Abstract The EU CO₂ fleet regulation is a key instrument for decarbonising transport and aims to fully electrify the automotive sector in the long term. Economically, it acts like a Pigou tax, but it has weaknesses: electric vehicles are considered emission-free regardless of the electricity mix, which obscures real emissions. In addition, pooling allows manufacturers to jointly meet limits, which weakens investment incentives for domestic manufacturers and favours foreign competitors. Recent relaxations have spared German manufacturers billions in fines, but also undermine the credibility of the regulation. From an economic perspective, a reliable, cross-sector CO₂ price, as envisaged in the EU Emissions Trading System for Buildings and Transport (ETS 2), appears more efficient than complex individual regulations.
Dertwinkel-Kalt et al. (Sun,) studied this question.