Umweltprämie Case Study

The financial crisis in 2007 resulted in a serious slump in the demand of goods in a number of markets. One of the affected markets - the car industry - suffered a remarkable loss caused namely by the diminished spending of personal households. As a consequence, eleven European governments established the so-called scrapping subsidies. These aimed to increase the demand for new cars by providing a single payment for private individuals after scrapping their old vehicle. From an ecological point of view, state agencies promised a decrease in the emission of vehicles. In particular, the German government through its “Umweltprämie” put a lot of effort into this subsidy program and allocated 5 billion euros for its citizens in order to support
The main objective of the scrapping subsidy in Germany was to stimulate demand which originally declined due to the financial crisis. Indeed, regarding the aim to increase the number of sales, the “Umweltprämie” was a huge success. Even the German Government was surprised by the influx of interested citizens and raised the total amount of the subsidy from 1.5 to 5 million euro. Moreover, the labour market in the car industry could successfully be stabilized. The short-term implications of this subsidy were an unequivocal success and exceeded most expectations. Regarding the long-term effects, however, the scrapping subsidy only deferred the low demand of 2009 to the following years, allowing critics the chance to characterize the whole incentive as election gift. In addition, the scrapping subsidy unintentionally opened the doors to foreign brands from Europe and especially Asia, which could achieve great profits by taking advantage of the growing market of compact cars. Nevertheless, when analysing the “Umweltprämie” in the long run, it seems doubtful that the subsidy has any bigger consequences in the decades after its implementation. It can reasonably be concluded as a net economic benefit for the year