in 2018, which meant that a larger number of models were affected. Another change involved the penalty cap, which rose from 10,000€ to 10,500€ ^[5][6].

Decarbonizing road transportation is one of the key drivers of France's energy and ecological transition. The fact that this program continues to be profitable may indicate that the The incentives aren't attractive enough to encourage the purchase of cars with lower emissions and/or those that Penalties are not a strong enough deterrent for the purchase of vehicles with high fuel consumption. The popularity of SUVs (nearly 40% of new car sales in France in 2018) tends to support this latter hypothesis, unfortunately. Given that buyers still consider low-CO2-emission technologies to be too expensive compared to internal combustion engine vehicles (which is debatable from a purely rational TCO analysis perspective), The development of this tool is essential to creating momentum that will facilitate the adoption of these technologies in the French market. For the year 2019, some New rules are in effect, following decisions made primarily in response to the Yellow Vests movement. The penalties now apply starting at an emissions level of 117 gCO2/km. In return, the values were revised downward, and in most cases, for the same emission level, The penalty is lower in 2019 than in 2018 ^[7].

As for conversion incentives, new cases are expected, and they can be as high as 5,000€ for lower-income households or frequent drivers. The eco-bonus remains unchanged. ^[8]. Will these new criteria and values allow the system to find its balance? And more importantly, will this mechanism be able to set the French automotive sector on a decarbonization path compatible with the Paris Agreement? We will certainly have the opportunity to discuss this further. Article written by Rodrigo Baranna – Consultant

Sources: ^[1]Motor Legend^[2]Auto Plus^[3]FFB^[4]Le Figaro^[5]The Argus^[6]Auto Plus^[7]Law and Finance^[8]Ministry of Ecological and Solidarity Transition