Going green is what every everyone is talking about. In the market for cars, this debate is even more heated. The ‘driving green’ popularity has triggered a price growth in the green cars market. Fuel efficient cars are not the cheapest in the market anymore. Interestingly enough, during the last two years, the prices of cars labelled B through G has decreased, while the price of A labelled cars has increased.
Green driving has never been as popular as it is today. The drivers behind sales growth of green cars are plentiful.
First and foremost, today we care more about the environment than we did twenty years ago. A few months ago, the UK went 55 hours without burning coal, which is something that has not happened since before the Industrial Revolution. Portugal produced more renewable energy in March than what the country consumed in the same month. (Quartz, 2018)
Secondly, car buyers have become more aware that the long run cost of buying a green car is much lower. In fact the greener the car, the lower the variable costs.
As electricity is cheaper than petrol or diesel, for gasoline cars to catch up to electric vehicles, they would have to improve their fuel economy tremendously.
Not only variables are lower, but maintenance costs as well. As the engines are simpler and help brake the car in a much more efficient way, it saves on car braking.
Thirdly, government support for green driving has never been bigger. In the Netherlands, the government has been investing in the infrastructure of charging points and has made switching to driving green less costly through discounts and grants.
Popularity in green driving was followed by a spectacular price increase. The reason is quite simple: when demand pulls, price follows. And in case of green cars, their price boomed.
Figure 1 below shows that relative to the rest, fuel inefficient cars have always been the most expensive ones and the price gap increased even more after the financial crisis of 2008.
Figure 1: Price evolution of A through G type of cars sold in the Netherlands
The price increase in G-labelled cars could be explained from premium pricing for luxury cars. The market for these type of cars is more exclusive due to high prices. And as these cars are highly crisis inelastic, the price gap became a lot bigger after 2008.
Since 2015, the prices of B to G type of cars have decreased from 10 to 20%, and the only category which saw an increase was A, the most fuel efficient type.
The figure below shows the percentage increase between 2005 prices and 2018 prices of cars by energy type. The price of A-labelled energy type of cars almost doubled and next in line is the percentage increase are G-labelled energy type of cars. B- through F- labelled cars saw a relatively smaller price increase.
Figure 2: Percentage Change in prices of cars
Table 1 gives information about the average price of each energy label since 2005, its yearly price change and sales in July 2018.
Table 1: Statistics on energy labels
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