Chancellor Angela Merkel's cabinet agreed Wednesday to set aside some 600 million euros ($675 million) of taxpayers' money to encourage people to buy electric cars - via an "environmental bonus." The costs of the scheme will be shared with the auto industry, which is also putting up 600 million euros.

New car-buyers stand to get a 4,000-euro ($4,500) subsidy if they buy a purely electric car, and 3,000 euros if they opt for a hybrid car, which combines a battery and a small combustion engine. Not only that, electric cars will be exempt from motor vehicle taxes for 10 years.

Economy Minister Sigmar Gabriel sold the scheme as vital to Germany's industrial future, arguing that electric cars will be key to maintaining Germany's leading position in the European auto industry.

"The growing demand will trigger important and necessary investment along the entire supply chain of electromobility," Gabriel said. The auto industry is considered vital to Germany's economy, representing some 775,000 jobs and some 400 billion euros a year in turnover.

Electric cars will be exempt from tax for 10 years

Ambitious aims

The government is hoping that between 300,000 and 500,000 new electric cars will take to the streets of Germany thanks to the new scheme - a massive increase on the 25,500 e-vehicles (plus 130,000 hybrids) currently registered in the country.

The official aim of the Transport Ministry is to get a million electric cars onto Germany's streets by 2020, and on its website, the ministry confidently predicts that "in 40 years urban traffic will virtually be able to avoid fossil fuels altogether."

The German Association of the Automotive Industry (VDA) was predictably delighted at the public cash being injected into its newest sector. "The government has made a strategically important decision for Germany as a place of innovation," said VDA President Matthias Wissmann in a statement. "This starting impulse is important as long as the electric car is more expensive than a conventional car because of the high battery costs."

Details to be ironed out

But there are still a few of bumps on the road. For one thing, the government can't yet say exactly when the scheme can begin, because the European Commission has to assess whether the subsidy represents an illegal distortion of the market.

The bonus - which customers will apply for on an online portal managed by the Federal Office of Economic Affairs - will be paid out on a first-come-first-served basis until the pot runs dry, though it is limited to June 30, 2019 at the latest. Also, buyers must keep the cars for at least nine months after purchase, and luxury electric cars (defined as those with a list price of over 60,000 euros) are exempt from the deal.

On top of the bonus cash, the government is also investing 300 million euros to build a network of 15,000 new charging stations across the country.

Bad idea?

But the plan was criticized almost as soon as it was proposed - chiefly by environmentalists, economists and the German Taxpayers Federation (BdSt). "The state is already massively funding electromobility, through various measures," said BdSt President Reiner Holznagel, pointing especially to the tax break for electric cars and the increase and the building of new charging stations.

"To add a price bonus on top of that is going too far if you ask me," he told DW. "There needs to be more clarity in the discussion. The impression is being given that the state isn't doing anything, but it's already doing a lot."

Holznagel calls the 10-year car tax break in itself a "sensible" incentive. "Especially because the state keeps out of anything to do with the actual car," he said. "When the state mixes itself up in price issues then it putting some businesses at a disadvantage. For me, a direct subsidy is difficult but an indirect subsidy is suitable - but we already have enough of those."

But who's got a better one?

The Green party's deputy leader Oliver Krischer has nothing against the bonus itself, but doesn't see why it should be financed by the taxpayer at all. "It'd be right if the drivers of over-motorized gas-guzzlers paid the bonus," he told German news agency dpa.

The government is also planning to expand Germany's network of charging stations

Holznagel agrees that it's not fair that taxpayers are being asked to contribute. "For me, it's an example of when politicians aren't really clear on how to proceed," he said. "The fact is that the auto industry is making record revenues despite various scandals. And that's why it's up to the auto industry to think of what the future is going to be like."

That view was shared by Christoph Schmidt, head of the economic research institute RWI Essen. "Really, it should be up to the auto industry to make customers better offers," he told Reuters.

Holznagel believes the government should confine itself to creating the right "conditions" to promote the electric car industry - for example, by regulating how much CO2 cars are allowed to produce.

"I think if the auto industry knew that from a certain time it wouldn't be allowed to sell certain engines, then it would invest more in electromobility research," he said. "But at the moment it's like having a parallel society - on the one hand they're investing 600 million euros in these price bonuses and on the other they're making massive profits on selling SUVs."