Why has the introduction of natural gas vehicles failed in Germany?—Lessons on the role of market failure in markets for alternative fuel vehicles

• Published in: Energy policy 2015-03, Vol.78, p.91-101
• Main Authors: von Rosenstiel, Dirk Peters, Heuermann, Daniel F., Hüsig, Stefan
• Format: Article
• Language: English
• Subjects: Alternative energy sources; Alternative fuel vehicles; Alternative fuels; Energy market; Energy policy; Eurocurrency market; Failure; Germany; Investments; Market failure; Market share; Market shares; Marketing; Markets; Monopoly; Natural gas; Natural gas industry; Natural gas vehicles; Panels; Public policy; Studies; Tax credits; Tax incentives; Vehicles; Western Europe
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2014.12.022

Despite private investments exceeding two billion Euros and tax incentives of more than 500 million Euros, the market share of natural gas vehicles (NGVs) in Germany has lagged far behind expectations and behind market developments in other countries. With total cost of ownership being on average lower for NGVs than for gasoline and diesel vehicles this raises the question of the existence of market failure in the German NGV-market. We use a case study approach where we combine quantitative data with insights from a multi-industry expert panel and in-depth interviews with experts from industry, government and civil society in order to examine whether and how different types of market failure contribute to the status quo in the German market for NGVs. We conclude that coordination failure in complementary markets, an artificially created monopoly of service stations at motorways, imperfect information, bounded consumer rationality, and principle-agent-problems are the most prominent market failures inhibiting the development of a functioning market for NGVs. Our results are instructive for the design of effective public policies and investor strategies aiming to create markets for alternative fuel vehicles. •We analyze market failure in the German market for natural gas vehicles.•Coordination failure is the most important reason for market failure to arise.•Minor factors: regulatory deficits, imperfect information, bounded rationality.•Policies encompass stabilizing expectations and supporting actor coordination.•Our results are instructive for policies and investor strategies in AFV-markets.